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The Bank of England has today increased base rate by 0.25% up from 0.50% to 0.75%. Moneyfacts has analysed the average rates offered across savings and mortgages and considers what this decision may mean for consumers moving forward.
As the cost of living continues to rise, the latest base rate rise comes at the worst possible time for borrowers who are not locked into a competitive deal. Mortgage rates have been rising over the past few months and this latest decision makes it imperative for consumers to assess their current deal to see if they can switch to save some cash on their monthly mortgage payments. The desire to fix for longer may well be in the mindset of borrowers who are conscious that rates are expected to climb even further and there are even 10-year fixed mortgages to take into consideration.
Those borrowers who switch to a competitive fixed rate from a standard variable revert rate (SVR) could reduce their mortgage repayments significantly. The difference between the average two-year fixed mortgage rate and SVR stands at 1.96%, and the cost savings to switch from 4.61% to 2.65% is a difference of £5,082 over two years* approximately. Borrowers who have sat on their SVR since before the December and February rate rises may well have seen their SVR increase by up to 0.40%, with around two thirds of lenders increasing their SVR in some way, this latest decision could see repayments rise further. Indeed, a rise of 0.25% on the current SVR of 4.61% would add £689* approximately onto total monthly repayments over two years.
Not one of the biggest high-street banks has passed on the last two BOE base rate rises to savers who have an easy access account, and as some of these rates are as low as 0.01%, it’s imperative savers reconsider their loyalty and switch away from these brands to something more attractive**. As we have seen time and time again, there is no guarantee savings providers will boost their rates because of a BOE rate rise and even if they do it could take a few months to trickle through to customers. Should savers see 0.25% passed onto them, it would mean receiving £50 more a year in interest based on a £20,000 investment.
Challenger Banks and building societies have not been shy to compete in the easy access space, and if they have the same protections in place as the biggest high-street banks, then there is little reason to overlook them in favour of a more familiar brand. The top rate tables are experiencing a positive uplift and there is hope that rates will continue to rise, however, we may not see pre-pandemic interest rates for some time yet.
*Average standard variable rate (SVR) is currently 4.61%. Calculations based on a £200,000 mortgage over a 25-year term on a repayment basis.
**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 for these selected easy access accounts since the December 2021 base rate rise: Barclays Bank (Everyday Saver pays 0.01% at £10k gross), Lloyds Bank (Easy Saver – pays 0.01% at £10k gross), Halifax (Everyday Saver - pays 0.01% at £10k gross), NatWest/RBS (Instant Saver - pays 0.01% at £10k gross), Santander (Everyday Saver - pays 0.01% at £10k gross). The only bank to increase rates is HSBC (Online Bonus Saver - pays 0.25% at £10k gross, up from 0.05%, and Flexible Saver - pays 0.10%, up from 0.01% at £10k gross as of 1 Mar 2022), but none of the brands mentioned have passed on 0.40%.
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