Mortgage rates go up this month but savers still snubbed
Banks started to announce hikes to their variable mortgage rates in the hours after the Bank of England base rate went up from 0.5% to 0.75% on 2 August.
A handful of providers, including HSBC and RBS, increased their base rate tracker mortgage rates by 0.25% immediately, while other brands such as Lloyds, Halifax, Santander and TSB said rates would change from 1 September.
Most standard variable rate (SVR) customers will also be worse off as 60% of providers have increased their SVR since the Bank rate rise, and more are expected to follow, according to data firm Moneyfacts.
Only two providers – Bath Building Society and Principality Building Society – passed on less than the 0.25% rise and only Yorkshire Building Society has said it won’t be increasing its SVR at all.
On the savings side, most of the biggest brands have failed to pass on the 0.25% rise to their easy access accounts, with the average rate rising by just 0.06% since last month, Moneyfacts said.
Not a single high street bank matches the Bank’s base rate of 0.75% for new easy access customers and less than a third of the overall market can beat its level.
Some providers have been fairer to savers – Sainsbury’s Bank, Beverley Building Society and Vernon Building Society have all passed on the full rise to easy access accounts – but they are in the minority.
If providers have hiked savings rates, most increases have been small. Barclays, for example, has boosted the rate on its Everyday Saver account by just 0.05% from this month.
What should borrowers do?
The message for borrowers sitting on a SVR is to consider remortgaging and opting for a fixed deal.
Moneyfacts finance expert, Charlotte Nelson, said: “Many providers had already priced the rate rise into their fixed rate mortgages in the lead up to the announcement, as they are aware that a rate rise causes many borrowers to reassess their deal. Therefore, lenders have held off from increasing rates further in a bid to attract these borrowers who are now considering remortgaging away from their SVR.
“Any borrower who is sitting on their SVR should do just that, as they could save £250.35 (based on a £200,000 mortgage) a month or £3,004.20 a year by simply switching from the average SVR (4.84%) to the average two-year fixed rate (2.53%).
“The ball is now rolling for base rate rises, with at least a quarter-point rise expected in the foreseeable future. Borrowers now shouldn’t rest on their laurels and should opt for a fixed deal to protect themselves against any future rate rises.”
What should savers do?
The average easy access rate is 0.59% but the best deals can be found with the more unfamiliar brands. Birmingham Midshires offers 1.35%, Bank of Cyprus UK pays 1.34% and RCI Bank offers 1.30%.
“Savers should take time out to study the best buy tables and switch if they are getting a raw deal,” says Moneyfacts’ Rachel Springall.