New figures show that British savers have actually lost money in real terms since 2020, making long-term property investment an even more appealing option.
Until 2022 when the Bank of England base rate began to edge upwards, interest rates had settled at ultra-low levels for almost 14 years since they were pulled downwards in the wake of the 2008 financial crash.
While this fall in interest rates had a somewhat positive impact for borrowers who could avail of historically cheap mortgage rates – boosting affordability for property investment – savers reaped pitiful returns from any money they had in the bank.
But even with the base rate rising after the mini-Budget of 2022, from its low point of 0.25% all the way up to 5.25% in August 2023, many savers have not seen the benefit, according the the latest research from Moneyfacts.
In fact, the analysis has revealed that £1 saved in 2020 is actually worth 11p less now (just 89p) in real terms, because average saving rates have not kept up with inflation.
Scant returns from savings
The Bank of England base rate isn’t the only influencer of what savings rates are on offer, but it is a good measure of general rates set by banks and lenders. Rates are set based on other economic factors, including swap rates.
According to Moneyfacts, between 2008 and 2022, average savings rate sat at an average of 1.52%, which was 1.18% below inflation. During the same time period, house prices recovered quickly from the financial crisis and gained in value, offering potentially significant higher returns from property investment than savings.
Moneyfacts compares these savings rates with the period between 1995 and 2007, when the average rate was 3.78% – 2.06% above inflation. This meant real returns were achievable for savers.
Since July 2023, the margin between average savings rates and CPI has been just 0.49%, says Moneyfacts. With 2.1 million people liable to pay tax on their savings interest – which is set to rise by a further 3.5 million by 2027/2028 – the comparison company notes: “A margin of this size is not enough to deliver positive real returns.”
There are inflation-beating savings accounts out there, though, which can offer much greater prospects for savers.
Adam French, Head of News at Moneyfacts, said “A generation of savers have paid a high price for low rates which have so far failed to ignite meaningful economic growth.
“Savers must act quickly to avoid inflation eroding their hard-earned wealth by moving their money to some of the more than 1,000 savings accounts available on the market that are beating inflation. Some of the top-paying accounts, which include easy access and fixed term accounts, pay over 4%, plus the best regular savings accounts, into which you can save smaller amounts each month, are paying around 7%.”
Property investment: what’s the outlook?
While savers have struggled to see significant gains from money stored in standard savings accounts, the housing market and property investment landscape has thrived.
Those who have funnelled their savings into property investment during this time will not only have seen gains in their home’s value – with demand skyrocketing in the private rented sector, rental returns have also increased for landlords, helping to offset higher borrowing costs.
Cash property investment has also become more popular since interest rates increased, meaning no borrowing costs and potentially greater profits from property investment.
Since 2020, average UK house prices have risen by 20%, while 12% of all homes have risen in value by a huge 50% or more. The strongest property price growth has been seen in places like the North West, Wales, Scotland and Yorkshire and the Humber, with these locations all surging in popularity as property investment hotspots in recent years.
Of course, property investment requires a larger initial cost than many savings accounts require, with other costs to take into account including mortgage payments, additional stamp duty, and ongoing buy-to-let running costs. It is advisable to speak with an expert to assess your financial situation and decide whether property investment is the best option for you.
Speak with one of our property investment consultants today to discuss your financial goals, and find out more about our current and upcoming opportunities.
