Fixed rate deals may be near the peak
Fixed rate deals for mortgages and savings may well have peaked, according to Hargreaves Lansdown.
“We’ve seen a flurry of savers fixing their rates while the going is good. It’s a sensible approach, because although the market is predicting another couple of rate rises from the Bank of England, when it comes to fixed rate mortgages and savings, we may well be around the peak,” said Sarah Coles, head of personal finance at the fund supermarket.
The Bank of England is expected to raise rates next week, up 0.25pp to 5.25 per cent. Another raise is expected in September to 5.5 per cent, and then hold.
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“Variable rate deals will move with the Bank of England, which is expected to raise rates twice more,” said Coles. “Tracker mortgages will rise overnight, while standard variable rate mortgages may push up slightly less, and easy access savings will tend to inch up very slowly, because no provider wants to move too far ahead of the others.
“However, fixed rate deals are different. These are priced based on what the market expects to happen to interest rates in the future. When inflation figures surprised on the upside five weeks ago, it started pricing in a rise to 6.75 per cent. Now inflation has surprised on the downside a month later, the market is pricing in a rise to around six per cent instead. As a result, it’s cheaper for lenders to secure a fixed rate, so they are passing those savings on.”
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When it comes to fixed rate savings, Coles said this tends to move slower than their mortgage equivalents, but has gradually crept up. On Active Savings, HL’s cash savings platform, 74 per cent of new money went into fixed rate accounts in July – up from 66 per cent in June. The majority of this is fixed for a year or less.
For mortgages, Coles said for those who have been sitting on a variable rate, this coud be the time to act. “You will need to be comfortable with watching fixed rates fall further into next year, but you will have the certainty of a fix at a lower rate than we’ve seen for weeks,” she added.
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