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Housing market frenzy boosts cash savings rates

·2-min read
Property boom - TMG
Property boom - TMG

Saving rates on cash accounts have had a well-needed boost as banks require an influx of cash to meet record high mortgage requests.

The nation-wide house buying frenzy has led to months of ever-increasing property sales. Such demand has meant lenders need to attract cash to fund their loans. Interest rates have spiked to convince cash hoarders to move their savings.

Rates had plummeted to a record low earlier this year after demand for cash accounts allowed banks to reduce what they offer. However, the highest one-year fixed-rate savings rate offered by Atom has increased from 0.65pc at the start of April to 0.85pc. Meanwhile, Zopa has raised payouts to 0.9pc for a two-year fix and 1.01pc over three years. Gatehouse Bank now offers a 1.4pc for a five-year fixed rate savings account.

Savers must act fast to lock in better rates, as the boost will only last as long as the property market boom, according to Sarah Coles, of stockbroker Hargreaves Lansdown.

“The house-buying frenzy has brought fresh hope for savers, however, there is every chance this boom will be short lived. The spark of hope for savers could be a flash in the pan,” she said.

The property market has been fuelled by high buyer demand and a “desperate” shortage of properties coming to market. There were twice as many property sales in the first months of this year amid the heightened demand.

However, property experts have said the market will lose momentum when the stamp duty holiday comes to an end later in the summer.

Banks will no longer need higher savings reserves if the number of mortgage requests falls, Ms Coles said.

The lenders with the best rates have typically been smaller banks rather than high-street brands therefore there will be a limit on how much money they can lend. The offers may also be short lived if they attract a lot of cash in a short space of time.

Savers have seen returns dwindle to close to zero over the past 12 months, earning pennies for depositing their hard-earned cash. The interest earned on savings accounts dropped to all-time lows this Spring while Britain saved more than ever during the pandemic. The average easy-access rate fell to 0.16pc in May this year, down from 0.40pc in May 2020.

There were 142 fewer deals available to savers this May compared with one year ago. Rachel Springall of Moneyfacts, an analysts, said average rates may have been inching higher but savers had a “long wait ahead” before they made a substantial recovery.

The Bank of England cut the Bank Rate to 0.1pc in March 2020 in an attempt to support the British economy during the pandemic. Ms Coles said the central bank was unlikely to raise the base rate until inflation was consistently at or above the 2pc target.

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