Savers could enjoy continued strong returns as interest rates are expected to remain elevated, but borrowers are being warned of rising mortgage costs, with some facing an extra £1,700 a year. According to analysis from Moneyfactscompare.co.uk, while savings rates have climbed above inflation, new borrowers are still seeing significant increases in their mortgage payments.
The average two-year fixed mortgage rate rose from 5.56% to 5.83% since the start of the latest Middle East conflict, while the average five-year fix increased from 5.54% to 5.73%. For a typical £250,000 mortgage over 25 years, this translates to an extra £1,700 annually for a two-year fix and £1,300 for a five-year fix. Despite some lenders, including HSBC, Lloyds, Halifax and Barclays, cutting rates by up to 0.37% in the past week, the overall trend remains upward.
Caitlyn Eastell, personal finance analyst at Moneyfactscompare.co.uk, said: “Rising mortgage rates seem to have stabilised as average rates have held firm in recent weeks. However, borrowers could still be facing a £1,700 yearly increase on a two-year fix or £1,300 on a five-year fix since the conflict in Iran began.” She noted that swap rates have edged closer to 4%, prompting some lenders to introduce cuts, but added: “Markets are still sensitive to sudden shifts, so it remains to be seen how long this will be the case.”
The current average savings rate stands at 3.46%, above the March Consumer Price Index (CPI) of 3.3%, meaning savers can achieve real returns. There are 1,582 savings accounts that beat inflation, including 139 easy access accounts, 131 notice accounts, 138 variable rate ISAs, 387 fixed rate ISAs and 787 fixed rate bonds. By Q3, inflation is expected to hit 3.5%, but Eastell said the “higher for longer” stance could temporarily push the number of competitive savings deals even higher.
Eastell advised savers to shop around: “While they may be able to enjoy more competitive returns in the short-term, inflation will quickly catch up, eroding their hard-earned cash. In any case it’s crucial savers shop around for deals that pay over 3.3% to ensure they aren’t left out of pocket.”
