Interest rate hike ‘could affect housing market’, expert says

Some 85,000 mortgage holders in Northern Ireland will see their annual payments increase, some by £200 or more, following the Bank of England’s decision to raise its base interest rate to 1.25%.

but three of the nine members of the Monetary Policy Committee (MPC) who decided to raise the rate wanted a much sharper increase to combat soaring inflation, which the bank predicts will reach 11% before the end of the year. Further increase is expected.

Approximately 85,000 of the region’s 236,000 mortgage holders have variable or tracked mortgages. The average start-up loan today is close to £150,000, meaning those who have just signed up will be paying £18 a month or £226 more a year almost immediately.

Michael McCord, lead researcher at the University of Ulster House Price Index, has warned that the perfect storm is forming for a correction by the end of the year. House prices rose 10% year on year, according to the Northern Ireland House Price Index, to an average of £164,590.

Inflation and the accompanying cost-of-living crisis “invariably start to take a toll on the first-buyer market due to the inability to keep deposits,” Mr. McCord said.

“The banking sector is responding to the gradual increase in interest rates by passing them on to customers. The increase affects those with base rate tracked mortgages who are seeing a double whammy with rising costs of living and higher mortgage payments.”

Those with fixed-rate mortgages, about 150,000 mortgage holders, are protected to a degree, Mr. McCord added.

Lenders started raising rates late last year in anticipation of a base interest rate hike, with deal completions under 1%, and the average UK rate on a two-year 25% fixed-rate mortgage jumped from 1.29% to 2.35%. six months before April.

Mr McCord added: “The impact on the market is yet to be seen, although the preparation of this cocktail creates a kind of perfect storm for a correction in house prices towards the end of the year.”

However, a housing expert said interest rates remain historically low. He also noted that there is still a shortage of supply, which may help maintain prices at a high level.

Esmond Birney, a senior economist at the University of Ulster, said interest rates were at their highest since spring 2009.

But he said MPC “probably has little alternative.” “Failing to send a clear signal of our commitment to our 2% inflation target will only encourage a wage-price spiral with the threat that we could go back to the 1970s,” Mr. Birney said.

The second major reason for Thursday’s rate hike was the impact of the US rate hike, with the US Federal Reserve raising its rates by 0.75%. The pound weakens against the dollar – this contributes to inflation (in particular, because they pay for oil


There are costs to borrowers, especially those with floating or tracked mortgages, Mr Birney said, but adding a “very real threat of a recession” means the base rate is unlikely to fall to the 5.75% it last observed in 2007.

“With a £150,000 mortgage, and most mortgages in Northern Ireland will be less than that, Thursday’s rate hike implies an £18 increase in monthly payments,” he said, echoing the calculations of money-saving expert Martin Lewis, who said the increase was up to £12 a month for every £100,000 owed.

The bank said: “In view of continuing signs of strong pressure on values ​​and prices, including current labor market tensions and the risk that these pressures will become more persistent, the committee voted to raise the Bank’s rate by 0.25 percentage points.”

Sarah Pennells is a consumer finance specialist at Royal London insurance company. told the BBC that the interest rate is unlikely to have a beneficial effect on savings.

“Our study shows that nearly a third of people planned to cut back on the amount they were saving, and a fifth would stop altogether due to the cost of living crisis,” she said.

“For those who can save, the gap between interest rates and inflation, now at 9%, means savers continue to lose value in the cash they have in the bank.”