Savers ‘missing out on better rates’

Since Thursday’s rise there has been very little movement in rates, although generally it takes at least a week for any rises to be announced and a month for any of those better returns to take effect.

Tom Adams, of comparison site Savings Champion, said that rather than waiting, many people could get a much better deal by moving off an old deal that might pay about 0.5% in interest, or as little as 0.05%, to one of the better buys.

The leading rates for instant access savings accounts are well over 1% so, for many, simply switching to a new savings account would be more lucrative than hoping the base rate increase is passed on to their existing account.

“This year we have seen competition between the newer challenger banks rather than the big High Street names,” he said.

The reason for this, in part, is that the largest banks, particularly, did not need to attract savers. They had money sloshing around from schemes that allowed them access to cheap funds to lend out.

Challenge for customers

The competition view was echoed by Bank governor Mr Carney, who told BBC’s Today programme on Friday that while competition was not the Bank’s direct responsibility, it had created a better-prepared wicket for this to be played out.

“In order to have competition, you need all of the banks to be healthy,” he said.

“That required a lot of repair post-crisis, and… you need a lot of new banks in the system, so we’ve authorised 40 more banks.”

The City regulator has suggested that a minimum savings rate should be considered for longstanding customers, but a widely held view is that savers need to ditch their loyalty and move their funds around.

However Mick McAteer, director of the Financial Inclusion Centre, said that switching would not benefit many households with squeezed finances.

He said many millions of savers did not have sufficient amounts tucked away for a small rise in interest to make much of an impact.

Even a 1% rise in the savings interest rate would only add 20p a week or so to many people’s savings, he said, which was an “immaterial rise” and one that would do little to encourage people to save more.

Interest rate rise UK: Bank of England raises rate to 0.75 per cent in August 2018 – what does it mean for your mortgage?

Around a third of London, borrowers could see the cost of their mortgages rise by hundreds of pounds following August’s interest rate rise.

The Bank of England has voted unanimously to raise UK interest rates to their highest level in almost ten years.

The decision to raise the base rate to 0.75 per cent from 0.5 per cent pushes the Bank rate to its highest level since March 2009.

It is only the second Bank rate rise since the financial crisis in 2008, after a rise in November 2017 pushed interest rates back up from a historic low of 0.25 per cent to 0.5 per cent.

Today’s announcement will come as little surprise after most economists predicted the monetary policy committee’s decision.

The Bank of England raised interest rates today to the highest level for more than nine years

Another interest rate rise of 0.25 per cent was widely expected to take interest rates to 0.75 per cent in May.

However, the disruption caused by the “Beast from the East” that hit this March led to the economy growing by just 0.1 per cent in the first three months of the year and the Bank opted to keep interest rates at 0.5 per cent.

Two more rate rises are expected in 2019 and 2020.

Will I still be able to afford my mortgage after today’s interest rate rise?

“According to Nationwide Building Society, only a third of London borrowers are on variable rates. This means the vast majority of borrowers will see no impact on their mortgage payments have taken advantage of the low fixed rates that have been on offer,” said Colin Payne, associate director at Chapelgate Private Finance.

However, the third of London homeowners on variable rates will see their average mortgage payments pushed up by more than £300 a year as a result of the rise.

Today’s interest rate rise will push up the average mortgage by £26 per month to £1,180, further squeezing household incomes.

 

“In real terms, wage rates are still at levels prevailing in 2005. Moreover, a small proportion of households already have a relatively high debt service burden. For those, some of whom will be on variable rates, any rate rise will be a struggle, even though the impact on the wider economy and most households are likely to be modest,” said Robert Gardner, Nationwide’s chief economist.

That said, while a rise in interest rates may come to a shock to anyone who bought their first home in the past decade, higher mortgage interest will have been factored into lenders’ calculations since new rules were introduced in 2014 to curtail high-risk lending, so don’t panic.

Should I fix my mortgage now?

People on a variable rate mortgage benefit from interest rate changes when the base rate drops. However, mortgage experts agree that today’s announcement heralds a general upwards trend in interest rates.

MarkCarneyinterestratesmortgage.jpg
Mark Carney, governer of the Bank of England, announced the Bank rate rise to 0.75 per cent today (Bloomberg)

This means that borrowers on a variable rate should seek out a new deal now if they can.

“If November’s rate rise was important for its symbolism, today’s rate rise is equally important for its message to the market: the record low interest rate era is over, and interest rates are now headed in one direction,” said Craig McKinlay, sales and marketing director at Kensington Mortgages.

“This rise should be a call to action for those borrowers who haven’t yet remortgaged to get in touch with a mortgage broker and seek a new competitive deal.”

Will house prices go up or down now interest rates have risen?

The 0.25 per cent rate rise may push down already falling London house prices, as the cost of home ownership looks set to rise further.

“It’s not the relatively modest increase in interest rates which is significant – the message it sends about their future direction is far more important,” said London estate agent and former residential chairman of the Royal Institution of Chartered Surveyors, Jeremy Leaf.

