If you are approaching the end of your 5-year fixed rate mortgage and currently enjoying an interest rate of around 2%, you have probably been watching the fluctuations of interest rates with some trepidation. The November 0.25% cut from the Bank of England has not fed through to your prospective remortgage interest rate and some lenders are even going in the opposite direction of the Bank and nudging rates upwards. What’s going on? The answer is nothing unusual, despite the contrary movements. It is a common misconception that the Bank of England controls interest rates. The Bank does manage short-term interest rates by setting its Bank Rate, which is the rate it pays on the money it holds for commercial banks. By fixing a minimum fully secure return that the commercial banks can earn, the Bank of England influences what those banks can charge for lending. The key point is that the Bank of England is setting a short-term rate which can theoretically, change every six weeks, when the Bank’s Monetary Policy Committee meets to set rates. Longer term interest rates are not usually controlled by the Bank of England but set by the markets. The markets will take account of the current Bank Rate but if a fixed rate for, say, 5 years is under consideration, then the market is implicitly estimating the movement of Bank Rate over the next 60 months. As with any medium-term financial forecast, that forward-looking calculation has a wide range of factors built in. The result can be that as the short-term Bank Rate is cut in response to current economic conditions, longer term rates rise because of the markets’ views of longer-term prospects. The graph above illustrates how the Bank Rate and the yield on 5-year fixed rate government bonds have moved between mid-July and mid-November in 2024. While the Bank Rate has fallen 0.5% over the period, the yield on the five-year gilt has risen by about 0.4%. That reflects the market changing its mind about how quickly and how far the Bank will cut rates. If your mortgage is due for refinancing soon, you may find yourself hopefully watching the markets for signs of that change of mind. Your home is at risk if you do not keep up with repayments on a mortgage or other loan secured on your property.

Now that the UK has its first Labour government in 14 years, there is a certain irony that one of the policies of the last Labour government is still playing out, despite being scrapped by the Conservative/Liberal Democrat coalition government in 2010. CTFs were launched in January 2005. Over the next six years, the government paid £2 billion into accounts for 6.3 million children born between 1 September 2002 and 2 January 2011. In practice, most children’s CTF received a single payment of around £250, which was doubled for low-income families. A second similar payment was made once the child reached age 7, as long as this occurred before 3 January 2011. The government made these payments through a voucher sent to the child’s parent or guardian. The method was not a great success. As a result, HMRC opened 28% of all CTF accounts by default on behalf of children whose parents/guardians had left the vouchers unused for 12 months. However, the lack of interest by parents/guardians signalled the future problems that would emerge when CTFs began to mature as children reached age 18. Jump forward to 5 April 2024, when recently published HMRC statistics revealed that 671,000 CTFs had reached maturity but were unclaimed. More than half were for adults of 19 or older. The average value of the unclaimed plans was a little over £2,000. However, there were 25,000 plans with a value of at least £10,000, almost certainly the result of additional contributions by parents or relations. If you, your children or grandchildren want to track a ‘lost’ CTF, then HMRC has a web tool that can supply the name of the CTF provider. Fortunately, a rule change several years ago means that the UK tax freedom enjoyed by CTFs continues beyond age 18. However, it may be better to transfer the matured CTF monies into a new adult ISA, which could potentially offer lower charges and/or a wider investment choice. For the same reasons, it can be worth transferring CTFs yet to mature into a Junior ISA.

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