- Bank of England holds rates at 5.25%
- Eight members vote to hold and one votes to cut
- Mortgage rates volatile as no clear path to cuts
- Cash ISAs seeing a jump in rates
Laura Suter, director of personal finance at AJ Bell, comments on the Bank of England’s decision to maintain rates at 5.25%:
“While interest rates have been held for another month, savers and mortgage holders have seen anything but steady interest rates. The rates on offer to savers have been bouncing around for months. At the same time mortgage rates have been on a rollercoaster ride so far this year.
“It’s frustrating for homeowners that while the Base Rate is on hold, mortgage rates are dancing to their own tune. But that’s the reality of mortgage rates being priced off interest rate expectations – and us having no clear signal of when rates will be cut. We saw a huge drop in mortgage rates in January this year, as seemingly premature expectations of rate cuts took hold and competition in the mortgage market ramped up. But since then rates have risen again. We’re not near the highs we saw in September last year, but there has been a significant uptick.
“It means anyone who locked in a rate in January, ahead of their mortgage fix rate coming to an end this summer, will be feeling pretty smug right now. This yo-yoing of rates highlights how important it is to know when your fixed-rate mortgage is expiring and lock in a new deal six months ahead of that date. If rates fall during that period you can switch to a cheaper deal, but you’ve got an insurance rate locked in.
“The mortgage market can be a baffling place to navigate for the average homeowner, particularly at the moment. With Base Rate expected to drop from as early as June this year many will be weighing up fixing versus a tracker. And if they do fix, they will be weighing two years against five. All of this can mean people put off getting their new mortgage sorted – but the penalty for indecision is high. According to Moneyfacts, the average Standard Variable Rate is now 8.18%, meaning even a couple of months on that rate could be financially ruinous for some households.”
Savings
“Savers have also seen rates rise and then fall, but at least inflation has fallen too. It means that many cash savers are getting a real return on their cash for the first time in ages. Rates in certain areas have improved – particularly in the cash ISA market, as providers are vying for savers’ money in the last few weeks of the tax year. It means that if you’ve put off your cash ISA selection you could profit from that competition now by securing a higher rate. But act fast, because once the new tax year rolls around those rates are likely to drop.
“Even though we’ve had rising interest rates for a long time, many savers are still leaving their money in accounts offering little or no interest. If you haven’t checked your rate or switched in the past year, then it’s highly likely you could get a better deal on your easy-access account. There will also be lots of people who locked in one-year accounts a year ago, when rates were high, and have now let them roll over into a standard savings account, often paying paltry interest. Moving your money is so quick and easy these days that shifting cash to a new account can be done on your commute or while you’re cooking dinner – just make sure you check the Ts and Cs so you’re not caught out later on.”
