Last week, the Bank of England’s decided to increase the base rate to 0.75%, up from 0.50%.

Iain McKenzie, CEO at the Guild of Property Professionals, says: “The country is in the midst of a cost of living crisis, with the price of household bills and essential goods rising across the board. The Bank of England has increased interest rates to pre-pandemic levels in a bid to get inflation under control. This will come as unwelcome news to millions of people on tracker mortgages or variable rates that will feel another squeeze on their finances. 

“Those on fixed-rate mortgages are safe for now, but consumers should keep an eye on interest rates in case their deal is up for renewal soon. Our research indicates that about 1.5m fixed-rate mortgages are expected to end this year and next.

“All the latest figures continue to show that house prices are climbing across the UK, with strong demand in many areas driving this upward trend. Prices have increased 20% since the start of the pandemic and the industry has been expecting a readjustment for a while.

“It remains to be seen whether another interest rate rise will dampen the demand for properties and deter first-time buyers worried about mortgage payments. Prospective buyers will need to find a way of balancing their finances to afford the rising cost of living, if house price growth doesn’t cool down enough for their budget.”

Nicky Stevenson, managing director at national estate agent group Fine & Country, says: “Lenders won’t be slow in passing on this interest rate hike to customers and there will be a certain level of frustration among buyers given the challenges that many already face. The current cost of living squeeze together with looming tax rises mean that affordability pressures have never been greater. And because the supply of housing stock is currently rock bottom, the Bank of England’s decision is unlikely to make a dent on house price growth which continues to break all records.

“Looking ahead, households can insulate themselves against future interest rate hikes by agreeing cheap mortgage deals now. But borrowers need to act fast if they want to secure cheaper lending because the deals currently on offer are changing at the speed of light.”

Matt Staton, head of lettings at Berkshire Hathaway HomeServices, comments on how the interest rate decision will affect rentals: “You’d expect with rising interest rates, and all the disruption of the past few years, growth in the housing market would stall - but it continues to thrive against the odds. Although, we expect to see new trends emerge as economic conditions take hold in households across the country. As budgets tighten, and with increased interest rates, this may result in a tilt towards rentals – as some aspiring homeowners put buying plans on ice and opt for longer tenancies.   

“With rising energy bills front of mind, renters are also likely to be more considered about their choice of property, which could see a surge in demand for more energy efficient homes and lower bills. As we navigate new economic headwinds, the real estate sector will need to brace itself for a choppy period. But even so, we expect the market to remain resilient and buoyant in the months ahead.” 

Douglas Grant, Group CEO at Manx Financial Group PLC, says that the BoE interest rate rise was inevitable, adding: “We believe that demand for working capital is set to soar to unprecedented levels as more businesses desperately require liquidity provisions to counteract supply chain issues, increasing wage inflation and additional pandemic-induced headwinds. With the cost of borrowing set to increase, many SMEs are struggling as we close the first quarter of 2022 and will continue to be challenged this year. The rate hike will disproportionately affect small businesses reliant on funding in their early stages of growth, exacerbating the UK SME debt burden.” 

Giles Coghlan, chief analyst at HYCM, adds: “The Bank of England (BoE) has found itself caught between a rock and a hard place. The markets had largely priced in this dovish interest rate hike, which marks the third consecutive increase from BoE policymakers and has lifted the base rate to its pre-pandemic level. That said, the move has also come accompanied by some significant concerns about the state of the wider economy. Undoubtedly, Russia’s invasion of Ukraine is driving the larger inflation narrative – the conflict has exacerbated energy price spikes and is weighing heavily on the outlook for GDP growth. In Whitehall, there are even whisperings that the dreaded ‘R’ word might be on the cards. 

“While the prospect of stagflation is more likely, the central bank now recognises that modest tightening may still be set to come in further months, albeit with the risk of slowing growth by hiking too quickly. With markets pricing in six hikes in total this year, this decision might give the BoE some room for pause so that it can place more emphasis on this deteriorating growth backdrop.”