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Peer2Peer Finance News | September 23, 2019

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Base rate rise won’t ease saver woes, say P2P firms

Base rate rise won’t ease saver woes, say P2P firms
Kathryn Gaw

PEER-TO-PEER lenders have warned that savers are unlikely to benefit from the latest interest rate hike.

The Bank of England’s monetary policy committee (MPC) voted on Thursday to raise the base rate from 0.5 per cent to 0.75 per cent – the highest rate in almost 10 years.

“The increase in interest rates is a significant moment as it is the first time the Bank of England has raised interest rates above 0.5 per cent in nearly a decade,” said Max Lehrain, chief operating officer at Relendex.

“However, for savers, this change should act as a wake-up call as it is not likely to have a material impact on their investment meaning that those stuck in standard savings accounts are still missing out.”

Read more: Lendy reveals how P2P can boost cash ISA savings

Lehrain added that the current rate of inflation “far outstrips” interest rates, even after the latest rate rise. He suggested that investors and savers looking for higher returns should consider alternative options such as P2P lending instead.

Meanwhile, ArchOver’s chief executive Angus Dent warned that “while banks are likely to pass today’s rate rise straight onto borrowers, they will be less keen to pass it on immediately to savers.”

“Aspirational borrowing such as mortgages and bank loans will get more expensive – so the man in the street needs to counter that with strong returns on savings,” added Dent.

“Only 50 per cent of savings account rates changed after last year’s rise, so there’s good reason to be underwhelmed.

“But this is certainly a step in the right direction for the cautious Bank of England. While such an incremental rise won’t shake the earth, and probably means business as usual, it nevertheless spells good news for the UK.”

Read more: Interest rates could rise earlier and higher than expected

Rhydian Lewis, chief executive and founder at RateSetter, agreed that “banks won’t hesitate to put up rates for borrowers,” and remained sceptical about whether or not savers would be rewarded with higher returns from banks.

“This news will be welcomed by savers and investors across the UK,” Lewis said. “This interest rate rise has been long-anticipated, but it will be interesting to see how long banks take to pass the full increase on to savers – to be honest, the banks’ past track record is appalling.

“The banks won’t hesitate to put up rates for borrowers. This means that the gap between the rates banks pay to savers and charge to borrowers will widen further – providing greater opportunity for highly efficient platforms like RateSetter that operate within that gap.”

Property-backed alternative lenders have also greeted the interest rate news with caution, as the base rate rise is expected to affect more than 3.5 million households who use a tracker mortgage or a variable rate mortgage. Consumer credit agency Experian has estimated that the average household could see their mortgage bills rise by more than £400 per year as a result of the rate rise.

Read more: Inflation finally falls but still beats savings returns

“Rates may have gone up but for Britain’s beleaguered savers this quarter per cent rise is still a major damp squib,” said James Newbery, investment manager at P2P property platform British Pearl. “Inflation continues to erode people’s money in real terms, and this negligible uptick won’t be enough for savers to pop the champagne corks.

“The savviest savers will be deploying their cash down a range of other avenues for years yet in search of capital appreciation that stays one step ahead of inflation.”

Read more: Rising interest rates tipped to boost P2P returns