The Bank of England made the decision to maintain interest rates on Thursday, which was met with relief from homeowners and potential buyers. However, what does this mean for your finances and what should borrowers and others do? While it is impossible to know for certain if interest rates have peaked, many economists and commentators believe they have reached their highest point for now. Factors such as inflation and upcoming meetings of the Bank of England’s monetary policy committee will play a significant role in determining future rate hikes.
Economists like Samuel Tombs and Paul Dales believe that rates have likely reached their peak in this cycle. They anticipate that rates will stay at their current level for a longer period than expected and when they eventually do decrease in late 2024, the reduction will be more significant than anticipated. On the money markets, trading of interest rate swaps suggests a low probability of a rate increase in the next meeting in November.
For existing mortgage holders, Thursday’s decision brings some relief. Variable rate mortgage holders, who make up approximately 2 million individuals, saw their monthly bills steadily increase since the end of 2021 when rates started rising. Among these, half are paying the lender’s standard variable rate (SVR), which has reached its highest level since record-keeping began in 2007. Experts recommend that those on SVR consider switching to more affordable options. On the other hand, approximately 7 million UK residential mortgages are fixed-rate loans, shielding borrowers from rising rates until their deals expire.
The past year has presented challenges for those seeking new fixed-rate mortgages. Approximately 800,000 homeowners have fixed-rate deals ending in the second half of 2023, while another 1.6 million have mortgages expiring in 2024. Mortgage costs have been increasing, but since July, UK lenders have been reducing rates on new deals. This has sparked a potential price war, with fixed-rate mortgages priced below 5% coming back into the market. However, those looking to remortgage now may still face substantial payment increases.
Given the current situation, many people are wondering what steps they should take. Brokers advise considering fixed-rate deals, trackers, or discounted-rate deals, with many borrowers opting for shorter-term fixes or base-rate trackers without early redemption penalties. Brokers believe that further price cuts for fixed rates are likely, so planning ahead and staying informed is crucial. Some borrowers are opting for trackers with no early redemption charges, assuming that rates have reached their peak and will soon decrease.
Savers, on the other hand, have not been faring too poorly. Although they may have hoped for another interest rate rise, there are still opportunities to secure competitive rates. For those who can afford it, now may be the time to take advantage of the best rates available in years. Banks and institutions, including NS&I, offer accounts with an interest rate of 6% or more for those willing to invest for one year. Fixed-rate savings accounts have also seen increased popularity, with NatWest raising its one-year fixed account interest rate to 5.56%. Additionally, there are instant/easy access accounts offering more than 5% interest and Nationwide building society has launched a regular savings account exclusively for current account customers, paying 8%.
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