Santander has taken a unique approach among high street banks by shielding homeowners from mortgage rate increases while simultaneously raising rates for savers. The Bank of England recently raised interest rates, resulting in an average increase of £612 per year in mortgage payments. Most lenders have raised their standard variable rates (SVRs) in response, but Santander has announced that it will maintain its SVR at 7.5%, rather than matching the Bank’s 0.25 percentage point hike.
Skipton Building Society has also decided to keep its rates steady, choosing not to increase its SVR but passing on the rate increase to savers instead. On the other hand, HSBC and Barclays have already raised their rates in line with inflation, while building societies Suffolk and Newbury increased rates by 0.5 percentage points earlier this week.
As for savings rates, Virgin Money has notably increased its rates to 9.24%. Dominik Lipnicki, a broker at Your Mortgage Decisions, commends any effort to halt mortgage rate increases, as for many homeowners these increases are unaffordable. Prior to the rate decision, the average SVR stood at 7.85%, which means some homeowners may now face rates above 8.1% if their lender does not freeze or reduce rates.
Banks and building societies have responded to scrutiny from Jeremy Hunt and the Financial Conduct Authority by scrambling to increase savings rates. Nationwide and HSBC raised their rates, and Santander announced a 0.25 percentage point increase. Other institutions such as Aldermore, Paragon, and Yorkshire Building Society have also improved rates on their deals by up to 0.4 percentage points.
According to Moneyfacts Compare, the average one-year fixed savings rate is now 5.23%, with easy-access accounts offering 2.28%. Cash Isas on average pay 5.01%, and easy-access Isas are available at a rate of 2.88%.
Earlier this week, Chancellor Jeremy Hunt warned that failing to pass on rate increases could result in regulatory action. Despite these warnings, some banks are still not fully passing on the 0.25 percentage point increase to savers. Anna Bowes, of rate scrutineer Savings Champion, highlights this issue and emphasizes the need for banks to fulfill their obligation to account holders.
The Financial Conduct Authority has reinforced its call for action and given banks four weeks to justify their low interest rates for savers or face disciplinary measures. Economists have cautioned that the Bank of England’s series of interest rate hikes is beginning to impact businesses, suggesting that additional measures may be unnecessary to control inflation. Kitty Ussher, chief economist at the Institute of Directors, believes that interest rates may peak lower than market expectations.
Investors anticipate at least two more 0.25 percentage point increases in the base rate, potentially reaching a 15-year high of 5.75% by the end of the year. Ussher explains that interest rate hikes are starting to affect confidence, particularly for those with variable debt or in industries directly impacted by the increases.
Inflation remains stubbornly high at 7.9%, prompting Rishi Sunak to insist on sticking to the plan to combat inflation, even if it means higher mortgage payments for homeowners.
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