Interest Rates Fall – What Does It Mean For You?
February saw another cut in the Bank of England base rate by another 0.25 percentage points to 4.5%, the third cut since August 2024. But while this should provide some relief for mortgage and credit card borrowers, savers will also see the interest they are paid on their savings reducing.
The cut takes interest rates back to where they were in May 2023, when inflation was also running at a whopping 8.7%. Whether there will be further rate cuts this year remains to be seen, but the “crunch month” for inflation figures is April, according to Laura Suter, director of personal finance at AJ Bell.
This is because it will be the first time inflation will include the “higher National Insurance payments and minimum wage costs for employers, energy prices for consumers, and Trump’s trade war”, said Ms Suter, all of which have the potential to raise inflation. It had already jumped to 3% in January, according to data from the Office for National Statistics (ONS).
So, what has happened to mortgage rates in February?
Some mortgage lenders have started offering keener rates on the back of the base rate reduction. Santander and Barclays, two of the UK’s major lenders, both have deals that are now below 4%, a level which hasn’t been seen since November last year. But some of these lower rates have hefty charges associated with them, so you may find you’re better off getting a higher interest rate with lower fees.
This will all depend on how much you need to borrow, as the higher the amount, the more you will pay each month on a higher rate. So, relatively speaking, the less impact a higher upfront payment might impact you.
You can also access higher loan-to-value (LTV) products now than was previously available. So, if you don’t have much equity in your property, you may find that you can still switch to a better deal than you would have on a lender’s standard variable rate.
If you need to remortgage soon, or you are looking to buy a property, then it would be wise to get advice from a specialist on how to get the best possible deal for you.
What about savings rates?
As you might expect, when interest rates fall and borrowers benefit, savers take a hit. But there are still some decent rates available, according to financial statisticians Moneyfacts.
The best rate available on an easy access account at the time of writing was with Monument Bank at 4.75% AER on deposits of £25,000 in its Limited Access Saver account – which despite the name doesn’t require notice to be given for a withdrawal, according to Moneyfacts. Back in May 2023, when the base rate was last at this level, savers could only get 3.7% on the top easy-access account, said Ms Suter. So, things are better than they were.
However, if you haven’t checked on your savings rates for a while, now would be a good time to do it. If you think interest rates will continue to fall, then you might want to consider locking into a fixed rate savings account for a period of time. But remember, don’t do this if you will need access to that money at any time, as you will typically face a penalty for accessing the money early.
If you aren’t sure what to do for the best, then you should ask your accountant for advice. Ms Suter said: “We know that almost 2.1 million people are expected to pay tax on their savings this year, up from around 650,000 just three years ago. This tax year end is a good chance to assess whether you’re likely to get an unexpected tax bill and shovel some money into a cash ISA if so.”
We can help you
If you want to find out if your savings are working as hard as they can for you, or you want to see if you can get a more competitive mortgage, then please contact us and we will do everything we can to assist you.
