High street banks will use the interest rate rise to “clobber” borrowers and “neglect” savers, a personal finance expert has warned.
Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, has predicted that banks will hike their variable rates “to the max as quickly as possible” following the first base rate increase for three years.
This follows the Bank of England’s decision to increase the base rate from 0.1 per cent to 0.25 per cent in an effort to combat rising inflation.
Coles added that savers “will grow old” waiting for the interest rate rise to be passed on to them, pointing out that the last time the Bank of England raised the base rate (in August 2018) only one in ten banks raised savings rates within a week, and only a small fraction of them passed on the rate rise in full. Meanwhile 28 per cent of banks raised mortgage rates.
“We won’t see a vast number of accounts from other providers boosting rates overnight, there are better deals available for those who are prepared to shop around,” Coles said.
“High street banks have suffered a couple of years of horribly squeezed margins, with rock bottom rates leaving them little room to manoeuvre. They’re likely to see this as an opportunity to get a bit of breathing space, and expand those margins, hiking costs for mortgage borrowers and leaving savers hanging.
“Given that growth was only marginally lower than expected, unemployment fell and inflation was much higher than anticipated, the bank felt they had no alternative but to raise rates.”
Coles warned that “this is unlikely be the last of the rate rises”, noting that mortgage customers will be the first to feel the pinch.
“Borrowers affected by hikes should consider remortgaging as soon as possible,” she said.
Meanwhile, Coles added that savers on the high street “may well see no change at all for now, as banks luxuriate in bigger margins instead.”
“They’re unlikely to see much movement in the wider savings market, but they should fight the temptation to stay put and wait for more rate rises over the next 12 months, because there are much better deals out there,” said Coles.
“Banks aren’t in desperate need of more financing. They’ve had a good run of cheap money from the government, and now the heat is coming out of the housing market, they don’t need the same level of cash to support the mortgage market, so there’s not a tremendous sense of urgency to race for the top of the savings charts.”
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