Mountain for wannabe homeowners is getting steeper

After the Bank of England base rate rise, our senior personal finance analyst considers first-time buyers and savers.

Commenting, Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “Upping the rate of interest is meant to rein in the ballooning cost of living, but it will have the opposite effect for the 1.1 million UK homeowners on standard variable rates and the 850,000 on tracker deals.

“There’s also a risk to consumers, who are already struggling to keep up with repayment obligations, being overwhelmed by the higher debt servicing costs. Placing additional pressure on households already tightening their belts as wages struggle to keep pace with inflation could hurt consumption – a key driver of the UK economy.

First-time buyers

“While the rate rise increases the affordability burden for first-time buyers, mortgage rates are likely to remain cheap by historical standards once the hike filters through. But home ownership remains unaffordable for many because home values have climbed so much faster than earnings. The prospect of further interest rate rises in 2022and the ongoing cost-of-living squeeze mean the mountain wannabe homeowners have to climb to get on to the property ladder is getting steeper.

Savings

“Saving rates aren't anything to shout about at the moment – and this will likely remain the case despite the modest uptick in the base rate. Savings rates have only gone up a smidge since December’s interest rate hike and banks and building societies might be even slower in passing on the latest increase – if at all. Even so, it still pays to shop around for the best deal.

“Low savings rates provide an impetus to invest, and while the potential for greater returns from the stock market comes with inevitable risk, taking a long-term view means you can smooth out some of those highs and lows while benefiting from the long-term potential that comes with this approach.”