Interactive Investor

‘The focus has shifted to remortgages’

4th January 2022 11:04

Myron Jobson from interactive investor

interactive investor comments on the latest Bank of England money and credit data.

Myron Jobson, Personal Finance Campaigner, interactive investor, says: “The mortgage market is still adjusting to the loss of the stamp duty holiday, which propped up the property market during the pandemic, before it was completely phased out at the end of September.

“While net lending increased in November following a contraction the month before, the net borrowing was £2.9 billion below the 12-month average to June 2021, when the full stamp duty holiday was in full swing.

“The focus appears to be shifting to remortgages, which saw a significant jump in activity in November as borrowers with home loans set to mature opting to lock into a fixed-rate deal ahead of the highly touted rise in interest rates.

“While many mortgage lenders wasted no time in announcing hikes to mortgage rates, with some doing so mere minutes after the Bank of England announcement in December, mortgage interest rates still remain super low by historical standards.

“We are likely to continue to see more borrowers take advantage of the low rates that are still on offer. With the cost of so many other things on the up, opting for fixed-rate deals offers payment certainty as well as protection against rising interest rates, which could create valuable breathing room in your household budget at a time when rates appear likely to rise further.

“Higher interest rates increase monthly costs for the 1.1 million UK homeowners on standard variable rates and the 850,000 on tracker deals. They might also increase the cost of other debt you have in the form of loans, credit cards and overdrafts. Paying these down, focusing on the highest rates first, can help ease the pain. Those riddled with debts who are struggling to pay might be able to arrange an alternative. It is worth consulting a debt advice charity such as StepChange or Turn2Us and they will go through all your options.”

On savings, Myron Jobson says: “Inflows into savings accounts fell in November, as consumers seemingly awaited a reprieve to savings rates that should theoretically follow a rise in the base rate. However, while many banks and building societies were quick to pass on cuts to the base rate to savers in the past, the same might not happen to bolster savings rates.

“Even, so, it pays to shop around for the best deal. If you won't need the money for the next year or so, it is worth considering putting some money in a fixed-term savings account for a better savings rate. Those who can afford to keep their money locked up for five-plus years should consider investing for the potential of higher returns.”

Key points

  • Net borrowing of mortgage debt by individuals amounted to £3.7 billion in November. Mortgage approvals for house purchase were relatively unchanged at 67,000 in November, close to the 12-month average up to February 2020 of 66,700.
  • The effective interest rate on newly drawn mortgages fell to a new series low of 1.5%, while the rate on the outstanding stock of mortgages also fell to a new series low of 2.02%.
  • Consumers borrowed an additional £1.2 billion in consumer credit. The effective rate on new personal loans increased to 6.43% in November and is the highest since March 2020 but remains below the January 2020 level.
  • Households’ net flow into deposit accounts fell in November to £4.5 billion. The effective interest rate paid on individuals’ new time deposits, an interest-bearing savings account that has a pre-set date of maturity, with banks and building societies rose to 0.37%.

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