Lisa Taylor analyst at moneyfacts.co.uk said:
Savings
“Again the savings market has been traditionally slow to react, with only 28 savings providers announcing changes to some or all of their savings range, and so far only 18 applying the higher rates to their whole product range.
“The fact that almost every company so far has passed on the full quarter point rise is a sign of the competitive nature of the savings market. But with over 75% of providers yet to make an announcement, consumers should perhaps wait a while before shopping around for a new savings account.
“As inflation hits an 11 year high at 3%, it is vital that consumers protect their savings from these inflationary pressures. The average no notice savings rate today on a £5K deposit is only 3.421%, so alarmingly many consumers have their savings in accounts which in the long term will depreciate in real terms.
“Although not directly linked to the base rate rise, the surprise increase will have a knock on effect on the fixed rate market, as swap rates climbed over the last week. On Wednesday we saw the fixed rate market hit over 6%, with the launch of the Birmingham Midshires 1 year bond, paying 6.05%. While the rate is currently very competitive, the market does predict a rate rise this year which could result in us seeing many more deals fixed rates hitting 6% or even higher.”
Mortgages
“Similarly mortgage lenders have been slow to amend their SVR rates, with around 100 still to announce. Unsurprisingly all bar two of the increases so far has been for the full 0.25%. The exceptions are Harpenden BS, which opted for a 0.20% rise on both its mortgage rate and savings. And Chorley & District BS increasing its SVR by 0.35%.
“The surprise of this rate rise, and the compound effect of the three rises so close together has made little difference to how the lenders have reacted in terms of increasing their SVR and tracker products. The effects of January’s rise resembles that of August, the last unexpected rise, where fixed rates were the first to be impacted.
“As reported earlier this week, around 15 provides withdrew their fixed rate products completely, with many more replacing their range with often higher priced products. Portman, for example, withdrew its 4.99% two year best buy fixed rate, only to replace it the next day at 5.34%, a 0.35% rise.
“This rise could be particularly painful for anyone coming off a two year deal hoping to remain on a new fixed rate. Two years ago, one the of best deals available was at 4.47% with a fee of £399; today a similar deal with Portman BS would be 5.34%, a 0.87% difference. For an average repayment mortgage of £150K (over 25 years), this would mean you would have to find an extra £74 a month.
“Not only have we seen fixed rates increasing, some lender are combining this with fee increases, while other are using increased fees and keeping the rate unchanged.
“So with demand for fixed rates in some cases outstripping demand, swap rates rising and predictions of a further rate rise due shortly, it won’t be long before we see the demise of fixed rate deals below 5%.”
