Following the Bank of England’s (BoE) decision not to raise interest rates last week, Finance Monthly has heard from a few sources who have provided expert commentary.
Richard Haymes, Head of Financial Difficulties at TDX Group:
The decision is good news for those living in debt or teetering on the edge of financial difficulty. We expect the level of monthly Individual Voluntary Arrangements (IVAs) and Trust Deeds to grow by around 17% this year; a rise in interest rates would have a significant impact on the ability of these individuals to meet repayments and ultimately stay within the strict requirements of these debt solutions.
Figures from Creditfix, the largest provider of personal insolvencies in the UK show that 20.2% of its customer base holds a mortgage. It’s likely, due to their credit position, that most of these customers will have a variable mortgage that would have left them particularly vulnerable to an interest rate rise. A 0.25% hike would have left holders of £250,000 mortgages with a monthly repayment increase of £31*. This may appear a modest rise but for people trying to manage debts through IVAs or Debt Management Plans it could have a detrimental impact, rendering debt solutions unviable or in need of renegotiation.
While a continuation of the low interest environment is bad news for people holding pensions, investments and living on savings – reducing their earning potential compared to periods of ‘normal’ monetary policy, a static interest rate provides relief and stability for those in financial difficulty or on the brink of difficulties.
Stuart Law, CEO, Assetz Capital:
This change in thinking for the Bank of England following an expected rate rise is hardly surprising given the economic uncertainty and poor GDP growth figures. We expect that any increases that do happen over the next year would simply be a short-term measure ahead of Brexit, in case there is a need to drop rates again next year.
Even if interest rates do rise slightly later this year, it’s likely to only be by a small amount. Despite the predicted drop in inflation, this announcement is likely to receive a less than warm reception from high-street savers, who are seeing the value of their hard-earned money decreasing each day through inflation – and of course, many banks will not pass all or any of this rise on to savers.
Angus Dent, CEO, ArchOver:
With Britain’s GDP growth at just 0.1%, it’s no surprise that the Bank of England has kept interest rates stagnating at 0.5%.
Just last month a rate rise seemed a foregone conclusion. Today’s decision is yet another result of the uncertainty surrounding the UK’s financial health. And keeping rates so low means savers lose out once again.
Savers leaving their cash languishing in savings accounts in the vain hope of a rate rise will be sorely disappointed. With the economy in the doldrums, it’s time for a serious rethink – crossing your fingers and hoping for the best does not equal a productive savings strategy.
The news that the majority of banks didn’t pass November’s rate rise on to their customers adds more fuel to the fire, showing that even an historic rise didn’t have the desired effect on savers’ pockets.
Savings accounts are no longer a safe bet for decent ROI. Consider alternative financing options that can offer higher yield without compromising on security. Optimism is all well and good – but we all need a healthy dose of realism if we’re going to make our money work harder.