Why you should switch your mort­gage and take ad­van­tage of new low rates now

Sunday Herald - - YOUR MONEY - By Mar­garet Tay­lor Per­sonal fi­nance ed­i­tor

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

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