The Bank of England voted to raise the base rate from 0.25% to 0.50%, as it looks to put a lid on rising inflation.
While the markets expected this to happen there could have been a bigger increase, as four Monetary Policy Committee members wanted to increase the base rate to 0.75%.
This is the first time there’s been a consecutive rise since 2004, and it means variable mortgage rates are likely to increase by 0.25%.
Inflation is expected to peak at 7.25% in April, nearly four times the target of 2%.
Jonathan Samuels, chief executive of Octane Capital, said: “While today’s increase in interest rates is unlikely to phase the average homebuyer, it could weigh heavier on the minds of the nation’s landlords.
“Not only do they already pay far higher mortgage rates but they’re also subject to stricter affordability requirements. So if interest rates do continue to climb, they may face an increase in costs which will inevitably be passed on to the tenant.
“However, sector investment remains strong and current market conditions have seen landlords benefit from some very favourable levels of rental and capital appreciation of late. The majority will also be protected in the form of a fixed-rate mortgage, so it’s likely that they will simply absorb today’s hike.”
Most commentators reckon the housing market can cope with this latest rate rise.
Marc von Grundherr, director of Benham and Reeves, said: “Another marginal increase in interest rates is unlikely to dampen the house price party that UK homebuyers have been enjoying since the beginning of the pandemic and while the general expectation is that they may hit 1%, this won’t materialise until the end of the year at the very earliest.
“We expect a strong level of foreign demand to return to the market in 2022 and this will also help boost the market considerably regardless of what happens with interest rates.
“Many foreign buyers, particularly across Asia, tend to finance their investments with banks closer to home, in Hong Kong or Malaysia for example. So UK interest rates won’t have a huge influence on them as most are already paying around three to 4% and are happy to do so.”
Henry Knight, managing director of Springtide Capital, looked ahead to future rate rises.
said: “With the Bank of England having increased the interest rate twice within a short period of time already, it remains to be seen if another raise is likely to happen later this year.
“Some economists predict interest rate to reach up to 1.25% by next year, which, compared to the current rate of 0.5%, would have a much more significant effect on buyers.
“Until then, with the majority of homeowners being on fixed long-term mortgage rates, we don’t expect the latest increase to cause any major impact on the market.”