Banks are scrambling to pass rising rates onto mortgage customers while leaving saver's money to languish, as the gap between home loan and savings rates reaches its widest point in 15 years.
Last week the Bank of England increased the Bank Rate for the sixth time since December, this time by a half a percentage point – the biggest rise in almost three decades.
Banks reacted immediately by increasing bills for borrowers on standard variable rate or tracker mortgages – meaning two million now face paying thousands of pounds extra in interest every year.
Ever since the Bank of England started rapidly raising interest rates at the end of last year, banks have repeatedly increased rates for borrowers. But when it comes to savings rates, providers have been reluctant to take action. The Bank Rate has now risen by 1.65 percentage points since last December, with the average standard variable mortgage rate rising from 4.4pc to 5.17pc.
Yet the average easy-access savings rate has crawled up by around 0.5 percentage points, from 0.2pc to 0.7pc, according to industry analyst Moneyfacts. This is the widest gap recorded between the two rates since December 2007, when the financial crisis was beginning to unfold.
Rachel Springall of data analysts Moneyfacts said it was “typical to see lenders pass on base rate rises to tracker mortgages” and standard variable rates rises in the wake of such news were also common.
She said: “This week we have seen rises to both trackers and revert/follow-on rates from Santander, TSB and Nationwide of 0.50 percentage points.”
She added some mortgage ranges had been "withdrawn entirely” as rates continue to rise.
Banks feel under no pressure to pass on the rise to savers, according to Sarah Coles of investment service Hargreaves Lansdown, because so far savers have failed to “vote with their feet” and shop around for the most competitive rate.
Many people stashed their lockdown savings away in easy-access accounts during the pandemic with the main high street lenders, in what Ms Coles called a “flight to familiarity”.
She said: “Those banks are still sitting on those savings, and they simply don’t feel the need to offer something better for savers."
This week the Bank of England’s deputy governor, Dave Ramsden, warned another increase to the Bank Rate was on the horizon as soaring inflation takes hold in Britain’s economy.
Because these rate rises will “dripfeed” down to savings rates, Ms Coles said savers considering switching accounts had no reason to delay: “The market will increase rates, but very slowly – so savers looking for the best deal should act now.”