Bank of England Base Rate Increases to 0.75%

By: MoneyFacts

The Bank of England’s decision to increase interest rates from 0.50% to 0.75% marks the first time the base rate has risen above 0.50% in almost 10 years. But what does this latest increase mean to the average person on the street?

Charlotte Nelson, Finance Expert at Moneyfacts.co.uk, said:

Savings

“Today’s rate decision is a beacon of hope for savers, who have grown tired of the low rates that have plagued them for so long. This base rate rise carries much expectation, with savers hoping it will boost returns. However, just like the rise in November, providers are likely to be selective with the rates they choose to increase.

“Fuelled by intense competition from newer banks, the fixed rate bond market has notably improved since the last base rate rise in November. For example, the average two-year fixed rate stood at 1.43% in November 2017 and has climbed to 1.58% today. The average five-year fixed rate has also grown, rising by 0.16% to stand at 2.15% today.

“However, rates still have a long way to climb, as back in February 2009 – the last time base rate stood above 0.50% – the average easy access account paid 1.19%, whereas now it pays just 0.53%. The average one-year fixed rate bond stands at 1.34% today, a whopping 1.60% lower than back in February 2009.

“Every saver now has their fingers crossed that this latest base rate rise may go some way to returning rates to those levels, but like last time, providers are likely to be slow to react and choosy with their increases. This means savers must be on the ball to ensure they get the best possible deal. Regardless of whether their rate increases or not, savers should use this latest rise to assess their options and ensure that, at the very least, their account pays more than base rate.”

Mortgages

“With the vast number of lenders increasing rates in the lead up to May’s rate announcement, providers have chosen to keep rates relatively static in the run-up to this one, having already been prepped for a rise. However, some lenders have increased rates, with 28 providers increasing some rates in July some more than twice. This has seen the average two-year fixed mortgage rate increase from 2.33% in November 2017 to 2.53% today.

“Longer term fixed rates are likely to be more popular now among borrowers as they try to protect themselves from future base rate rises. This increase in demand has seen five-year fixed rates grow at a slower pace. For example, the average five-year fixed rate has increased by just 0.05% since November 2017 stand at 2.93% today.

“Back in February 2009, the average standard variable rate (SVR) stood at 4.83%, little changed from the average of 4.72% recorded today. The average two-year fixed mortgage rate however was significantly higher back in February 2009, standing at 4.88%, compared with just 2.53% today. Unlike in the savings market where providers are slightly slower to react to a base rate rise, borrowers on their provider’s SVR will feel the effect of the increase much more quickly.

“This base rate increase will have a significant impact on those currently on their lender’s SVR. Based on the average SVR of 4.72%, today’s rate rise represents an increase of £28.90* to average monthly repayments, sending them soaring to a whopping £1,165.69 a month. However, with fixed mortgage rates still low in comparison, borrowers will be significantly better off switching deals now before it may be too late.”

* Based on a £200,000 mortgage over a 25-year term on a repayment-only basis.

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