Outflows from flexible savings accounts surge as mortgage approvals drop

Myron Jobson, senior personal finance analyst at interactive investor, comments on the latest Bank of England Money & Credit report.

Commenting, Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “The latest Bank of England figures suggest that enthusiasm for cash savings has been renewed following a reprieve in savings rates. Eight consecutive hikes to the base rate have propped up savings rates from rock-bottom lows. There was a significant uptick in the amount of cash deposited in fixed-term accounts, which typically offer a more attractive savings rate with a trade-off of not being able to access your cash without penalty until the end of a specified period.

“But this is offset by outflows to the tune of £4.8 billion from ‘sight deposit’ accounts, flexible savings accounts allowing savers to make withdrawals without giving notice. This suggests that more and more people are being forced to raid easily accessible savings to help tide them over amid the cost-of-living crisis.

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“Meanwhile, the ongoing cost-of-living storm continues to impact our attitude to debt. Borrowing figures were up £200 million hitting £800 million in October from £600 million in September. However, this was still below the previous six-month average of £1.3 billion. The cost-of-living crisis, in tandem with the impending recession, have seemingly disincentivised many from borrowing.

Mortgages

“Average mortgage rates soared in October in the aftermath of the ill-fated mini-budget which sent rates soaring and led to the temporary withdrawal of some products from the market.

“The mortgage market is on a sturdier footing and the cost of fixed-rate deals have actually moved in the opposite direction despite the recent increase in the base rate. This is because fixed-rate deals aren’t as sensitive to base rate rises as variable rate loans, but other factors such as money market swap rates and gilt yields play a significant role in the pricing of fixed-rate mortgages. But the golden era of low mortgage rates appears to be at an end.

“A combination of heightened mortgage rates, which have hit levels not seen since the financial crisis, and the cost-of-living crunch has become a growing blocker for wannabe homeowners and those seeking to move up the property ladder. These factors, in tandem with a pending recession, could push many buyers to the sidelines for some time to come.”

Key points:

• Mortgage approvals for house purchases decreased to 59,000 in October from 66,000 in September.
• The ‘effective’ interest rate – the actual interest rate paid – on newly drawn mortgages increased by 25 basis points, to 3.09% in October.
• Households deposited an additional £6.2 billion with banks and building societies in October. Within this, flows into time deposits significantly increased to £11.3 billion from £2.9 billion. These were, however, partly offset by -£4.8 billion of flows out of interest-bearing sight deposits.