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Bank of England Hikes Interest Rates to 4.5%: Property Market Braces for Impact

The Bank of England has increased interest rates to 4.5%, up from 4.25%, in an effort to combat soaring inflation. This marks the 12th consecutive rate hike, as the cost of living continues to rise more than anticipated. March’s inflation rate was 10.1%, down slightly from 10.4% in the year leading up to February, but still higher than predicted.

This latest rate increase will make repaying mortgages, loans, and credit cards more expensive, but should also provide a better return on savings. Property industry professionals have weighed in on the potential impact of the rate hike on the housing market.

Jeremy Leaf, a north London estate agent and former RICS residential chairman, believes the housing market will only experience a modest impact since the rate increase was expected. He has observed increased activity since the beginning of the year, but also notes that buyers remain cautious about taking on debt.

Nick Leeming, chairman of Jackson-Stops, argues that the outlook for household finances remains bleak due to persistent high inflation. The rate increase will make it harder for first-time buyers and those needing to remortgage. He expects the next few months may see a halt in rate rises to avoid exacerbating debt problems. Inflation is expected to begin falling into single figures later this year.

Dominic Agace, chief executive of Winkworth, notes that the property market has returned to pre-pandemic levels thanks to stable mortgage rates. However, he acknowledges that another interest rate increase and a month of bank holidays during a key selling period may impact transaction levels.

Industry experts believe that fixed rate mortgages will not see immediate changes due to the latest rate increase, as lenders are likely to wait to assess the impact on the economy. Tracker mortgage holders, on the other hand, will face higher costs, and buyer demand is now higher than pre-pandemic levels, particularly for first-time buyers.

Property industry professionals call for the UK government to do more to support homebuyers and landlords with rising costs, as interest rates are expected to remain high into next year. As the general election approaches, political uncertainty may also impact demand even as the bank rate and inflation peak.