2019 interest rates recap: the winners and losers

As the end of 2019 draws near, the latest research by Moneyfacts can reveal the winners and losers of interest rate changes throughout the past 12 months and what may change in 2020.

2019 has been a positive year for borrowers, but not for savers, with interest rates across the savings landscape plummeting due to economic uncertainties and a slowdown in competition. At the same time, consumers looking for a fixed rate mortgage will have seen a noticeable rate war unfold before them, which has pushed average rates to their lowest point now than in any other month in 2019.

Rachel Springall, Finance Expert at moneyfacts.co.uk said:

“There was a clear mortgage rate war at play throughout 2019, with the most notable drop in rates seen across the past six months. Whether this battle can continue at such a pace entering 2020 is unknown though, as lenders have already highlighted a squeeze on their profit margins as a result of pricing loans low. Santander, as an example, noted ‘a fall in income due to the highly competitive UK mortgage market’.

“Average fixed mortgage rates are at their lowest right now than seen across the past 12 months – indeed the average two, five and 10-year fixed average rates have not sat lower in 2019 month-on-month than they do now. The most notable drop over the past year has been seen in the decade-long fixed mortgage market, with the average rate down by 0.31%, now standing at 2.77%.

“Borrowers may well be searching for a longer-term fixed rate mortgage during a period of economic uncertainty, so the rate cuts will be welcomed. A five-year or 10-year fixed mortgage can provide a bit of certainty with mortgage repayments at the very least, even if the outlook for 2020 and beyond is uncertain. We even had the first 15-year fixed mortgage launched in 10 years in 2019, showing clear signs that lenders are tailoring their ranges to accommodate borrowers looking for a bit of security.

“The motivation to remortgage remains high due to the combination of little change in the average standard variable rate (SVR) this year and fixed rates falling. The average two-year fixed rate mortgage stands at 2.44%, but the average SVR is an unforgiving 4.90%. The amount saved on repayments between the average SVR and two-year fixed average rate is over £3,000 within the first year – which is based on a £200,000 mortgage over a 25-year term on a repayment basis.

“The rate war may well have improved the market in 2019 but it is still important that borrowers work out the overall true cost of any deal and not be swayed by the initial rate alone. The choice of deals that borrowers have before them may seem daunting, so seeking independent financial advice could help them navigate the mortgage maze.”  

Rachel Springall, Finance Expert at Moneyfacts said:

“Savers expectations for 2019 to be a promising year clearly fell by the wayside, but it’s understandable to not blame them for their hindsight. The savings market had a bit of an uplift thanks to challenger bank competition and the aftermath of the Bank of England base rate rise last year – however, this positivity was regrettably not going to last.

“Savers were not treated to a full year of rate competition as economic uncertainties took their toll on the savings landscape. Fixed rates have notably plummeted, with the biggest drop year-on-year seen on five-year fixed deals, falling by 0.38% on average. This area of the market may have experienced the biggest cuts as providers just don’t want to offer such lucrative rates over a time period where interest rates could be cut.

“At the moment, fixing for even a year may prove too much of a commitment for some, with the difference between the average two-year fixed and five-year fixed bond standing at 0.42%. Indeed, savers may instead turn to easy access accounts for more flexibility, but even these deals have not been immune from cuts.

“Despite no cut to the Bank of England base rate in 2019, which usually impacts variable rates, the rates offered on easy access accounts have dipped. The average easy access rate stands at 0.61%, down from 0.64% a year ago – the lowest average seen through 2019. The cuts could well point to providers who are struggling to cope with demand, and this has meant more of a race to the bottom of the top rate tables rather than a race to the top.

“All in all, this domino effect will be a heavy blow to savers already struggling to find a decent return on their hard-earned cash. As we look forward to 2020, interest rates could fall further still, and as this year has shown, attractive offerings don’t tend to sit on the shelf for long. Savers must be vigilant and keep an eye on the top rate tables and be prepared to switch to ensure they are getting the best possible return.”