Laura Suter, director of personal finance at AJ Bell, comments on the latest Bank of England money and credit figures:
“This is a big relief for anyone who is looking down the barrel of their mortgage deal coming to an end – average new mortgage rates dropped for the first time in three years. The Bank of England’s data shows a drop in the interest rate paid on new mortgages by 6 basis points in December. At the same time the outlook for the mortgage market isn’t quite as bleak as it has been, with approvals for house purchases rising slightly in December. Clearly the headlines being filled with speculation of interest rate cuts later this year, plus a drop in mortgage rates, has spurred some buyers back into action who had previously been put off.
“The fixed-rate savings boom has come to an end, as savers ended a 19-month run of moving money from easy-access savings into fixed rate accounts. We’ve seen fixed rate deals dry up and interest rates reduce as the prospect of Base Rate cuts near, meaning that savers can now get more for an easy-access account than a fixed rate account. Understandably this has dented the popularity of fixed rate deals as savers are lured towards the flexibility and higher rates of an easy-access account.
“However, anyone plumping for an instant access deal rather than a two or five-year fix needs to factor in that these easy-access rates can change at any time and they tend to drop after a year. That means when savers are weighing it up against a fixed-rate option they need to consider what rates will be on offer once their existing rate expires. It might be better taking the guaranteed fixed rate now rather than gambling on what rates will be in one, two, three or four years’ time.
“Despite being at the narrow end of the cost of living crisis savers still found plenty of dosh to put in their savings accounts. A total of £6bn was deposited in savings accounts in December, even more impressive when you consider that it’s one of the most expensive months of the year for many. This level of savings is higher than the average over the previous six months and shows that many households are prioritising saving over spending.
“This trend was reinforced in the consumer debt figures, with less money put on credit cards in December than in November. Brits put a total of £307m on credit cards in December, compared to £987m in November. However, across the year more people turned to plastic than before. Just shy of £8bn was added to credit card balances across 2023, compared to £7.2m a year earlier – a 10% increase. There’s a mixed picture as to whether these balances will fall – on the one hand we’re expecting to see more people feel the crunch of higher interest rates this year, but on the other inflation has been falling and another expected drop in energy costs in April will ease those pressures on household budgets further.”
