BBC Money Box experts explain increases to State Pension
The Bank of England’s decision to hike base rates to five percent on Thursday was a shocker. It will add another £71 a month to the cost of servicing a variable rate tracker over a 25-year term, or £852 a year.
Taken on top of all the BoE’s other rate hikes, this could add around £3,000 a year to mortgage costs.
While panicky headlines report that average two-year fixed rate mortgages are above six percent, rates on new best buy deals are actually well below that.
Barclays offers a tracker charging 0.15 percent above base at 5.15 percent. It’s available up to 60 percent loan-to-value (LTV) with a £999 fee.
HSBC offers a five-year fixed rate 4.89 percent to 75 percent LTV, again, with a £999 fee.
Mortgage rates are high in comparison to the past few years, but they are nowhere near historic levels, said Anthony Harris, independent financial adviser at Continuum. “Clients who had mortgages before 2008 have seen these numbers before, whilst first-time buyers are moving from rents that are similarly high.”
During the house price crashes of the 1980s and 1990s, lenders were quick to repossess but they will take a more lenient attitude today.
While the mortgage crunch will cause widespread pain, only a small proportion are affected, said Mike Stimpson, partner Saltus. “Some 2.4million households will see their fixed-rate mortgages expire over the next year, but that’s only one in 10 of the country’s 23million households.”
A third of Britons own their homes outright and have no debt, outnumbering those who have a mortgage or rent.
“Inflation remains the biggest concern for most people, and raising rates is the way to bring it down, even if it does come at a price,” Stimpson said.
There are far more savers than mortgage holders and they have cause to celebrate after years of frustration, said Kevin Mountford, co-founder of savings platform Raisin UK. “Some best buy accounts could soon pay six percent, a rate last seen in November 2008.”
This comes as much needed relief after a dozen years when cash paid next to nothing.
Barclays, HSBC, Lloyds and NatWest continue to offer dismal savings rates but the best buy tables are full of smaller challenger banks paying much more.
Cash still pays less than inflation but with consumer price growth expected to fall to 4.5 percent by year end, locking into one of today’s fixed-rate bonds could make sense.
Today’s sticky inflation may add hundreds of pounds to next year’s state pension, thanks to the triple lock, which increases payments by inflation, earnings or 2.5 percent, whichever is highest.
This handed pensioners a 10.1 percent increase in April, based on last year’s September’s inflation figure, giving those on the new state pension almost £1,000 a year extra.
Damon Hopkins, head of DC workplace savings at consultancy Broadstone, said the next triple lock uprating will almost certainly be based on this September’s inflation figure. “This looks likely to drive another substantial state pension increase.”
If inflation dips only slightly to eight percent the new state pension would rise by £848 to £11,448 a year. “Even if inflation drops to six percent it would still drive a £636 increase.”
Hopkins said the triple lock’s future is under threat but added: “It would take a brave Prime Minister to break a key manifesto pledge for the second time in three years, especially so close to a General Election.”
If inflation continues to slide after September and into 2024, as analysts expect, pensioners could end up enjoying the second inflation-busting pay rise in a row next April.
However, this will only partly make up for the 2022/2023 financial year, when they got just 3.1 percent, after Chancellor Rishi Sunak suspended the triple lock.
Inflation then took off like a rocket, making pensioners much poorer in real terms.
Despite Wednesday’s dismal inflation figure there are signs that price growth is now falling worldwide, and forecasters reckon the UK rate should fall below five percent by year end.
Ellie Sawkins, investment analyst at advisers Wealth Club, said food prices are expected to fall sharply while the UK economy is still slightly growing slightly and may avoid a recession.
“Spare a thought for those in Turkey, where the central bank has just raised interest rates by 6.5 percent to 15 percent.”
While that will be little consolation for anybody worried about hanging onto their home, things could be always be worse.
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