Jatin Ondhia, CEO of real estate investment platform Shojin, comments on the impact of the Bank of England (BoE) decision to increase interest rates to a 15-year high on homeowners and property investors.

Rate-setters have delivered yet another blow today in their relentless battle against inflation, which continues to overpower the Bank of England’s fiscal policy. With forecasts signalling that further hikes could be on their way, the Bank’s ‘do what it takes’ approach – which has the backing of the Chancellor – will ring alarm bells for many.

Higher borrowing costs will continue to squeeze homeowners and property investors, which in turn will lead to more buy-to-let investors exiting the market and increase rental costs due to a dwindling supply of property. The impact of this will be felt far and wide. Renters in high-demand areas like London are already spending up to 50 per cent of their salary on rent.  We can only hope that inflation starts to settle soon, but I expect more pain before relief comes.  

Interestingly, property values remain underpinned by a shortage of supply. In good locations and at the right price point for local markets, cash buyers are still out there, while mortgage buyers are accepting the new norm of higher interest rates and factoring that into their purchasing decisions.

The past decade of ultra-low interest rates and cheap borrowing is well and truly over and we are seeing a return to more “normal” rates

The past decade of ultra-low interest rates and cheap borrowing is well and truly over and we are seeing a return to more “normal” rates, which all borrowers have to get used to. For existing borrowers, the Chancellor has ruled out direct government assistance but is meeting with banks on Friday to find ways to soften the blow. 

Let’s hope they come up with something sensible otherwise we could see an increase in defaults which have so far been muted.