The Bank of England have once again increased interest rates to 5.25%. This is the 14th consecutive increase and it takes the BOE’s bank base rate to its highest level in 15 years. 

Commenting on the increase, Ben Beadle, Chief Executive of the National Residential Landlords Association, said: “Today’s rate rise will pile yet more pressure on to renters and landlords. 

“The Bank of England has warned that the average increase in monthly repayments on buy-to-let mortgages by the end of 2025 will be around £275. This comes as some landlords have already seen their mortgage payments increase by almost 240% since December 2021. 

“With landlord profits at their lowest level for 16 years, the vast majority are doing all they can to protect tenants from the impact of growing mortgage rates. However, without Government action, renters face a bleak future as growing costs lead to a loss of more rental homes from the market. 

“Analysis for the NRLA has found that 735,000 rental properties could be lost across the UK if interest rates peaked at 5%. With an average of 20 requests to view each available home to rent already, today’s announcement will only worsen matters. 

“The Government must urgently scrap tax changes which have dampened the supply of much-needed private rented accommodation. Likewise, it is also crucial that housing benefit rates are unfrozen so that vulnerable tenants receive assistance during this challenging period for the market.” 

James Richard Sproule, Chief Economist UK at Handelsbanken gave his opinion on the increase but that there could still be one final increase in bank rate within a month or so. 

“We now expect a further interest rate rise of 25bp in September to 5.5%,” he said, “which we are forecasting will be the peak of this interest rate cycle (market consensus is that the peak will be 5.75%). We are forecasting gradual easing in 25bp steps from mid-summer 2024. 

“Through early to mid-July market consensus had been for UK interest rates to peak above 6% in this cycle, with some stressed scenarios seeing rates potentially rising to 7%. Economist forecasts have been generally more restrained and due to the most recent inflation figures (CPI inflation fell by more than expected from 8.7% to 7.9% in June, still well above its 2% target), market fears of more substantial hikes have eased. 

“The BoE expects inflation to fall to 5% by year end, driven by lower energy and moderating food and goods costs, but services prices inflation is presently over 7% and is expected to remain elevated throughout the remainder of this year. We concur with the Bank's view and we expect inflation will continue to fall over the coming 12 months, but we anticipate inflation will prove stickier than anticipated once it falls to around 3%, the result of this is that we expect nominal interest rates to remain above 3% through to 2026.

“The impact of today's rate rise must also be reassessed. With 62% of UK mortgages fixed for five years or more, the monetary policy transmission mechanism to the wider economy, traditionally around a year, is taking ever more time to be felt (the Bank is in the process of reviewing this). Even for businesses, where variable interest rate loans are far more common, reassessing business plans and measuring the responses from suppliers, customers and competitors takes time. The result is while people are saving in anticipation of higher debt servicing costs, the biggest impact is on house sales where higher borrowing costs must be immediately factored into any purchase. 

“Our house price forecast remains that we will see a nominal fall of approximately 8% peak-to-trough (here inflation will be helping us, as the real terms fall in house prices will be in the order of 20%), but the number of house price sales we estimate will decline by 40% from peak to trough.”