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Interest rate rise ‘may have an impact on housing market,’ says expert


The Bank of England has increased the base interest rate by 0.25 percentage points to 1.25%

The Bank of England has increased the base interest rate by 0.25 percentage points to 1.25%


The Bank of England has increased the base interest rate by 0.25 percentage points to 1.25%

Around 85,000 mortgage holders in Northern Ireland will see their annual payments rise, some by £200 and more, following the Bank of England's decision to increase the base interest rate to 1.25%.

But three of the nine-person Monetary Policy Committee (MPC) deciding the rate rise wanted a much steeper increase to battle soaring inflation the bank predicts will hit 11% before the end of the year. More rises are expected.

Approximately 85,000 of the region's 236,000 mortgage holders hold variable or tracker mortgages. The average starting loan is close to £150,000 today, meaning those who have just signed will pay £18 a month or £226 a year more almost immediately.

Michael McCord, lead researcher for Ulster University's house price index, warned a perfect storm is forming for a correction by the end of the year. House prices have increased by 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 "is invariably starting to impact on the first time buyer market through the inability to save deposits", said Mr McCord.

"The banking sector is responding to the incremental increase in interest rates by passing those on to customers. The increases are affecting those with base rate tracker mortgages who are seeing a double whammy with the increases in the cost of living and mortgage repayment increases."

Those on fixed rate mortgages, approximately 150,000 mortgage holders here, are protected, to a degree, Mr McCord added.

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Lenders late last year began increasing rates in anticipation of base percentage point hikes, with the end of sub-1% deals and the average rate across the UK of a two-year fixed-rate 25% deposit mortgage jumping from 1.29% to 2.35% in the six months to April.

Mr McCord added, "The impact on the market remains to be seen, although this cocktail brewing is creating somewhat of a perfect storm for a house price correction by the end of the year."

However, the housing expert said interest rates continue to be historically low. He also noted there remains a supply crunch here which could help keep prices up.

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

But he said the MPC “probably had little alternative”. “Failure to send a clear signal about its commitment to its 2% target for inflation would only encourage a wage-price spiral with the threat that we could be heading back to the 1970s," Mr Birnie said.

" A second major reason for Thursday’s rate rise was the impact of the increase in the rates in the USA: the US Federal Reserve had increased their rates by 0.75%. The pound has been weakening against the dollar- this adds to inflation (notably, because oil is paid for in


There is a definite cost to borrowers, especially those who have variable or tracker mortgages, said Mr Birnie, but adding the "very real threat of recession" means it is unlikely the base rate will to 5.75% last seen in 2007.

"On a £150,000 mortgage, and most mortgages in Northern Ireland would be less than that sum, Thursday’s rate increases implies monthly payments increase by £18," he said, echoing the calculations of money saving expert Martin Lewis, who said the rise equates to £12 a month for every £100,000 in debt.

The Bank said:  "In view of continuing signs of robust cost and price pressures, including the current tightness of the labour market, and the risk that those pressures become more persistent, the committee voted to increase Bank rate by 0.25 percentage points.” 

Sarah Pennells, consumer finance specialist at insurance company Royal London. told the BBC the interest rate is unlikely to have much beneficial impact on savings.

"Our research shows almost a third of people were planning to reduce the amount they were saving, while a fifth would stop altogether, as a result of the cost of living crisis," she said.

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