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Rachel Springall

Finance Expert & Press Officer
Published: 05/05/2022
Bank Of England

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The Bank of England has today increased base rate by 0.25%, up from 0.75% to 1.00%. We have analysed the average rates offered across savings and mortgages and considers what this decision may mean for consumers moving forward.

An increasing cost for borrowers

The decision to increase base rate will be disappointing news to consumers who are already facing a cost of living crisis, with further rises anticipated over the next 12 months. Borrowers sitting on a variable rate may want to lock into a competitive fixed rate mortgage deal to protect themselves from rising interest rates, perhaps sooner rather than later as fixed rates rise, with the average two-year fixed rate surpassing 3.00%. Fixing for longer may be a logical choice for peace of mind with mortgage payments when other household costs are increasing. The differential rate between the average two-year and five-year fixed mortgage rate is much smaller than in previous years. However, aspiring homeowners may need to rethink whether they can even afford to step onto the property ladder due to rising costs and soaring house prices.

Switching from a standard variable revert rate (SVR) to a fixed rate could significantly reduce someone’s mortgage repayment. The difference between the average two-year fixed mortgage rate and SVR stands at 1.75%, and the cost savings to switch from 4.78% to 3.03% is a difference of approximately £4,611 over two years*. A rise of 0.25% on the current SVR of 4.78% would add approximately £695* onto total repayments over two years. 

*Average standard variable rate (SVR) is currently 4.78%. Calculations based on a £200,000 mortgage over a 25-year term on a repayment basis.


Speak to a Mortgage Advice Bureau adviser today about your mortgage


Savings accounts looking for improvement

Loyal savers who have an easy access account with one of the biggest high-street brands are seeing little benefit from base rate rises, as many of these brands have passed on just 0.09% since December 2021 and none have passed on all three base rate rises, which equate to 0.65%**. The average easy access rate has risen by 0.20% since the start of November 2021, so there is still room for improvement across the sector, but as rates rise, comparing deals and switching is wise. As we have seen before, it can take a few months for customers to see any benefit from a base rate rise but there is no guarantee that savings providers will increase their rates. Should savers see 0.25% passed onto them, it would mean receiving £50 more a year in interest based on a £20,000 investment.

The top rate tables for easy access accounts are experiencing some rivalry from challenger banks, which is great news for savers who prefer to keep their cash close to hand. There is no certainty for a top rate deal to last very long, but consumers can easily switch between accounts if they desire. If savers are using easy access accounts as a safety-net, they must check that they will not get penalised for withdrawals and ensure it’s still offering a competitive return. Overall, it is positive that savings rates are rising and hopefully will continue to do so in the weeks to come.

**Brands considered as the biggest high-street banks include Barclays Bank, HSBC, Halifax, Lloyds Bank, NatWest/RBS, and Santander. Out of these, the following brands have not increased rates by 0.65% on these selected easy access accounts since the December 2021 base rate rise: Barclays Bank (Everyday Saver pays 0.01% at £10k gross), Halifax (Everyday Saver - pays 0.15% at £10k gross, up from 0.01%), HSBC (Online Bonus Saver - pays 0.45% at £10k gross, up from 0.05% and Flexible Saver - pays 0.10%, up from 0.01% at £10k gross), Lloyds Bank (Easy Saver – pays 0.10% at £10k gross, up from 0.01%), NatWest/RBS (Instant Saver - pays 0.10% at £10k gross, up from 0.01%), Santander (Everyday Saver - pays 0.10% at £10k gross, up from 0.01%).



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