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Bank of England rate cut ‘spells more devastation for savers’

By Vicky Shaw, PA Personal Finance Correspondent

Savers who have already seen their returns plummet now face more devastation following the Bank of England’s interest rate cut, experts have warned.

It is thought that those who are on the brink of retirement may face particular challenges from the Bank slashing interest rates from 0.75% to 0.25% in an emergency move.

But on the other hand, some borrowers on variable rate mortgages should see some easing in their budgets as the size of their payments reduces.

According to financial information website, the average easy access Isa on the market now pays 0.84% based on someone having £10,000 to put away – compared with 0.94% at the start of 2019 and 1.77% in March 2009.

Rachel Springall, a finance expert at Moneyfacts, said: “This will be devastating news for savers who are already seeing returns plummet across the market.

“As we have seen in just the past 12 months, competition is stagnating, and it has become the norm to see providers cut rates to adjust their market position rather than launch headline-grabbing deals.

“It almost seems inevitable at this stage that the base rate reduction could get passed on in full to savers over the next few months, but this then should be a signal for savers to shop around for a new deal.

“As we have seen time and time again, the biggest high street banks are unlikely to be matching base rate – let alone beating it, so this cut is the perfect excuse to pay out less in interest to consumers.”

Steven Cameron, pensions director at Aegon, said that, at a time of stock market volatility, the rate cut does “pose particular challenges for those approaching retirement”.

Mr Cameron said: “The recent fall in the stock market will mean those whose pension is primarily invested in stocks and shares will have seen their pension pot fall in value. The reduction in interest rates creates a double whammy as annuity rates are also likely to be cut.

“As a result of the pension freedoms, individuals with defined contribution pensions now have flexibility over when they start taking a retirement income and can choose to remain invested, drawing an income, rather than buying an annuity.

“While there is no guarantee around if and when fund values and annuity rates will bounce back, individuals about to retire might want to seek advice on their options, including potentially deferring locking into annuities at a particularly adverse point in time.”

(PA Graphics)

While savers are expected to be the financial losers from the rate cut, some homeowners on variable rate mortgages can expect to see the size of their monthly mortgage repayments reduce, if the deal they are on directly tracks the base rate.

For borrowers on a standard variable rate (SVR), it is their lender which sets the rate they pay, so homeowners will need to see if the lender passes the cut on to them.

The rate cut will not have an immediate impact on homeowners who are currently locked into a fixed-rate mortgage deal which lasts for a certain length of time.

According to figures from trade association UK Finance, of the mortgages outstanding in December 2019, nearly seven in 10 (69%) were fixed rate.

Martin Lewis, founder of, said: “The financial winners are those on variable and tracker rate mortgages. They will see cost cuts of – very roughly – £25 per month per £100,000 of mortgage.

“And while it’ll take a week or two to factor through, it’s likely we’ll see the rate of new mortgage fixes drop too – meaning it will then be a very cheap time to re-mortgage.

“Most loans, credit cards and other debts will likely be unaffected or only minimally affected because the Bank’s interest rate only plays a small part in their rates.”

Lending giant Lloyds Banking Group confirmed that customers with a mortgage which tracks the bank rate or on a reversionary rate will see a reduction of 0.50% by April 1.

This means that SVR deals such as the Halifax standard variable rate will be cut by 0.50%.

Lloyds said it is reviewing its savings rates – but offering a glimmer of hope for savers, it said that changes to savings rates will not reduce by as much as the full reduction in the bank rate.

HSBC UK will also cut SVRs by 0.50%. All its on-sale and off-sale tracker rates will also reduce by 0.50%.

Its changes will come into effect from April 1 for SVRs and within 24 hours for tracker rates.

HSBC UK is reviewing its savings products and will update customers on rate changes.