How does the base rate freeze affect your savings and mortgage?
PUBLISHED: 14:37 10 May 2018 | UPDATED: 15:49 10 May 2018
The Bank of England has announced it will not raise the base rate from 0.5% which will be good news for borrowers but bad for savers.
But what does it mean in real terms?
The base rate is set by the Bank and influences the interest rates set by financial institutions, allowing the institution to control spending depending on the economy.
Finance expert Charlotte Nelson of Norwich-based Moneyfacts.co.uk explains how it will affect those with savings and those with mortgages.
“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.”
“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.”
“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.”
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