As the cost of fixed rate mortgages continues to rise, so do the rates on fixed rate bonds as providers look to their savings book for funding rather than the money markets.

Rise in average fixed rate bond rate

Changes in average fixed rate mortgage costs

Michelle Slade, analyst at Moneyfacts.co.uk commented:

“Volatility in the money markets is prompting providers to turn to their savings book to fund their lending activities.

“In order to attract savers from their competitors, providers are offering ever increasing rates. At the beginning of March just three bonds paid a rate of 4.00% or more, as of today that number has grown to 124.

“Clydesdale Bank and Yorkshire Bank are currently leading the way offering a rate of 5.00% on their five year bonds. In this low interest rate environment that is an extremely competitive rate of return, but savers need to balance this return against expected rate rises in future years.

“When you think that no one will go any higher, someone else launches a new bond paying an increased rate. There doesn’t seem to be any limit to how high the providers are prepared to go.

“In the last month borrowers have seen large increases in the cost of fixed rate mortgages, with the average five year fixed rate mortgage increasing by 0.41% since the beginning of June.

“While this is bad news for borrowers, savers are receiving a welcome boost after months of watching the interest rate on their money plummet.”

www.moneyfacts.co.uk - The Money Search Engine

Moneyfacts.co.uk is the UK's leading independent provider of personal finance information. For the last 20 years, Moneyfacts' information has been the key driver behind many personal finance decisions, from the Treasury to the high street.

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