With the possibility of a further base rate rise in May, Which? reveals how savers and mortgage holders were affected by the previous rise in November.
Investigating how mortgage and savings providers reacted to the 0.25 percentage point increase in the base rate in the five weeks after the rise, Which? can reveal double standards from some banks. While lenders were generally swift to hike their mortgage rates, just one in 10 savings providers had passed on the full rate across all their instant-access accounts within five weeks, fuelling fears the same could happen again in May.
Savings – as of 11 December 2017
Which? looked at 327 variable instant access savings accounts and Isas, finding that in the five weeks after the base rate rise:
- Almost half (48%) didn’t see any rate change at all.
- Meanwhile, just one in five (21%) had passed on the full 0.25% rise to customers.
- One in three (30%) accounts saw a rate increase of less than 0.25%.
In a further blow to savers, Which? discovered that 13 of the best rate instant access accounts had actually been withdrawn and relaunched by eight providers with either a minuscule increase, no change, or in some cases even a decreased rate.
Overall, of the 95 providers in the instant access savings market:, Which? found five weeks on from the Bank of England’s announcement:
- Just one in 10 (10%) had applied the full 0.25 percentage point rise to all their instant-access savings accounts and Isas.
- Meanwhile, two thirds (66%) of providers hadn’t applied the full rise to any of their accounts. A quarter (23%) had applied it to at least one account.
While savings providers largely held back on rate increases, a number of mortgage providers were swift to introduce rises. For standard variable rate mortgages, just over a half of providers (53%) had increased their rate post-rate rise for existing borrowers through to December.
Looking at 76 fixed-rate providers, Which? found:
- The market averages for two-year, three-year and five-year deals all increased between October and December.
- Five-year deals were hit hardest, with (40%) of providers raising their average rates for this deal type.
- This compared to just over a quarter of two-year (26%) and three-year deals (28%).
The biggest hikes came from Monmouthshire BS and Allied Irish Bank, which increased at least one deal by 0.45%. Meanwhile, the biggest decrease saw a reduction of 0.76% on a Newbury BS three-year deal.
Overall, 497 fixed-rate deals changed following November’s base rate-rise with the majority of movement coming through rate hikes, (224 deals). 75 deal rates increased by more than 0.2%, while 25 of these passed on the full 0.25%. Of note, 135 deals were actually withdrawn, including four out of the 10 lowest-rated two-year deals, three out of the top five lowest rate three-year deals, and one out of the 10 lowest-rate five year deals. Meanwhile, 138 deals saw reductions.
Gareth Shaw, Which? Money Expert, said:
“The last base rate rise saw clear double standards from some financial institutions, hiking the bills of mortgage holders, while denying savers the full benefit and actually withdrawing some of the most competitive deals altogether. Ahead of a possible future rate rise, we’re calling on banks and providers to be fair to their customers across the board.”
David Blake, Principal Mortgage Adviser, Which? Mortgage Advisers, said:
“If we see a repeat of last time, and savings rates stay lower than mortgage rates, you should consider putting any surplus funds you might have into your mortgage as an over-payment. You could also consider mortgaging to an offset product if you have savings in reserve, as this could be a good option to maximise their use.
“Ahead of a possible rise, it’s important to plan ahead and properly understand the impact a rate rise would have on your mortgage payments. Even if you are currently locked into a mortgage product, it’s still worth looking into re-mortgaging to a long-term fixed-rate to help protect yourself from the financial shock of future rate rises.”
Notes to editors
Which? analysis of rate changes on instant-access savings accounts and Isas is correct as of 11 December 2017 – five weeks after the last base rate rise on 2 November 2017.
Using data sourced from Moneyfacts, Which? looked at 90 mortgage providers in the market to determine how they changed their standard variable rates following the rise.
Barclays, Halifax and TSB had applied a rise of over 0.2% to at least one mortgage deal, but only a maximum 0.15% increase to a savings account, as of 11 December 2017. Meanwhile, First Trust Bank and Monmouthshire Building Society had applied the full 0.25% rise to some of their mortgage deals, but hadn’t increased a single savings rate. Teachers Building Society passed on the full 0.25% to mortgage holders, but only 0.15% to savers. Tesco Bank increased their SVR for mortgages by 0.15% and their standard interest rates for savings by 0.15%, but they increased the interest rates on some of their variable-rate and fixed-rate mortgage products by more than 0.15%. Finally, Chelsea Building Society and Leeds Building Society had made an increase on at least one mortgage deal, without increasing any instant-access savings rates.
Which? looked at 76 providers for fixed-rate deals, which covered all 2-year, 3-year and 5-year deals at 60%, 75% and 90% LTVs
The sample size for fixed-rate deals was 4508 in November and 4349 in December
*Chelsea BS passed full 0.25% to all its instant access savings/Isa accounts on 14 Dec 2017
Monmouthshire BS passed full 0.25% on at least one account at the end of Dec 2017
Savings accounts were withdrawn by the following providers: Bath, Paragon Bank, Coventry, Skipton, Charter, Yorkshire, Virgin, Ulster
The 10 banks that applied the full 0.25 percentage point increase to all of their instant-access savings accounts and Isas are: Aldermore, Buckinghamshire BS, Chelsea BS*, Chorley & District BS, Coventry BS, Newcastle BS, NS&I, Norwich & Peterborough BS, Skipton BS, Yorkshire BS