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Rates, and savers, borrowers and investors

ended 03. November 2022

The Bank of England is expected to unveil the biggest interest rate rise since the 1980s today as it tries to control the runaway inflation. The pressure will be heightened by the Fed's 0.75% hike last night. So a few Qs for all you money and property experts (you can respond now and update your comments if need be after midday when the decision is announced):

  • What will be the impact of today's rate rise on borrowers?
  • What will be the impact on savers (time to rejoice or negligible given double digit inflation)?
  • What will you be advising people investing in pensions and ISAs, etc to do?
  • How will today's expected rate rise affect the property market?
  • In what way could today's rate rise impact businesses?
  • Should the Bank of England be raising rates at all given current inflation is arguably being caused by external factors and that we are almost certainly already in recession?

Any other thoughts, jot them down. We will leave this alert open until 15:00 today so you can amend your quotes once the decision has been announced.

10 responses from the Newspage community

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Philip DragoumisVerified
Director and Owner at Thera Wealth Management
With the UK base rate likely to peak at 4% and perhaps above, there is no doubt that the investment landscape has changed. One year fixed deposits are at 4.6%, bond yields are around 3.5% and instant access accounts are close to 3%. Mortgage rates, on the other hand, are close to 6%. And even though inflation is above 10%, it is likely to be on a downward trajectory over the next year as austerity and the cost of living squeeze force a recession. The risk free return is no longer low enough to be ignored. For many people right now, the best home for their money may be to pay down their mortgage if they can.
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Samuel Mather-HolgateVerified
Independent Financial Adviser at Mather and Murray Financial
Most of today's increase was already baked into lenders rates so I wouldn't expect to see a big shift in products after the Bank of England announcement. Of course, it will affect people already on tracker mortgages as these rates move with the Bank's base rate. As do most easy access savings accounts. If you have money in these types of accounts, expect to get a letter saying your rate as gone up. It still falls well short of inflation, so the purchasing power of your money is still being eroded despite the increase. Business loan repayments will be heading up, but we have know this is coming and most will have planned for it. I expect rates to fall next year, so it will be a winter of battening down the hatches until the green shoots are visible. The Bank of England’s mandate is to target inflation at 2% so this is the reason we are seeing the rise. If they were given a wider mandate than the one they have, namely trying to reduce volatility in the country’s GDP, the decision might be different and create better outcomes. We all know we are in the mouth of a recession. This will mean dramatically slowing inflation, if not deflation and a crumbling economy. The Bank of England will then be forced to reduce rates. Rather than making decisions with historic data and hindsight, I’d like to see Threadneedle Street trying to forecast where the economy is going and making decisions in the best interests of the economy. This would see rates being held at their current level and this could last for longer, before considering reductions. I expect Bank Rate to go up to 4% by early Spring. This will damage households and businesses and make the recession worse. They will be held in place at a high rate for too long as the Bank waits for data showing how bad things were in the previous months, and then they will fall away into next autumn. They will never return to the historic rates of near zero, but I expect to see them down to about 2% by next Christmas as I expect the recession we are already in to be a bad one. The housing market will dry up over the next six months with or without a rate rise. It always does when the economy is going through a tough spell. I don't expect new mortgage rates to increase as lenders have pretty much factored the rate rise into their current pricing. The only thing that might change that is if the Bank acts more aggressively than expected.
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Imran HussainVerified
Director at Harmony Financial Services
A rate rise today will immediately impact those on variable rate mortgages or those on trackers; this rate rise has been on the cards for weeks now so many lenders would and should have factored this into their pricing those lenders who have not factored this into their funding lines will make changes immediately.
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Graham CoxVerified
Director at Bridging Hub
After Wednesday's 0.75% interest rate hike by the Federal Reserve, the Bank of England had to at least follow suit as a weakening pound against the dollar will only add to our inflationary woes. These are dark days for the UK economy and it won't improve until inflation and debt payments are brought under control. Today's base rate increase appears to already be priced into current fixed rate mortgage deals, which are quite expensive at the moment. So it may only be trackers and discount rates where we see significant movement. There's some silver lining for buyers in that house prices are likely to fall sharply in 2023. A drop of up to 20% next year with further falls in 2024 is quite possible. But of course, that will come at the expense of recent home buyers who could be facing a tripling or quadrupling of their mortgage rates when they come to remortgage. This will cause untold economic pain for households and could have been prevented by raising interest rates slowly whilst the sun was still shining, not sharply during the storm.
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Alastair HoyneVerified
CEO, Finanze Capital at Finanze Capital
