Mortgage rates have skyrocketed in recent weeks after the UK’s most recent inflation reading sent rate expectations soaring, but savings rates have lagged behind.
According to data from Moneyfacts, rates on a two-year fixed rate have jumped from 5.34 per cent on 24 May to 5.75 today. Similarly, interest rates on a five-year fixed rate have risen from 5.01 per cent to 5.44 per cent in the same period.
Rates increased dramatically after a higher than expected inflation reading on 24 May raised concerns that the Bank of England would have to keep hiking, potentially raising rates to as much as 5.5 per cent. The base rate is currently 4.5 per cent.
However, the average interest rate on an easy access savings account has increased much more slowly, rising from 2.17 per cent to 2.25 per cent since 24 May.
The data shows how savings rates offered to consumers often lag behind the rate charged on mortgages.
Lenders have come under a lot of pressure from regulators and lawmakers for failing to pass on rate rises to savers while charging more for mortgages. An influential group of MPs has described the rates on offer at many banks as “measly.”
At the same time, many banks have reported bumper profits in the last few months as a result of higher interest rates, raising concerns that they are profiteering off higher rates.
The banks argue that mortgage rates are not directly connected to interest rates. Instead they are tied to swap rates, the expectation for what interest rates will be in 10 years time.
May’s inflation reading has sparked widespread volatility in the mortgage market with banks pulling a slew of products. The number of mortgage deals available before 24 May was 5,385. At the beginning of this week it was down to 4,686.