AJ Bell press comment – 15 December 2022
Laura Suter, head of personal finance at AJ Bell, comments on the latest Bank of England interest rate rise:
“Andrew Bailey takes the role of the Grinch this Christmas, with the MPC delivering another rate hike to the nation just 10 days before Christmas. The increase, from 3% to 3.5%, is the ninth consecutive increase from the Bank of England, hitting a 14-year high for interest rates.
“This time last year the UK had interest rates of 0.1%, the top easy-access savings account paid 0.7%, you could get an average two-year fixed mortgage for less than 1.5% and although inflation had crept up it still stood at just over 5%, way below the level of price increases today. What a difference a year makes - base rate is at 3.5%, the average two-year fix mortgage is now hovering around 6%, the rate of inflation has doubled to 10.7% and savings rates have soared.
“Savers will get a sprinkling of festive cheer as another rate rise will surely push the rate of interest paid on cash up further, making savings accounts more attractive. This time last year a one-year bond was paying 1.4% and now it’s 4.5%, according to Moneyfacts. There are some signs that the savings war is losing some of its heat, but savers are still in a far better position than 12 months ago.
“But for everyone else the outlook isn’t quite so rosy. Lots of people turn to debt at Christmas, and this year those debt levels are likely to be even higher thanks to rising prices. Another rate increase will raise debt interest rates again and cause a real crunch on borrowers at a tough time of year. Mortgage rates aren’t likely to leap on today’s news, as the increase was anticipated and already baked into many lender’s rates. But what does cause uncertainty is the direction the Bank takes from here. Markets are expecting a few more increases in Base Rate next year, with rates peaking around 4.75% before the bank starts finally cutting at the end of 2023. But that forecast is reliant on so many factors – how sticky inflation proves to be, how large the unemployment figure becomes and what the next set of GDP figures bring are all key factors that will shape future interest rate decisions.”
Mortgage rates:
“Anyone sitting on a tracker mortgage or standard variable rate will face another hike in their monthly costs from today. On £250,000 of borrowing the rate rise will add another £80 to their monthly bill, while those with a £400,000 mortgage will see annual costs rise by just over £1,500*.
“Tracker mortgages have re-entered the fray recently, as the rates were so much lower than fixed-rate deals in the market mania after the mini-Budget. Some homeowners have opted for a tracker deal for the first time in the hope that they’ll win in the rates gamble, considering fixed rate deals have shot up so high. But that means today’s rate hike will be their first time experiencing a rise in rates, and they need to be braced for more to come down the pipeline.”
*Based on current mortgage rate of 6.5%, on a repayment mortgage with a 25-year term.
