- Bank of England holds base rate at 3.75% for the fifth consecutive meeting
- Conflict in the Middle East is the biggest source of concern
- What this means for savers, borrowers and retirees
Laura Suter, director of personal finance at AJ Bell, comments:
“Like a barefoot parent in a Lego-strewn bedroom, the Bank of England has decided that the safest path through the mayhem is a straight line. It held steady, despite the spike in the oil price during June’s peace deal wobbles. However, no news isn’t necessarily good news – especially for borrowers.”
Savings
“The markets had been expecting a hold, instead predicting that the first rate hike will happen in the next meeting, in September. From there, it’s expecting one or two additional hikes in the next 12 months.
“This is good news for savers, who are still seeing fixed rates creep up – especially over particularly competitive periods. Over one year you can make 4.91% - up very fractionally from last week, and over five years you can make 4.97% - up from 4.93% a week ago. It’s a busy market right now, so the pressure is on for companies to keep their rates high enough to attract more cash.
“In a market like this, it’s always tempting to hang on, to see if better rates emerge. However, you’ll never know when the market has reached a peak - until it’s too late, and in the interim your money may be sitting somewhere far more rewarding. When there are strong deals like this around, it usually makes sense to lock in deals today instead of hanging around in the hope of more later. It’s worth checking out what’s on offer from online banks and savings platforms, which tend to offer the best rates. Using a cash savings hub can help to reduce the admin and remove the need to remember lots of different passwords for different savings account logins, while best buy tables will be your friend for hunting down top deals.”
Annuities
“Annuity rates are also benefiting from the rise in interest rates. They’ve been consistently more generous since 2022, and at the moment, a healthy 65-year-old could get an income of over £7,900 from a £100,000 lump sum. Six years ago, that was closer to £5,000.
“Rises in recent years have boosted annuity purchases, but not overwhelmingly so. The most recent figures are from 2024/25, when fewer than one in ten pension pots were accessed this way. Drawdown continues to be the most popular retirement income solution, with sales of drawdown policies increasing by around 26% during that year.
“Retirees are still finding huge value in the flexibility offered by drawdown, and the fact you can leave a portion of the money invested, offering a chance to keep pace with inflation. It’s why so many people consider drawdown, or a combination of drawdown and annuities as they go through retirement.”
Mortgages
“The fact more interest rate rises are expected in the coming months is less good news for anyone planning to remortgage or buy a property, because since the middle of this month we’ve seen lenders raising rates, with some major lenders hiking them this week too.
“It’s particularly difficult for buyers with small deposits, with the average rate for a five-year deal for those with a 5% deposit having hit over 6%*. These are often first-time buyers who are keen to get on the property ladder and out of the rental market. They face the dilemma of taking a bit longer to save up a larger deposit pot, meaning they can access cheaper mortgage rates, versus risking mortgage rates rising during that period.
“As some of the geopolitical tension subsides a little, pushing oil prices off recent highs, inflation fears may drop back a little, bringing down interest rate expectations and mortgage deals. However, the level of uncertainty around global developments mean this is far from guaranteed.
“At times like this, it can make a great deal of sense to hedge your bets. If you have a remortgage due in the next six months, check if you can agree a deal for your remortgage now. If rates fall from here, you can shop around elsewhere, but if they rise again, you’ll have locked in a competitive rate.”
*Figures from Moneyfactscompare.co.uk, showing average five-year rate of 6.07% for those with a 5% deposit.