“The change is likely to compromise already fragile confidence to take on debt in the property market and wider economy.”

London house prices fell for the fourth month running in May to £479,000, a drop of £2,000 off the value of the average home in the capital.

Prices were expected to continue to decline slightly for the next couple of years due to uncertainty over Brexit, combined with the likelihood of further interest rate rises.

“In our regional forecasts we predict price falls in London in 2018 and 2019 of 1.7 per cent and 0.2 per cent respectively,” said Richard Snook, senior economist at consultants PwC.

UK interest rates: Pound sterling drops sharply after Bank of England hike

The pound was trading down 0.82 per cent against the dollar after the Bank of England’s monetary policy committee voted unanimously to hike the base rate from 0.5 per cent to 0.75 per cent.

Sterling had been trading down around 0.4 per cent earlier in the session and appeared to reverse those losses in the immediate aftermath of the decision. However, the currency took another dip and fell to $1.3020 an hour after the Bank announced its decision.

The pound also dropped against the euro, tumbling by 0.34 per cent to €1.122.

Sterling’s decline coincided with the Bank’s press conference, during which governor Mark Carney said Threadneedle Street would continue to follow a strategy of “ongoing, limited and gradual tightening of monetary policy” in order to keep inflation within target. He added that this could lead to three further rate rises over the next three years.

“Despite the intentionally hawkish signals it appears that traders aren’t buying it, with a failure for sterling to gain on what is, on the face of it at least, a positive hawkish message, a potentially ominous warning sign for the currency going forward,” said David Cheetham, chief market analyst, at brokerage XTB.

“Looking ahead, the curve has barely budged on today’s news with a further hike before year-end still seen as highly unlikely and an additional increase not priced in until September 2019.”

Jordan Hiscott, Chief Trader at ayondo markets, said it was notable that sterling had fallen “despite the fact the market had priced in the expectation of a 0.25 per cent rate hike”.

“A couple of things stand out for me. Firstly, the recent economic data is not consistent enough to warrant a rate increase and future near-term increases. Brexit and the fractious nature of negotiations will likely also affect this

“Secondly, the last time the MPC voted unanimously to increase rates was May 2007, and that didn’t turn out too well then.”

Business groups were critical of the central bank’s decision to hike, with the IoD’s senior economist, Tej Parikh, saying: “The rise threatens to dampen consumer and business confidence at an already fragile time.”

Extent of North-South Renting Affordability Gap Revealed

Households outside London spend an average of just over half their income on renting…

Households renting in London are putting a significant percentage of their income towards rent compared to the rest of the country, according to new data from Landbay.

Annual rental growth in the UK, excluding London, rose to 1.21% in March, bringing the average monthly rent to outside the capital.

In London, the average monthly cost of renting is more than double the national average, at 2100

However, the average disposable income for a worker in the capital is per 2455 month. As a result, 89% of their take-home pay is used on renting.

Outside the capital, rental payments amount to just over half (52%) of the average disposable income, which is per 1760 month.

In England, renters in the North East have the lowest percentage (41%) of their incomes going towards rent, followed by Yorkshire & the Humber (43%), the North West (44%) and the East Midlands (44%).

“Rents have continued to rise over the last five years, increasing by 9% across the UK since March 2013 and by 7% in London,” notes John Goodall, CEO and founder of Landbay.

“Not a day goes by when there isn’t more news about the supply-demand mismatch in the UK housing sector and until this is resolved, tenants will continue to rely on the private rented sector to support them.

“With the right property and the right location, there are attractive yields to be had, and consistent rental demand will drive returns in the long-term,” Goodall concludes.

 

Midlands Cities Among Top 10 Buy-To-Let Property Postcodes

London commuter belt towns fall down the rankings as Northampton, Leicester and Birmingham surge

Three of the top five locations for buy-to-let property investments are in the Midlands, according to new research.

Northampton, Birmingham and Leicester were all cited as top postcodes for buy-to-let, with strong rental growth of 2.38%, 3.91% and 4.35% respectively, according to independent mortgage lender LendInvest.

Whilst the Midlands regions have been steadily rising up the rankings, the report highlights the South West region as an up-and-coming market, as strong rental growth and healthy market activity has boosted the profile of cities like Bristol, Swindow, Truro and Gloucester.

Conversely, London and the South East continue to underperform, as declining rents deters further investment in these regional markets.

Historically strong performing commuter towns like Dartford, Romford and St Albans have recent begun to slide down the LendInvest buy-to-let rankings, in some cases by as many as 58 places.

However, the report notes that demand for housing will continue to support future growth: “Political changes are increasingly underpinning this uncertainty in the market, however the need for housing around the UK prevails.

“As such, we can expect the rental market to grow, with investors prioritising yields and rental price growth as valuable metrics to consider when purchasing a property.”

Over the last 10 years, rents have grown by 16% nationally, according to figures from Rightmove.