personal finance

Savings banks and mortgage lenders react to the rate rise

Savings banks and mortgage lenders have been quick to react to the Bank of England’s decision to increase interest rates this week by a quarter point to 0.75 per cent.

With interest rates now at their highest level since 2009, the central bank’s move has provided limited relief for savers — but will push up costs for millions of mortgage borrowers on floating rates.

On Friday, many challenger banks and building societies announced they would be increasing rates on popular savings products — though few have passed on the full quarter-point increase, according to data from Moneyfacts, the comparison website.

Those to raise rates include the following providers (gross interest rates, payable on anniversary of the account being opened, unless otherwise stated):

  • Skipton Building Society will pass on the 0.25 per cent increase “in full” to all variable rate savings accounts, and will now pay 1 per cent interest on its Cash Lifetime Isa (in addition to the 25 per cent government bonus).
  • Wyelands Bank will now pay up to 0.50 per cent more on three of its fixed-term notice accounts and its 95-day notice account. A two-year bond pays 2.25 per cent.

  • Charter Savings Bank has launched new one-year, 18-month, two- and three-year bonds paying up to 2.36 per cent. It has also increased the rate on its current five-year bond by 0.07 per cent to 2.68 per cent.

  • Vanquis Bank has increased the rate on its five-year bond by 0.05 per cent to 2.55 per cent.
  • Furness Building Society has increased the rate on its two-year fixed-rate bond from 2 per cent to 2.24 per cent.

The overall returns on fixed-rate savings bonds have improved since the last base rate rise in November 2017. Back then, the average rate on two-year bonds was 1.43 per cent, which has risen to 1.58 per cent today.

Moneyfacts said the average rates on five-year bonds had risen to 2.15 per cent, up 0.16 per cent since November, although other providers may increase rates in coming days.

However, today’s savers face a raw deal compared to February 2009 when the BoE rate last stood at 0.5 per cent.

According to Moneyfacts data, the average two-year fixed rate bond in 2009 paid a generous 2.89 per cent. Likewise, the average easy-access savings account paid 1.19 per cent. Now, the average rate is just 0.53 per cent — less than the BoE rate.

Although this week’s rate rise was a “beacon of hope” for savers according to Charlotte Nelson, analyst at Moneyfacts, customers will need to be proactive and move their cash to access the best rates on the market.

According to separate data from Savings Champion, the average savings rate inched up by just over 0.09 per cent after the last 0.25 per cent base rate rise in November.

As ever, mortgage lenders have been quicker to pass on the interest rate increase than savings banks.

Millions of Britons on variable rate or tracker mortgages set at a fixed level above the BoE rate stand to see their mortgage costs rise within the next month or so.

Borrowers who have rolled off a fixed rate on to their lender’s standard variable rate (SVR) should expect to pay more too, although most lenders have yet to announce increases. Barclays and Danske Bank were among the first to say they would pass on the full 0.25 per cent increase to borrowers on SVR mortgages.

Across the market, the average SVR is 4.72 per cent, according to Moneyfacts.

However, heightened levels of competition in the mortgage market mean much cheaper deals are available to borrowers who switch.

The average rate on a two-year fixed mortgage is now 2.53 per cent, Moneyfacts said, up from 2.33 per cent in November.

The cost of fixed-rate mortgage deals tend to rise in anticipation of a base rate increase, rather than afterwards. Markets had been expecting a quarter-point increase long before the BoE’s Monetary Policy Committee announced its decision on Thursday.

Some 28 mortgage lenders increased fixed-rate deals — some of them twice — during the month of July, according to Moneyfacts. However, some lenders, including West Bromwich Building Society and Skipton, have reduced rates on some fixed mortgage products to compete with rival lenders.

“Longer-term fixed rates are likely to be more popular now among borrowers as they try to protect themselves from future base rate rises,” said Ms Nelson, noting that many borrowers would be “significantly better off” if they switched.


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