Michelle Monck

Michelle Monck

Consumer Finance Expert
Published: 16/10/2019

Statistics released today by the Office of National Statistics (ONS) have shown continued slowing down of house price growth and a flat-lining of inflation for the months of August and September respectively.

House prices slow in year to August

The latest average house price data for August from the ONS shows an increase of 1.3% against last year. While this is an improvement of 0.8% on last month’s increase, it remains below increases seen in August 2018.

The past three years have seen a slowdown of house prices across the UK, with the South East of England being most affected. These latest results have also seen London house prices fall by 1.4% in the year to date.

 

HP Growth

 

The average cost of a home continues to rise, reaching a new peak of £235,000 in August 2019. This comes as Moneyfacts.co.uk research found more lenders offering 40-year mortgages, as lenders try to make monthly mortgage payments affordable for aspiring homeowners. For those looking for the most economical place to buy a house, Northern Ireland has the lowest average price of £137,000.

The largest increases in annual house prices were in Wales at 4.5%, however house prices remain modest in comparison to other parts of the UK at £168,000. In England, the North East had the strongest house price performance with an increase of 3.3%, followed by the North West (+3.1%).

Joe Thompson, BSA Business Economist comments: “House price growth has been relatively flat over the last year but has been supported somewhat by strong employment and fewer properties coming onto the market. The latest BSA Property Tracker survey shows that housing market sentiment is weak, with consumer confidence being affected by both political and economic uncertainty at home and abroad. We are hopeful that confidence will pick up once the UK’s plan on leaving the EU has been finalised.”

Inflation holds for September at 1.7%

The Consumer Prices Index (CPI) has held at 1.7% in September 2019. For homeowners, the biggest factor impacting the rate of inflation remains their household costs, however there was some respite as domestic fuels saw a reduction compared to August. Consumers also benefited from reductions in the cost of motor fuels, clothing and footwear, while, eating out, staying in hotels and enjoying recreational activities, such as the theatre or a show became more expensive. For those looking to make home improvements, the cost of bedroom furniture, leather sofas, vacuum cleaners and washing machines all saw increases in price.

Choice for savers to beat inflation reduces

Compared to last month, savers now have fewer accounts to choose from to beat inflation. There are now 152 fixed rate bonds, 21 fixed rate ISAs and nine notice accounts (based on a £10,000 deposit) that can now match or beat inflation*. Within that, 140 fixed bonds, 12 fixed ISAs and seven notice accounts pay more than 1.7%. In addition, savings interest rates, particularly in the easy access accounts and fixed rate bonds markets have worsened in recent months. However, savers looking for an inflation-beating savings account can still find them, particularly in notice and short-term fixed rate bonds markets.

In October 2018, just 15 deals (fixed rate bonds) could beat 2.4% (September CPI) and in October 2017, there were no standard savings accounts that could outpace 3.0% (September CPI).

 

 

Savings market analysis

Top savings deals at £10,000 gross

17 Oct 2017

17 Oct 2018

18 September 2019

Today

Easy access account

RCI Bank UK – 1.30%

Marcus by Goldman Sachs® – 1.49%

Al Rayan Bank – 1.60%**

Coventry BS – 1.46%

Notice account

Buckinghamshire BS – 1.55% (180-day)

PCF Bank – 1.85%      (180-day)

PCF Bank 1.85%      (180-day)

Gatehouse Bank – 1.82% (120-day)**

One-year fixed rate bond

Al Rayan Bank – 1.90%**

BLME – 2.05%**

BLME 2.10%**

Al Rayan Bank – 2.05%**

Two-year fixed rate bond

Al Rayan Bank – 2.20%**

Al Rayan Bank – 2.30%**

BLME – 2.35%**

Al Rayan Bank – 2.30%**

Three-year fixed rate bond

Al Rayan Bank – 2.30%**

Al Rayan Bank – 2.40%**

BLME – 2.45%**

Al Rayan Bank – 2.40%**

Four-year fixed rate bond

Vanquis Bank – 2.35%

Masthaven Bank – 2.48%

BLME – 2.25%**

BLME – 2.20%**

Five-year fixed rate bond

Paragon Bank – 2.45%

Close Brothers Savings – 2.70%

Gatehouse Bank – 2.45%

UBL UK – 2.47%

 

**Islamic bank, pays an expected profit rate. Inflation announcement dates. Source: Moneyfacts.co.uk

 

Easy access accounts see biggest drops in the best interest rates

The top easy access account at the time of last month’s inflation announcement had an expected profit rate of 1.60% and was below inflation by 0.10%. On today’s inflation rate of 1.7%, the best savings rate available is from Coventry Building Society at 1.46% (including a bonus rate of 0.31% until 31 March 2021), a 9% reduction on what savers could have achieved last month and failing to keep pace with inflation. However, today’s best rate is still in excess of what savers could have achieved two years ago.

Notice account rates hold steady

Notice accounts saw a 17% increase in the top rates available from October 2017 to today and have not seen the level of reductions experienced in easy access savings accounts. Gatehouse Bank offers an expected profit rate of 1.82% on its 120-day notice account. Savers who want to limit the longer-term erosion of their savings may prefer a notice account to a fixed rate bond as they have the opportunity to move their funds sooner and avoid a rate that offers a reducing buffer against inflation.

Fewer fixed rate bonds beat inflation in October compared to September

Savers may well turn to fixed rates to beat inflation due to their higher rates of interest, however, the number of deals that can beat its eroding power is diminishing. Indeed, due to frequent rate cuts in this sector, there are now fewer than 140 fixed rate bonds that beat 1.7%.

Go for two-year plus fixes to outpace inflation on your ISA

Fixed rate ISAs that can beat this rate are also scarce and there are no easy access ISAs able to outpace inflation. Those looking to transfer to an ISA and want to protect their savings from inflation will need to start with a two-year fixed ISA, where Al Rayan Bank offers an expected profit rate of 1.80% gross. However, savers should remember that this is not a significant gap to protect from potential inflationary increases in the future.

Rachel Springall, finance expert at Moneyfacts.co.uk, said “Savers may not want to tie their money down right now, but they will need to consider doing so if they want to beat inflation with a standard savings account. However, beating inflation may not be the priority for savers amid economic uncertainties and instead keeping their cash close in hand could be more important.

“Inflation erosion is more prevalent on fixed rate bonds with the more familiar brands, as in fact many savings providers in this market that beat inflation are the challenger banks and Islamic banks, which should not be overlooked if savers are looking for the best returns.

“As rate cuts in the savings market outpace the rises and launches, savers will need to act fast to take advantage as even the challenger banks and Islamic banks are making cuts to adjust their market position, which at present continue to lead the market with the most lucrative returns.”

*Data note: Please note that these savings product numbers only include deals that are available to all UK residents (no notice, notice, fixed rate bonds, variable or fixed ISAs) and excludes regular savers and children’s savers (this figure does not count each interest payment option for each account), based on a £10,000 deposit. Higher rates may be available for larger deposits.

Disclaimer

Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.

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