Comment: Interest rates hiked to 5%

Following the Bank of England’s announcement of another increase in the base rate, here is some commentary from pension and personal finance experts:

Andy Mielczarek, Founder and CEO of SmartSave, a Chetwood Financial company, said: “Better savings rates are the silver lining to come from persistently high inflation. As a result, customers loyal to high street banks are potentially paying a high price for their loyalty by missing out on better rates.

“With the average easy-access rate sitting at 2.3%, there is often a big gulf between average rates and the top deals that can be secured by looking beyond the high street and also considering fixed-term products. Today’s latest hike, already priced into some savings products, only makes it more important that people consider all their options.”

 
Lily Megson, Policy Director at My Pension Expert, said: “When the Chancellor is advocating for more interest rate pain as a necessarily evil to bring about a recession and, in turn, curb inflation, you get a clear indication of the worry state of the UK economy. This will do nothing to help Britons’ financial confidence – particularly those approaching retirement.

“The priority for many pension planners is to protect the value of their hard-saved money. Some may opt for securing a fixed income via an annuity, which are now offering much improved rates, while others may move some or all their money into higher risk investments in an attempt to “recession proof” their retirement finances. However, if major changes are made without the right help, savers risk making ill-informed decisions.

“While the government has made it clear that it will not intervene where interest rates are concerned, it could do more to ensure consumers don’t feel pressured or panicked into making ill-informed decisions. Making sure pension planners have access to affordable independent financial advice would be a strong start. Such support would be a financial lifeline to many, helping savers understand their current situation, and the steps needed to achieve the retirement they want even as rates rise and inflation persists.”

 
Mohsin Rashid, CEO of ZIPZERO, said: “After a year of being worn down by persistently high inflation, it seems that soaring interest rates could now deliver the knock-out blow to millions of Britons, with mortgage holders facing unaffordable repayments and even potential repossessions. Make no mistake: if interest rate hikes continue on this trajectory, defaults are set to soar.

“Throughout the cost-of-living crisis, households have found creative money-saving solutions everywhere, from food shopping, and energy usage, to monetising their own data. But households cannot fight this war on every front. The government must now conjure the same ingenuity and find creative solutions to support struggling households who are reading today’s news in the fear that their finances are going to be stretched beyond breaking point.”

 
Chieu Cao, CEO of Mintago, said: “It already felt like we were on the edge of a cliff when it comes to Britons’ financial wellbeing, but yesterday’s inflation and today’s base rate hike will push many people over the edge and onto the rocks below.
“Businesses need to be prepared – as much as their costs are rising as well, it’s their staff who are going to feel the harshest effects of high interest rates and the cost-of-living crisis. That’s why employees require considered, robust wellbeing support; support that is regrettably lacking among many employers at present.

“In truth, too many businesses still see financial wellbeing support as a ‘nice to have’, but it’s a necessity right now. Employers must recognise the detrimental impact that financial stress can have on employees’ productivity, mental health, and overall wellbeing, and provide them with the tools they need to manage their finances as effectively as possible.”

 
Jatin Ondhia, CEO of Shojin, said: “Rate-setters have delivered yet another blow today in their relentless battle against inflation, which continues to overpower the Bank of England’s fiscal policy. With forecasts signalling that further hikes could be on their way, the Bank’s ‘do what it takes’ approach – which has the backing of the Chancellor – will ring alarm bells for many.

“Higher borrowing costs will continue to squeeze homeowners and property investors, which in turn will lead to more buy-to-let investors exiting the market and increase rental costs due to a dwindling supply of property. The impact of this will be felt far and wide. Renters in high-demand areas like London are already spending 40%-50% of their salary on rent.  We can only hope that inflation starts to settle soon, but I expect more pain before relief comes.

“Interestingly, property values remain underpinned by a shortage of supply. In good locations and at the right price point for local markets, cash buyers are still out there, while mortgage buyers are accepting the new norm of higher interest rates and factoring that into their purchasing decisions. The past decade of ultra-low interest rates and cheap borrowing is well and truly over and we are seeing a return to more “normal” rates, which all borrowers have to get used to. For existing borrowers, the Chancellor has ruled out direct government assistance but is meeting with banks on Friday to find ways to soften the blow. Let’s hope they come up with something sensible otherwise we could see an increase in defaults which have so far been muted.”
 
Chad Rogerson, Director at Newton Europe comments: “Interest rates continue to climb as the Bank of England tries to tame inflation – but cost-of-living woes are going nowhere. People across the UK are facing financial insecurity as their bills rise and their real wages stagnate – and this is especially true of mortgage-holders who are facing an average two-year fixed-rate deal of more than 6%.

“With over 800,000 households¹ coming to the end of their mortgages in the coming months, and faced with much higher rates than before, many will be searching for the best deal to remortgage their homes. In the digital age we live in, the vast majority will remortgage online – which should be the simplest, most efficient way to do so. However, this isn’t the case for all. Newton’s new Vulnerability Void report reveals that nearly one in five (22%) vulnerable customers found remortgaging online to be a difficult process – this is three times more than those without vulnerable characteristics (7%). This was largely due to people feeling anxious during the process, finding the process too long, and not understanding what the website was trying to tell them.

“With the FCA’s Consumer Duty legislation fast approaching, mortgage providers must do better. Taking a psychology led approach to better understand customer support needs is the answer for how to design more inclusive journeys for all, which is why we developed Newton’s Online Vulnerability Assessment. If Mortgage providers fail, they not only risk regulatory consequences, but they will continue to disadvantage and isolate vulnerable customers from buying products online.”
 
¹ Mortgages to go up by average of £2,900 a year for 800,000, says Resolution Foundation
 

Garry White, Chief Investment Commentator at Charles Stanley, comments: “Mortgage holders need to prepare for more pain ahead, as persistently high inflation means even more interest rate rises are likely in the coming months. Markets are now pricing in interest rates hitting 6% by the end of the year, though this could be an overly hawkish stance. Rising mortgage rates, coupled with continuing price rises in goods and services, will act as a sharp brake on the UK economy, as households rein in spending. The impact of the mortgage squeeze on consumer incomes will lead to the underperformance of UK growth compared to the more favourable GDP growth forecasts that have emerged.”