MoneySupermarket analysis indicates that the cost of borrowing on mortgages and personal loans has fallen dramatically over the four years since the Bank of England base rate dropped to a record low of 0.5, while savings rates have plummeted further since the Funding for Lending Scheme was introduced in August 2012.
Until the Funding for Lending Scheme was introduced, savers were benefiting from rates over six times that of base rate. In December 2011, the average top five easy access savings rate hit a high of 3.09% but rates have dropped by over a third to just 1.93% currently.
Mortgage borrowers have fared much better, particularly for those looking to fix, with rates currently at an all-time low, while the number of products available to those with smaller deposits has continued to rise.
However, the low base rate environment has led to 78% of people saying they are more financially aware as a result of the base rate remaining flat according to a MoneySupermarket poll of 2,000 site users.
In the mortgage market, rates are on the decline, dropping significantly since base rate fell. Average two-year tracker rates have hit a low of 2.50% in February 2013, 0.81% lower than in March 2009. For fixed mortgages, average rates on two and three-year fixed rate mortgages have also declined following base rate cut, with rates falling to record lows of 2.34% for a two-year fix, and 2.89 for a three-year fix. This is a drop of 1.45% and 1.63% respectively since March 2009.
Although mortgage rates are at their lowest level ever, a MoneySupermarket site poll showed only 7% of respondents say they are better off due to lower mortgage rates.
Clare Francis from MoneySupermarket said: “On the face of it, borrowers are the winners of the low interest rate environment, with mortgage rates falling to an all-time low and the number of products available increasing by 37% over the last seven months as a result of the Bank of England’s Funding for Lending Scheme. However, this doesn’t tell the full story as many borrowers have been locked out of the market for much of the credit crunch due to falling house prices and the reluctance of lenders to lend, particularly to those with smaller deposits.
“Those borrowers fortunate enough to have sizeable equity in their homes are the ones who have been able to take advantage of lower mortgage rates over the last four years. It is only since the introduction of the Funding for Lending Scheme have we seen the market opening up for borrowers as lenders open their books to those with smaller deposits. Average mortgage rates have come down as a result, and over recent weeks we have seen average rates for fixed rate products hit an all-time low.”