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Tim Leonard

Tim Leonard

Finance Expert
Published: 02/08/2018
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The Bank of England has announced a rise in the base rate of interest to 0.75%, with rate-setters voting unanimously in favour of pushing the benchmark above 0.50% for the first time in almost 10 years.

With changes to the rate having an influence on savings accounts, mortgage rates and loans, consumers will now wait with baited breath to see exactly how their finances are affected.

For savers, Charlotte Nelson, finance expert at, said the decision offered a "beacon of hope" for those who have endured low rates on their nest eggs for so long. "This base rate rise carries much expectation, with savers hoping it will boost returns," she says.

However, Charlotte also warns a wholesale upturn in rates is unlikely to be on the cards, cautioning that providers are likely to be selective with the rates they choose to increase.

Indeed, while competition from newer banks has helped to notably improve the savings returns available since the Bank of England last voted for an uplift in November 2017, some considerable rate increases will be needed to see savings rates reach the kind of levels seen February 2009, the last time base rate stood above 0.50%.

Indeed, almost a decade ago, the average easy access account paid 1.19%, whereas now it pays just 0.53%. And the average one-year fixed rate bond currently pays 1.34%, some 1.60% lower than back in 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," said Charlotte. "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."

Mortgage fallout

For homeowners, the obvious suggestion is that a further rise in mortgage costs will be on the cards. However, with a vast number of lenders having already increased their rates in the lead up to the Bank's rate announcement in May, when it was originally forecast that rate-setters would vote for an upward move, many providers have kept their rates relatively unchanged in the run-up to this one.

Obviously there are exceptions, and 28 providers have raised some of their mortgage rates in July, with some doing it more than twice. This has seen the average two-year fixed mortgage rate increase from 2.33% in November 2017 to 2.53% today, and following today's announcement, the only way is likely to be up. The onus therefore falls on homeowners to make the right mortgage choice to keep their payments in check.

"Longer term fixed rates are likely to be more popular now among borrowers as they try to protect themselves from future base rate rises," says Charlotte. "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."

Charlotte also warns that the rate rise will have a significant impact on those borrowers currently on their lender's standard variable rate (SVR). Indeed, based on the average SVR of 4.72%, someone with a £200,000 mortgage (over a 25-year term) could see an increase of £28.90 in their average monthly repayments.

"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," Charlotte adds. "However, with fixed mortgage rates still low in comparison, borrowers will be significantly better off switching deals now before it may be too late."

What next?

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