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???? *UPDATE 03/08/2023: This article was updated in August 2023 to include details about the latest inflation figures and the interest rates hikes that followed ????
After raising the base rate in June 2023, the Bank of England indicated that further rate rises would be necessary if inflationary pressures persisted. Although inflation has dropped to 7.9% since then, this is still way above the central bank’s target of 2%.
As a result, the bank increased the base rate again in August, taking the number of consecutive hikes to 14 and leaving it at a 15-year high of 5.25%.
While there are signs that inflation is coming under control in the US and Europe, the UK is still battling with it to an extent. As a result, interest rates are now predicted to peak at higher this year before falling slightly in 2024 (possibly late in 2023).
So, what does this mean for borrowers and savers?
The effect of interest rate changes on mortgages
Lenders set mortgage rates with an eye on their own future borrowing costs. As such, the latest inflation figures have seen many of them withdraw products from the market and up their interest rates in anticipation of further base rate hikes.
Around three quarters of the UK’s biggest mortgage lenders upped their rates in response to the inflation reports and more could follow suit depending on how high the Bank of England chooses to increase its base rate to between now and the end of the year.
Take a look at our rates table below to get an idea of the current deals still available following the latest rates rise:
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Last updated August 2023
Currently, the base rate is predicted to peak at around 5.75%, lower than the 6% that was previously forecast. Which makes now a good time to speak to a mortgage broker – especially if you’re on a variable rate or fixed rate deal ending soon.
What do interest rate changes mean for savers?
The impact of rate rises on savings accounts tends to lag behind its effect on mortgages. However, with rates steadily rising over recent months – and competition from challenger banks – there are competitive rates out there for savers, with the highest paying around 7%.
So, now may also be a good time to speak to a financial advisor about savings. The first thing to do when looking for the best savings accounts is make sure your emergency funds remain accessible. And regular saver accounts are often a good choice for this.
With interest rates set to fall in 2024, securing a good rate now could help you maximise the return on your savings. But before locking in a deal you hope will beat falling interest rates it’s wise to get professional advice.
Rising rates and annuities
When interest rates fall, those looking to buy annuities lose out. With rates set to peak in around three to four months before falling steadily over the next five years, this spring marks the moment to chat with a pensions advisor and make the most of your hard-earned cash.
Interest rates and other forms of borrowing
Upcoming interest rate fluctuations are not expected to have any major impact on variable borrowing rate products such as overdrafts and credit cards.
As always, it’s advisable to clear balances on these each month. But as interest rates begin to fall and inflation comes under control, it’s also worth keeping an eye out for competitive offers that could help cut borrowing costs and put more of your money in your pocket.