A rate rise is inevitable while the inflation target remains unmet. Unfortunately for those with debt (the vast majority of the population) will face higher repayment rates whether immediately with tracker mortgages or credit cards etc or eventually as fixed rates end and borrowers have to refinance. Higher payments, coupled with the inflation reducing their purchasing power and one is forced into cutting back. Eventually as everyone cuts back, businesses are forced to cut prices to survive and eventually that helps to reduce inflation. By saving we eventually buy our way out of the recession when we decide to start purchasing luxuries again instead of just necessities. At least that's how it's meant to work in theory. In reality with a country chained to debt, where cutting back often isn't an option it will actually result in wide-spread suffering. Banks are often slow to pass on rate rises to savers (unlike to borrowers) so it will no doubt take a while for there to be a benefit to those with savings. Regardless with inflation it's a case of losing less money rather than actually making more. Still better then nothing. Investments will need to work harder, there will be an opportunity for those positioned to money markets and bonds, but stocks are likely to suffer as purchasing reduces (except within the utility stocks, which are necessities). House prices are likely to drop as affordability affects purchasing power. Businesses selling anything opportunistic will potentially face liquidity issues and need to borrow further to survive or release equity in assets they own. For some with reserves it will be an opportunity to take market share as others hunker down. Unfortunately the only way out of the recession is through increased rate rises and it's just something we need to grin and bear. If the government wasn't in debt they could have considered nationalising essential industries, but they have just as many debt problems as the rest of us. We just don't have the privilege of printing more money to pay for things we couldn't afford as they do. But then again excessive quantitative easing is what got us into this mess in the first place.
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Rhys SchofieldVerified
Brand Director at Peak Mortgages and Protection
When it comes to rate rises, it feels like the tail is wagging the dog. Gas and food isn't expensive because your mortgage is too cheap, but the Bank of England have to be seen to be doing something even if it's a completely blunt tool that causes untold collateral damage.
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Peter Lowman0
Chief Investment Officer at Investment Quorum
Bank of England raise rates again. We are expecting an interest rate hike of 75bps from the Bank of England today following yesterday’s Fed hike of the same amount. This would be the biggest hike in the base rate since 1989. Registering the eight consecutive rate hike in the U.K. mortgage rates are expected to rise accordingly in response to the Bank of England’s decision adding more pain to consumers and overall household costs. Furthermore, this is likely to have a further negative effect on the property market which is already softening as mortgage providers withdraw their offers to perspective first time buyers. Clearly, a positive outcome for savers that have suffered in recent years from low to zero interest rates. Whilst any interest rate hike is a shock to the financial system the markets have been well informed by the governor of the Bank of England in recent months to the direction of rates. High indebted businesses will suffer from todays news and any future rate hikes therefore investors need to be wary of those sorts of businesses given the levels of insolvencies could begin to rise over time. Whilst there is the debate of whether the Bank of England should be raising rates at all I think the message has been clear for sometime that the Fed and Bank of England are determined to tame inflation at all costs. In respect to investments we would see any weakness in the markets as a selective buying opportunity.
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Mark Robinson0
Managing Director at Albion Forest Mortgages
Whilst we never know what the lenders will do, we can have a punt at a prediction. This coming rate rise today has been predicted for a long time, and I believe that lenders will have factored this in already. I am hopeful that we shouldn't see too much change other than maybe some tracker rates today. Things are still improving and we may even see further reductions in coming weeks while lenders are still adjusting to the new government and a bit more economic stability.
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Sabrina Hall0
Mortgage Adviser & Protection Adviser at Kind Financial Services
I appreciate that the bank of England has a remit to keep inflation to a target of 2% and that it's vital that we control inflation but so many factors that are contributing to the rise in inflation are external. Factors such as the war in Ukraine, Brexit and economic recovery from Covid are not going to be fixed by a base rate rise but in the meantime it will cause uncertainty and hardship to many households. At the same time I understand that it's the only tool that we have at our disposal to try and soften the blow of inflation but it feels like trying to cut metal with a butter knife.
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David RobinsonVerified
Co-Founder at Wildcat Law
Interest rate rises bring little relief to overstretched pensioners. That is because even with fixed rate bank deposits hovering around the 5% mark this is nowhere near sufficient to counteract the effect of inflation. With other investments experiencing high volatility pensioners in particular are suffering and will continue to do so. They cannot afford to ride out markets as they typically need to draw on savings and investments now to pay their bills. Those that rely on income from drawing down their pension pots will be especially hard hit as they are being forced to take income from investments that have fallen in value. Many of these funds will never recover leaving financial scaring that will impact a generation of pensioners. For the lucky few that have large cash savings, now is the time to look to paying off or at least paying down any debt that is on a variable rate. Deposit rates are unlikely to be anywhere near as high as the rates they will be paying on interest.