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What next for mortgage rates and savings?

How to manage your finances amid rising interest rates and inflation

Mortgages rates may start coming down towards the end of the year. Photo: Getty (svetikd via Getty Images)

Variable mortgage rates and easy access savings accounts have both risen slightly in the wake of the Bank of England’s decision to hike rates again in March. There’s also been a small bump in fixed savings accounts and fixed mortgage rates. The question on many people’s minds will be whether this is a sign that rates are heading back up again – and what happens next.


In the aftermath of the announcement, variable rate mortgages bumped up immediately. Trackers are explicitly linked to the Bank rate, and while the standard variable rate isn’t officially linked, it tends to rise whenever the Bank rate does.


It was a much more mixed picture for fixed rate deals, with some rises and some cuts, but overall in the week to the 28 March, Moneyfacts said the average two-year fixed-rate mortgage had risen from 5.3% to 5.4%.

This rise was due to the fact that inflation had been higher than expected, and the markets started to think there was a higher chance of one or two more rate hikes in the coming months. This fed into what’s known as the ‘swaps’ market. Essentially for a lender to be able to offer a fixed deal it has to go to this market and ‘swap’ its variable rate for a fixed one. If the market thinks rates will rise during the period the lender wants to fix for, they’ll offer expensive fixed rates. If they think they’ll fall, they’ll offer a cheap fix. The small bump is due to this market factoring in a couple more rises than they had previously.

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However, this is likely to be a relatively short-lived phenomenon, because from the middle of the year, the market expects inflation to fall back significantly and rapidly, so rates will stop rising. Then, as the economy struggles at the end of the year, we may start to see rate cuts. This is all priced into fixed rates over two and five years, so we expect to see these fall further as we go through 2023.

For those on variable rates, who are wondering whether to fix, it’s going to be a difficult balancing act. Variable rates have got increasingly expensive, and could continue to do so, so if you hold on, you could end up with higher monthly payments. However, on the flip side, with fixed rates on the way down, holding off could mean a cheaper deal when you fix at the end of it. In the final analysis, it will come down to whether you can face the risk of more rises in the short term. Some people will have the wiggle room and the nerve. Others need certainty over what’s likely to be their biggest monthly outgoing.

If you haven't moved your savings to a higher paying account recently, now is the time to do it, as interest rates on savings accounts are finally nudging upwards. Photo: Getty (DRAKULA IMAGES via Getty Images)


Savings rates have moved far less dramatically than their mortgage equivalents over the past six months. Back in September, when the market was pricing in runaway inflation, and mortgage rates went through the roof, savings rates rose much more slowly. This is because the market is dominated by the high street giants, who were sitting on plenty of lockdown savings, so weren’t in a rush to raise rates and attract more cash. The smaller players, who were prepared to work for our money, couldn’t risk going out too far ahead of their competitors for fear of filling their coffers too quickly at too high a price, so we saw them gradually inch their way northwards. At the end of February, according to Moneyfacts, the average easy access rates was 1.83%, whereas towards the end of March it was 1.93%.

Read more: Cost are set to rise in April – this is how you can save

While the Bank of England keeps raising rates, we can expect more of the same, and given that the market believes we may still get another rate rise or two before the Bank presses pause, easy access rates are likely to go higher from here. When the rate rises stop, this may slow and could stagnate – and when rates fall, they’re likely to be cut. Predicting exactly when any of this is going to happen is fraught with difficulty, but you don’t need to find the best possible time to switch in order to benefit. For variable rates, incremental changes really add up over time. If you haven’t switched easy access accounts for some time, it’s worth checking what else is out there, because you can currently make more than 3.25%.

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Fixed-rate savings accounts have fallen back from the peak in October, but regained some ground in recent weeks. The average 1-year-fix is up from 3.65% at the end of February to 3.76% towards the end of March. We could see some more attractive rates emerge in the coming days. However, further out, we expect fixed rates to fall again – reflecting expectations that later this year inflation will drop like a stone.

The decision of whether to switch or fix comes down to whether you’re happy with rates as they are right now. You might end up with a better rate by holding off for a short while. The trouble is that you won’t know you’ve reached the peak until it has passed and rates are on the way back down. Instead, it’s worth looking at the best deals available today, and deciding whether you’re happy to fix. You can currently make up to 4.5% by fixing for a year, which you may decide is rewarding enough to consider.

Watch: When should I start paying into a pension?

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