Banks are hiking mortgage rates while slashing savings rates, putting further strain on our finances.
When the Bank of England makes changes to the Base Rate of interest, there’s normally a clear set of winners and losers.
If the rate goes up, it’s good news for savers as rates rise and bad news for borrowers who face increased costs.
Conversely, a falling Base Rate is a boon for borrowers and a blow to savers.
That’s how it works in normal times.
But, following the most recent change – a reduction from 5% to 4.75% announced earlier this month – we’ve found ourselves in a bleak situation where both groups are losers.
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Heads they win, tails you lose
First Direct became the latest bank to react to the Base Rate cut, revealing it would be reducing its savings rates by between 0.25% and 0.55% in January.
It follows similar announcements from the likes of Barclays, NatWest, Santander and more as savers had to contend with the fallout of a Base Rate reduction.
Indeed, it was revealed the rates on one in five access accounts were reduced in the week after the cut.
However, at the same time, many lenders have been announcing increases to their mortgage rates, some by as much as 0.56%.
Financial data provider Moneyfacts revealed on Monday that the average rate on a five-year fix had increased from 5.14% to 5.23% in the space of a week, and it’s a similar story for shorter-term deals.
We explained yesterday how inflationary concerns are convincing lenders that the Base Rate will need to stay higher for longer, and are responding by increasing the rates offered to mortgage customers.
The fact that inflation was revealed this morning to have jumped a whopping 0.6% to 2.3% – a bigger-than-expected increase and the largest monthly rise in more than two years – means we could well see further increases to borrowing costs.
Sadly, these inflationary concerns are unlikely to convince banks to pass on juicier rates to their customers.
Most analysts remain of the view that savings rates will continue to fall in 2025, with the best we can hope for is the rate of reductions slowing slightly.
Worst possible timing
News of rising borrowing costs and falling rewards for savers will only serve to heap further misery on many households who are already struggling.
Research from price comparison site Uswitch revealed that more than 1.7 million households will not even turn on the heating this Winter, with most citing living costs as the key reason.
If you’re struggling amidst the cost of living crisis, we’ve put together tips to help get your finances on the right track.
If you’re able to make ends meet and are looking to make the most of your cash, have a look at our regular roundup of the best savings rates you can get right now.