It’s a month since the Bank of England cut the base rate to 0.25 per cent, the lowest level in more than 300 years. As expected, this has dealt a severe blow to savers while the mortgage market continues to thrive.
Savings
The Bank of England’s decision to drop the base rate has officially fuelled the fire of rate cuts across the savings market, resulting in August becoming the worst month of the year for reductions. There were a devastating 354 cuts made, compared to just three rate rises. This means that for every rate rise during the month there were 118 cuts.
Worse still, some providers’ reductions were over five times as much as the 0.25 per cent base rate cut, and 53 of the cuts made were over 0.25 per cent. This has sent average savings rates plummeting to new lows, with the majority of average rates paying half what they did five years ago. The average five-year fixed bond paid just shy of 4 per cent back in 2011, at 3.97 per cent, but has now plummeted to just 1.69 per cent.
Clearly, savers have once again shouldered the burden of a base rate cut, but the sad fact is that rates were already at appalling lows long before the Bank of England slashed the base rate. Consecutive years of government lending initiatives meant that banks lacked a desire for savers’ deposits, resulting in an obvious lack of competition in the market.
Mortgages
A completely different picture emerges for borrowers, with fixed mortgage rates spiralling to record lows at a time when providers fight to compete for new business and attempt to retain customers. The average five-year fixed mortgage has shot down from 4.89 per cent in 2011 to a record-low of 3.06 per cent today. Those looking for a short-term deal will find the average two-year fixed rate has fallen from 4.16 per cent in 2011 to just 2.45 per cent. Safe to say, borrowers looking for a fixed deal right now have an abundance of choice.
Surprisingly, some mortgage rates rose in the run up to the rate cut announcement, with a select few providers actually increasing their variable tracker rates for new business as they preempted a cut, which is disappointing.
After the base rate announcement it was expected that providers would pass on the 0.25 per cent cut in full to their mortgage customers sitting on a variable rate, but this sadly hasn’t been the case for some. Indeed, many variable tracker rates for existing borrowers had the cut immediately passed on, but those sitting on a standard variable rate (SVR) haven’t been so lucky.
Of all the lenders on the market, just under half have yet to decide on whether to pass on the 0.25 per cent cut. Therefore, borrowers on an SVR with one of these lenders will need to retain some patience to see if their repayments fall in the coming months. However, with the average SVR sitting at 4.71 per cent, it’s easy to see why a better deal could be obtained elsewhere.
The rock bottom base rate has given providers another excuse to slash rates. Worse still, savings deals have been completely withdrawn from the market in August, with 20 best buy deals gone.
It’s clear to see that savers have been left devastated by persistent rate cuts across the market and will struggle to find decent returns for their cash in the immediate future.
Mortgages
A completely different picture emerges for borrowers, with fixed mortgage rates spiralling to record lows at a time when providers fight to compete for new business and attempt to retain customers. The average five-year fixed mortgage has shot down from 4.89 per cent in 2011 to a record-low of 3.06 per cent today. Those looking for a short-term deal will find the average two-year fixed rate has fallen from 4.16 per cent in 2011 to just 2.45 per cent. Safe to say, borrowers looking for a fixed deal right now have an abundance of choice.
Surprisingly, some mortgage rates rose in the run up to the rate cut announcement, with a select few providers actually increasing their variable tracker rates for new business as they preempted a cut, which is disappointing.
After the base rate announcement it was expected that providers would pass on the 0.25 per cent cut in full to their mortgage customers sitting on a variable rate, but this sadly hasn’t been the case for some. Indeed, many variable tracker rates for existing borrowers had the cut immediately passed on, but those sitting on a standard variable rate (SVR) haven’t been so lucky.
Of all the lenders on the market, just under half have yet to decide on whether to pass on the 0.25 per cent cut. Therefore, borrowers on an SVR with one of these lenders will need to retain some patience to see if their repayments fall in the coming months. However, with the average SVR sitting at 4.71 per cent, it’s easy to see why a better deal could be obtained elsewhere.
|
Average Rates |
1stAugust |
Today |
|
Standard Variable Rate (SVR) |
4.80% |
4.71% |
|
Two-year tracker |
2.13% |
1.94% |
|
Lifetime tracker |
2.98% |
2.74% |
|
Two-year fixed |
2.48% |
2.45% |
|
Compiled: 1.9.16 |
||
The area of the market that has seen the biggest improvement over recent years has been for first-time buyers, with a huge boost coming from the Government’s Help to Buy initiative, igniting much needed competition. However, with the mortgage guarantee scheme coming to a close next year, first-time buyers may find the deals available to them start to dwindle.
Overall, it’s clear to see that savers need to be quick to grab anything best-buy-worthy, and they would be wise to take advantage of high interest current accounts and regular savings plans over the short-term. Mortgage customers on the other hand have many options, but it can still be a minefield to pick the right deal based on true cost, so seeking independent advice can make a huge difference. Rachel Springall is a Finance Expert at Moneyfacts.co.uk
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