Four years of lowest ever base rate

Last updated: Mar 4th, 2013
News by Hugh Morris
Interest rates

Today marks four years since the Bank of England cut the base rate to the record low of 0.5%.

As it stands, interest rates look set to remain as they are until 2017 – according to Citi – with some experts even floating the idea of a negative base rate to encourage banks to lend rather than effectively paying the Bank to hoard their capital.

With the base rate so low and the rate of inflation outstripping its 2% target, there will inevitably be winners and losers. So, who are they?

WINNERS

Mortgage holders

Mortgage holders, especially those on tracker deals which rise and fall with changes to the base rate – have benefited. Analysis by HSBC suggests those who took out tracker rather fixed deals in 2007 before the base rate was cut to 0.5% could have saved nearly £9,500 over the past five years, with an average difference between rates of 1.46%.

David Hollingworth, mortgage expert at London & Country Mortgages, said: "Those that have won out the most will be those that bagged a low tracker rate and consequently saw their mortgage rate plummet.

"Even now, mortgage borrowers stand to benefit from the record low in base rate as mortgage rates have tumbled. Fixed rates have hit the lowest rates ever, although the keenest rates remain on offer to those with large deposits."

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LOSERS

Savers

Savers, on the other hand, have not been so lucky, watching their pots shrink in real terms as interest rates stagnate.

Philip Pearson, an independent financial adviser and partner at P&P Invest, said: "The real losers with interest rates at their lowest for 300 years are savers as inflation has continued to soar above the Bank of England's targets.

"There is no expectation inflation will meet the target of 2% and savers will now face a real devaluation of their money."

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Pensioners

Pensioners have also been hit by a double whammy of falling annuity rates and the EU gender directive, which means annuity rates can no longer differentiate between men and women.

This means men, who traditionally receive better rates as they are not expected to live as long as women, have had their income cut.

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