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UK Base Rate Remains on hold – What it Means for Savers and Borrowers

Personal_Finance / UK Interest Rates May 10, 2018 - 02:55 PM GMT

By: MoneyFacts

Personal_Finance

The lead-up to the Bank of England’s latest base rate decision has been a rocky road, with the markets changing their prediction from odds on to unlikely in the space of a few days. Today’s announcement to keep interest rates on hold confirms this past week’s predictions, and is likely to be met with frustration by savers and relief by borrowers.


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

Savings

“Today’s rate decision has dashed savers’ hopes of a better return. Savers are likely getting beyond fed up with the low rates that have plagued them for so long, which is why their hopes had been pinned on another base rate rise boosting their returns. Unfortunately, their patience will now be tested once again, as they will have to keep waiting for base rate to increase.

“Despite this, the savings market is showing some signs of positivity, with rates starting to improve regardless. The fixed rate market has had the largest boost, with competition among newer banks and higher SWAP rates fuelling the rise. As a result, the average two-year fixed rate has climbed to 1.50% today, up from 1.17% in May 2017, while the average five-year fixed rate market has grown by 0.27% to stand at 2.08% today.

“With over half of the easy access market paying less than 0.50%, it is little wonder that savers are feeling disappointed. However, savers should see this as an opportunity to assess their options and ensure that at the very least their account pays more than base rate.”

Mortgages

“Borrowers in fear of their mortgage repayments going up have been dreading another base rate rise. Today, they will be breathing a sigh of relief, as their repayments will not rise due to base rate, at least for now. However, this good news has not stopped the mortgage market from undergoing a period of turmoil, with rates having risen in anticipation of today’s base rate announcement.

“Gone are the days of super-low rates, with 27 providers having increased rates in April – some doing so more than twice. This has seen the average two-year fixed mortgage rate increase from 2.30% in May 2017 to 2.52% today.

“With borrowers now considering longer-term fixed rates to protect against future base rate rises, competition in this product area has seen rates increase at a slightly slower pace than their short-term counterparts, as providers compete for that business. In fact, the average five-year fixed rate has only increased from 2.89% to 2.91% over the last year.

“Despite fixed rates rising, borrowers sitting on their Standard Variable Rate (SVR) will still be significantly better off if they switch to a fixed rate deal. In fact, by switching from the average SVR of 4.73% to the average five-year fixed rate, they would be around £199 a month or £2,386 a year better off*.

“It is important for borrowers to note that there does not need to be a base rate rise for mortgage rates to increase. So, while borrowers are getting a reprieve today, anyone sitting on their SVR or coming to the end of their deal should still consider opting for a fixed rate mortgage now, before rates rise further.”

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

Moneyfacts is the UK’s leading independent provider of finance product data. For nearly 30 years Moneyfacts’ information has been a key driver behind personal finance product decisions.

moneyfacts.co.uk is a financial product price comparison site, launched in 2000, which helps consumers compare thousands of financial products, including credit cards, savings, mortgages and many more. Unlike other comparison sites, there is no commercial influence on the way moneyfacts.co.uk ranks products, showing consumers a true picture of the best products based on the criteria they select. The site also provides informative guides and covers the latest consumer finance news, as well as offering a weekly newsletter.

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