The Bank of England has hiked interest rates by 0.25 percentage points, pushing the base rate to 4.5% and raising fears that this could exacerbate rental prices and increase repossessions.
Interest rates were already at a 15-year high before the twelfth consecutive rise since December 2021, which will see millions of property owners facing higher mortgage repayments. Those with an average 2.58% fixed rate (available in 2021) set to expire this year will see their mortgage payments increase by �13,000 a year if they have a �250,000 loan, according to investment firm AJ Bell.
Group chairman of Cornerstone Tax, David Hannah, believes it was a mistake to raise rates again, as it could tip the economy into recession. 'We've just witnessed the introduction of the 100% mortgage for renters, which means they've got no equity,'� he explains. 'Now we're raising interest rates, putting pressure on affordability, which increases the risk of a property price decline - also meaning that those 100% mortgages are going to be in negative equity.'�
Homeowners coming off fixed rate deals and moving straight into a 5.5% mortgage are going to be unable to afford them which will lead to many more repossessions and forced sales, he adds.
The interest rate rise is also set to affect first-time buyers who may now be unable to get onto the housing ladder due to unaffordable mortgage rates, says Hannah, who believes the rise will also have a knock-on effect on the rental market. 'It has already been suffering from a lack of supply, and now, with a growing number of would-be buyers in need of a place to live, this is going to be exacerbated further. The result of this is that rental prices and competition will likely increase at a time when people are already struggling.'