Why you should switch your mortgage and take advantage of new low rates now
THE BANK of England’s Monetary Policy Committee was pretty unequivocal this week: Brexit is having a devastating effect on our economy. Not only did the committee say that it expects inflation to rise to three per cent in October, reflecting “entirely the effects of the referendum-related falls in sterling”, but “GDP growth remains sluggish in the near term as the squeeze on households’ real incomes continues to weigh on consumption”.
While a rise in interest rates would have the effect of bringing inflation down, the MPC chose to hold them at 0.25 per cent over fears that a rise could hit already-stretched businesses and households to such a degree that the economy would suffer even more.
It is no wonder Roland Rudd, chairman of pro-European Union campaign group Open Britain, said the MPC’s report “paints a dismal picture of what hard Brexit is doing to our economy”.
This matters, because it is going to hit us all where it hurts – in our pockets.
“Downgraded growth, higher inflation and modest wage growth all point to lower living standards for the British people,” said Rudd.
For most of us this will be obvious at the check-out, with the cost of a weekly shop continuing to rise. In addition to prices increasing, though, with inflation now sitting far above what even the best savings accounts are offering in interest, the money you use to buy those goods is steadily becoming worth less and less.
According to the Moneyfacts website the best notice account on the market offers a rate of 1.65 per cent, with Secure Trust Bank requiring savers to give them 180 days’ notice of withdrawals.
As Terence Moll, head of investment strategy at private bank Coutts, put it: “When the returns on cash are lower than the rate of inflation, the value of cash is eroded in real terms – so essentially it will cost you more today to buy the same things you did a year ago.”
It is for this reason that Ross Andrews, director at Minerva Lending, feels the decision to keep rates on hold “has delivered yet another body blow to the nation’s savers”.
“With inflation likely to remain above target for some time yet due to sterling’s weakness, the struggle for people to keep their savings real has no obvious end in sight,” he added.
Current accounts continue to pay some of the best rates, with Tesco Bank and TSB offering three per cent and Nationwide five per cent. As they will only pay these rates on balances of up to £1,500 or £2,500, however, they can at best help monthly expenditure keep up with inflation while doing nothing for any cash that has been put away for a rainy day.
The silver lining in all this? The MPC’s decision to hold rates steady for now is good news for mortgage holders.
Not only will it keep rates steady for anyone on a variable or tracker deal, but with Yorkshire Building Society noting that a staggering £35 billion worth of fixed-term mortgages are due to mature in September and October, anyone in the market for a new deal should be able to access a decent rate.
Specialist lender Aldermore was one of the first to capitalise on the bank’s decision, launching a limited-edition range of residential remortgage-only products to “take advantage of the historically low interest rate environment”.
Its new rates range from 2.48 per cent to 2.88 per cent depending on your loanto-value (LTV) ratio and how long you want to fix the rate for, with commercial director Charles McDowell saying the 2.48 per cent two-year deal is the bank’s “lowest ever remortgage-only product”.
Accord Mortgages has gone even further, reducing rates across its range so those looking to buy a house can get a two-year fix for as little as 1.37 per cent.
There has been much speculation the Bank of England is going to raise rates in the near future and indications now are the base rate will rise to 0.5 per cent in early 2018 before moving to 0.75 per cent later in the year.
While this is unlikely to have a major impact on savers, whose interest rates do not generally receive much of a bump when the base rate rises, mortgage providers are more willing to follow the bank’s lead when rates are on the up.
The implication is clear: if you are in a position to switch mortgage you should look to lock in a new rate now.
Roland Rudd of Open Britain says the MPC’s report ‘paints a dismal picture of what hard Brexit is doing to our economy’ Photograph: Douglas Fry