Moneyfacts reacts to the BOE interest rate rise

4th August 2023

The Bank of England has today increased base rate by 0.25%, up from 5.00% to 5.25%. Moneyfactscompare.co.uk has analysed the average rates offered across savings and mortgages and considers what this decision may mean for consumers moving forward.

Rachel Springall, Finance Expert at Moneyfactscompare.co.uk, said "This latest base rate rise will come as disappointing news to borrowers worried about rising mortgage repayments. Those who still have a low-rate fixed mortgage would be wise to overpay where they can, with the aim of reducing their loan and the term of their mortgage. Interest rates on mortgages are much higher than some may realise, so borrowers will need to ensure they have surplus funds to meet higher repayments when they come off a lower rate deal.

Consumers struggling with their outgoings amid the cost of living crisis, or who have become a ‘mortgage prisoner', would be wise to seek independent advice to review their situation.

Fixed rate mortgages, for two, five and 10-year terms are around 3% higher on average compared to December 2021 and the average Standard Variable Rate (SVR) has risen consecutively over the same period, so a fixed mortgage can give borrowers some peace of mind by securing their monthly repayment. A rate rise of 0.25% on the current average SVR of 7.85% would add approximately £794* onto total repayments over two years.

"Affordable housing is in short supply and inflated house prices can make it difficult for first-time buyers who are already facing a squeeze on their disposable income due to the cost of living crisis. It will be crucial for borrowers to consider whether to wait a little longer before they apply for a mortgage, particularly if they need to build up a bigger deposit. Those looking to remortgage may need to explore other options, such as downsizing, if they are not able to change their deal. Seeking advice is essential for borrowers dealing with this challenging environment."

*Average standard variable rate (SVR) is currently 7.85%. Calculations based on a £200,000 mortgage over a 25-year term on a repayment basis.

Rachel Springall, Finance Expert at Moneyfactscompare.co.uk, said, "Savers may be delighted to see a rise to interest rates, particularly those who use their pots to earn an income. The savings market has benefitted from consecutive base rate rises and an injection of much-welcomed competition, particularly from challenger banks looking to raise funds for their future lending.

It is imperative savers take time to review their existing accounts and not presume any base rate rise will be passed onto them, as this is never guaranteed. Those savers who have their cash sitting in an easy access account for convenience may find their loyalty is not being repaid, indeed, savers are earning just 1.50% from the Everyday Saver from Barclays Bank, but the top easy access accounts pay more than 4%.

Frustrated savers will need to seek alternative brands which are paying attractive returns, such as from the many building societies and challenger banks.

"Those looking to maximise the interest they are earning, but do not wish to tie their cash up for a long time, could consider notice accounts. The returns on notice accounts are much more attractive than flexible easy access accounts, and the top deals in this arena pay more than 5%. It would also be wise for savers to consider their ISA allowance, especially when interest rates are on the rise, as consumers with larger pots could breach their Personal Savings Allowance. Whichever account savers choose, it is important they are clear on any rules and eligibility criteria an account sets out, and ensure they keep on top of the changing rates to not miss out on an attractive deal."

Due to the current volatility of interest rates, please see below for today's average rates in support: Two-year fixed mortgage: 6.85%, Five-year fixed mortgage: 6.36%, 10-year fixed mortgage: 5.87%. Easy access: 2.81%, Notice account: 3.90%, Easy access ISA: 2.88%, Notice ISA: 3.66%.