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Rachel Springall

Finance Expert & Press Officer
Published: 22/09/2022
Bank Of England

The Bank of England's (BoE) Monetary Policy Committee voted to increase the base rate by 50 basis points today, pushing this figure to 2.25% and its highest level in almost 14 years.

The last time the base rate exceeded this figure was in November 2008, when it sat at 3.00%. It was promptly lowered by one percentage point the following month.

The decision comes after the BoE expects inflation to rise further next month. Currently annual inflation is 9.9%, meaning a typical basket of goods and services is 9.9% more expensive than one year prior.

In addition, Liz Truss was announced as the new Prime Minister this month after campaigning for tax cuts in the build-up to her election.

The Monetary Policy Committee voted by a majority of five to four to raise the rate to 2.25%. Of the minority, three voted to increase the rate by 75 basis points while one member voted to increase the rate by 25 basis points. 

The decision comes at a time when the US Federal Reserve made a third successive 75 basis point hike yesterday.

“We have got to get inflation behind us," said Jerome Powell, Federal Reserve Chairman.

"I wish there was a painless way to do that. There isn't."

Two weeks prior the European Central Bank (ECB) also voted to raise interest rates across the Eurozone by 75 basis points.

What does this mean for your savings?

The variable rate savings market has experienced a positive period of rejuvenation since the start of the year. But this is largely due to competition in the top rate tables, whereas the back-to-back Bank of England rate rises have yet to be fully embraced by some of the biggest high street banks.

Savers hoping to be rewarded for their loyalty will be disappointed that not one of the biggest high street banks has so far passed on all six base rate rises to easy access accounts since December 2021*, which equate to 1.65%. In fact, some have passed on just 0.09%.

As we have seen in the past, there is no guarantee that savers will benefit from a rate rise, but they will note a movement in the top rate tables which are dominated by challenger banks and building societies.

Considering the more unfamiliar brands is incredibly important, and there is little reason to overlook them if they have the same protections in place as a well-known brand. Amid a cost of living crisis, making regular monthly savings may not be a priority for some, but it’s important consumers have enough money to fall back on to cover any emergencies.

What does it mean for your mortgages?

The mortgage market has seen relentless rate rises this year, and borrowers coming off a fixed mortgage will find the cost to secure a new deal is much higher than they were perhaps anticipating.

This could not come at a worse time amid a cost of living crisis when household budgets are stretched. However, failing to fix and falling onto a standard variable rate (SVR) is unwise, as the average rate has risen to its highest level in over a decade.

Fixing for the longer-term may then be desirable, but it is unknown if interest rates will settle, and borrowers find themselves locked into a higher rate compared to new deals surfacing. Choosing the right deal is crucial and seeking advice to navigate the mortgage maze is wise.

Remortgage customers may find they have more equity in their home due to rising house prices since the start of this year, but first-time buyers may now be facing a difficult time to afford the deposit required to secure a deal.

That said, lenders are still offering an abundance of deals both for borrowers with a 5% or 10% deposit, some of which have no upfront fees and include cost-saving incentive packages. It’s imperative these borrowers compare the overall true cost of a deal and attempt to save on the upfront cost if they have used up most of their savings on a deposit.

Borrowers sitting on an SVR who want to protect themselves from a rise in mortgage repayments could save thousands by switching to a fixed deal. The difference between the average two-year fixed mortgage rate and SVR stands at 1.16%, and the cost savings to switch from 5.40% to 4.24% is a difference of approximately £3,213 over two years**.


*Brands considered as the biggest high street banks include Barclays Bank, HSBC, Halifax, Lloyds Bank, NatWest/RBS and Santander. Barclays Bank (Everyday Saver pays 0.15% at £10k gross, up from 0.01%), Halifax (Everyday Saver - pays 0.45% at £10k gross, up from 0.01%), HSBC (Online Bonus Saver - pays 1.39% at £10k gross when no withdrawals made, up from 0.05% and Flexible Saver - pays 0.40%, up from 0.01% at £10k gross), Lloyds Bank (Easy Saver – pays 0.40% at £10k gross, up from 0.01%), NatWest/RBS (Instant Saver - pays 0.40% at £10k gross, up from 0.01%), Santander (Everyday Saver - pays 0.10% at £10k gross, up from 0.01%).

**Average standard variable rate (SVR) is currently 5.40%. Calculations based on a £200,000 mortgage over a 25-year term on a repayment basis.


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