UK Homebuyers Witness Biggest Interest Rate Hike Since 1995 as Inflation Soars
11:41 GMT 04.08.2022 (Updated: 15:20 GMT 28.05.2023)
Attorney General Suella Braverman said the Bank of England had been "too slow" to raise the base lending rate. She added that Conservative leadership frontrunner Liz Truss, whose campaign she is backing, would review the UK central bank's mandate if she succeeds Boris Johnson as prime minister.
British mortgage-payers witnessed the biggest hike in interest rates since 1995, as sanctions on Russia continue to drive up inflation.
The Bank of England raised the base lending rate by half a percent, from 1.25 to 1.75 percent.
"The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. At its meeting ending on 3 August 2022, the MPC voted by a majority of 8-1 to increase Bank Rate by 0.5 percentage points, to 1.75%," the regulator said in a statement.
That came as the central bank predicted the UK economy would fall into a recession in the fourth quarter, upgrading its inflation forecast for 2022 from 10.25 percent to 13 percent.
Meanwhile think-tank the Resolution Foundation warned that inflation could hit 15 percent by the start of 2023.
Attorney General Suella Braverman told Sky News on Thursday morning that the Bank of England had been "too slow" to raise the base lending rate.
"Interest rates should have been raised a long time ago and the Bank of England has been too slow in this regard," Braverman said. "Interest rates are a really important gravitational pull on the value of assets and it's really important to curb inflation, so actually it's very welcome that the Bank of England is increasing interest rates now."
The government's legal advisor said Conservative leadership frontrunner Liz Truss, whose campaign she is backing, would "review the Bank of England's mandate" if she succeeds Boris Johnson as prime minister.
"She's very interested in looking at how the Bank of England operates, maintaining it's independence of course," Braverman said. "The challenge that we're seeing at the moment is the fight against global inflation. Raising interest rates is a lever that the Bank of England has in that fight."
Former Labour Party chancellor of the exchequer Gordon Brown ceded the power to set interest rates from the elected government to the Bank of England in 1997.
Challenged that Truss' promised tax cuts would only fuel inflation, Braverman said it was necessary "so that families and businesses can grow their way out of the challenges".
But property website Rightmove's housing expert Tim Bannister warned that the rise could price first-time buyers out of the market.
"First-time buyers trying to get onto the ladder are currently facing average monthly mortgage payments that are 20 per cent higher than the start of the year due to rising interest rates and asking prices, and that’s assuming they’ve been able to overcome the hurdles to raise a large enough deposit," Bannister said.
25 July 2022, 23:57 GMT
He said the average asking prices first-time buyers are encountering had hit a record high of almost £225,000, meaning the cost of a 10 percent deposit was now 57 percent higher than a decade ago, while average incomes had only risen by 31 percent.
Bannister warned that the mooted half-a-percent rise would take average monthly mortgage payments to 40 percent of household income, the highest level since 2012.
But despite the financial strain on the market, demand for first-time buyer type homes was up by 35 percent compared to what Bannister called the last ‘normal’ market in 2019, which he said "shows a high motivation to move from first-time buyers despite the challenges".