AJ Bell press comment – 3 November 2022
Following the latest Bank of England Monetary Policy Committee decision to increase Base Rate to 3%, Laura Suter, head of personal finance at AJ Bell, comments:
“Today’s rise to 3% means we’ve got the highest Base Rate for 14 years following the biggest hike in interest rates in 33 years. Although widely anticipated, it seems the rate setting team weren’t united in the approach they wanted to take, with one preferring a gentler rise to 2.75% and another plumping for just 2.5%.
“To the dismay of many borrowers, this isn’t the end of the line for rate rises and more hikes are inevitable. The Bank has one more bite at the cherry this year, meaning it could complete nine consecutive rate hikes in a year. The pace and speed that the Bank moves depends on many factors, not least what the Government unveils at the Autumn Statement in two weeks’ time. However, the Bank has signalled that the market expectations of a peak at around 5% next year might be further than the rate setting committee is willing to go – offering a glimmer of positivity for borrowers.”
Savings
“The chunky hike in rates today is another boost to savers who are finally getting higher interest rates on their savings. Back in December, before the Bank started raising rates, the top easy-access account was paying 0.65%, but that has now leapt to 2.81%.
“But anyone who hasn’t shifted their money to a best buy account will be getting little or no benefit from the rate hikes. Much of the £2 trillion we have saved as a nation will be earning next to nothing in interest. Frustratingly for savers many providers don’t just pass on the rate rises, with high-street banks being the worst culprits for leaving savers dwindling on lower rates.
“The only way for savers to benefit from the rates boom is to ditch their account and switch to a top-rate offering. Clearly the rates available on cash savings are still a million miles from inflation of more than 10%, but savers need to get the best return they can, even if it can’t beat rising prices.”
Mortgages
“One small reprieve for those trying to get a new mortgage deal at the moment is that much of today’s hike is already baked into prices. Thanks to the disaster that was the mini-Budget fallout, mortgage companies have already raised rates significantly. It means if you haven’t quite secured a mortgage deal yet, you likely won’t see a big rise in costs as a result of today’s hike.
“But the 1.6 million people on a tracker or variable rate will see costs increase. For someone with £250,000 of borrowing, a 0.75% rise means an extra £100 a month in costs. At £400,000 of borrowing that rises to an extra £160 a month or more than £1,900 a year.
“Clearly the biggest financial shocks are coming for those who got a mortgage on mega low rates a few years ago and are finding their rate has now doubled or tripled. Anyone who thinks their new mortgage might be unaffordable may find they need to consider their options, such as extending the term, moving to interest-only or using an offset mortgage. These might cost more in the long-run, they could be a solution to weather the current rate rise storm.
“While the focus is always on the third of the population who have a mortgage, renters are likely to be impacted too. Landlords who’ve seen a big rise in their mortgage costs will inevitably pass on some, or all, of the increase to tenants in the form of higher rent. With many landlords having left the market in the pandemic housing boom, and worries about a shortage of rental properties in some areas, rent rises are likely to continue.”
