This month will mark one year since the pandemic began impacting the UK economy, most notably with the Bank of England making two unexpected base rate cuts within weeks that resulted in base rate falling to a historic low of 0.1%.
To get a clearer idea of how the pandemic has impacted consumers' personal finances, we’ve looked at what has happened to savings, mortgage and credit card rates and deals over the past 12 months.
The last 12 months have not been good for savers and have seen average savings rates across all the charts fall to historic lows. Despite this, the lockdowns introduced to try and help control the virus, along with many of those who have remained in full-time employment working from home for the majority of the year, has resulted in higher levels of savings deposits.
In addition to a rise in the amount held in savings accounts, savers have been increasingly turning to easy access saving accounts over fixed rate and notice account alternatives. There could be several reasons why savers are choosing easy access accounts over higher-paying alternatives, but the main factor could be due to savers wanting to be able to access their funds quickly during the current period of economic uncertainty.
As many savers are choosing easy access savings accounts, it will come as a disappointment to see in the table below that the average rate on easy access savings accounts has fallen to just 0.17% on 1 March 2021, from an average of 0.57% available a year ago. Although this is a significant fall of 0.40%, it is not the biggest year-on-year fall within the savings market, as both the average one and five year fixed bond rates have fallen by 0.72% year-on-year, from 1.16% to 0.44% and 1.56% and 0.84% respectively.
|Average savings rates||March 2020||September 2020||March 2021|
|One-year fixed bond||1.16%||0.66%||0.44%|
|Five-year fixed bond||1.56%||1.05%|
“It is hoped that competition will return to the saving market, but it will no doubt be a steady process and not an overnight sensation,” explained Rachel Springall, finance expert at Moneyfacts.co.uk. “Savers would be wise to take advantage of any tax-free savings vehicles or Government initiatives such as the Help to Save scheme in the meantime and of course any plans for a new Government-backed NS&I savings deal to help combat the deficit.”
While the pandemic has had a negative impact on saving rates, the impact on the mortgage market was far more mixed.
Homeowners on their lender’s standard variable rate (SVR) may have seen their mortgage repayments fall over the last year, as the average SVR fell from 4.90% on 1 March 2020 to 4.41% on the 1 March 2021. Saying this, borrowers on their lender’s SVR will likely reduce their monthly repayments further by remortgaging onto a fixed rate deal, although Springall warned: “The impact of the Coronavirus may have made it difficult for some consumers to move their mortgage, some may even be mortgage prisoners if their circumstances have changed drastically due to the pandemic.” Those struggling to get a mortgage deal may want to consider speaking to a mortgage broker who might be able to suggest specialist lenders that will offer remortgage deals.
Although a historic low base rate has helped reduce the average SVR, when the pandemic first began impacting the UK economy, many lenders withdrew mortgage deals from the market, especially those that require a 10% and 5% deposit – 90% and 95% loan-to-value (LTV) – as lending at these LTV tiers is considered riskier by lenders. Over the year deals began to re-enter the mortgage market, but those looking for a deal at a 90% LTV may still struggle and there are very few deals at a 95% LTV. In fact, there is suggestion that during Wednesday’s budget Chancellor Rishi Sunak will introduce a mortgage guarantee scheme to help boost the 95% LTV market, as well as extend the stamp duty holiday.
Springall added: “Consumers who may be in the process of getting a new deal or hope to buy a property will no doubt be cautious of any fundamental changes to taxation rules and mortgage availability in the months to come. The mortgage market remains fluid and so it is always wise to seek out independent advice to keep abreast of any movements, even if consumers don’t plan to make any decisions quite yet.”
Although some consumers have been able to increase savings and repay debt during the pandemic, many others have face financial challenges, which has resulted in them looking to borrow more.
The pandemic had little impact on credit card interest rates as the average credit card purchase APR stood at 25.0% on the 1 March 2020 and a year later, but as the below chart shows, the number of deals available on 0% purchase and balance cards fell during the 12-month period, as did the average number of interest-free days offered.
|March 2020||September 2020||March 2021|
|Average credit card purchase APR||25.0%||25.2%||25.0%|
|Number of 0% intro purchase cards||68||53||56|
|Number of 0% intro purchase deals (days)||314||280||283|
|Number of 0% intro balance transfer cards||73||57||59|
|Average 0% intro balance transfer deal (days)||534||529||530|
While the number of deals has fallen, borrowers looking for a 0% purchase and balance transfer credit card will still find some good deals in our charts. Springall added: “Consumers who may be in the process of getting a new deal or hope to buy a property will no doubt be cautious of any fundamental changes to taxation rules and mortgage availability in the months to come. The mortgage market remains fluid and so it is always wise to seek out independent advice to keep abreast of any movements, even if consumers don’t plan to make any decisions quite yet.”
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