What impact has August’s base rate hike had on savers and borrowers?
The decision to raise Bank of England (BoE) rates at the start of August was ostensibly one that would bring relief to hard-pressed savers.The hike from 0.5 to 0.75 per cent means that base rates are now at their highest level since March 2009.
Economic theory dictates that such an action should have the double benefit to savers of boosting interest rates on savings accounts and cash ISAs, whilst also acting as a curb on inflation - therefore bridging the gap when it comes to earning real returns.
Yet nearly two months down the line, it's fair to say that this hasn't exactly transpired.
What has happened to savings rates?
To say there has been no movement since 2 August - the date Bank rate increased - would be wide of the mark. The easy access space has seen annualised rates of return creep up to 1.4 per cent, while fixed-rate accounts in particular are beginning to approach the rate of inflation.
You can fetch over 2 per cent on a one-year bond; locking your money away for three years will see you earn up to 2.41 per cent, while this increases to 2.7 per cent if you're happy to commit to a five-year bond.
That said, such movement at the top end of best-buy tables - almost exclusively among smaller banks and institutions - is not representative of the savings space as a whole. In the first month after 2 August, the average easy-access account increased its rate by just 0.06 percentage points - less than a quarter of the equivalent value of the base rate hike.
Research carried out by Moneyfacts found that many banks - particularly those on the High Street - had failed to pass on any increase at all to its savers. In fact, even already-derisory introductory offers to new customers on easy access accounts had yet to see their rate improved in some cases.
Given that nearly 50 million Brits have an easy access account, it means an overwhelming majority of the nation are likely to see the anticipated benefits of this base rate hike pass them by.
What about mortgages and loans?
The flip side of a rate hike is that the cost of borrowing is expected to increase, and certainly those with a variable-rate mortgage may have received a text or letter from their lender within hours of the BoE's August press conference. But how has the market for mortgages responded in general?
Interestingly, a study by Pantheon found that the rate hike resulted in a mere 0.02 per cent average increase on long-term variable rate mortgages for the month of August. Furthermore, Moneyfacts reported just a 0.03 per cent increase in two-year fixed rate mortgages last month, while five-year fixed deals remained unchanged.
Even within the personal loans space, competition remains fierce, and results have been mixed over the past six weeks or so. Market-leading APRs within each of the various bands of unsecured loan have yet to shift by more than 0.1 per cent - and in many cases have stayed the same.
Has the peer-to-peer lending industry seen any changes?
As we've explained previously, a consumer peer-to-peer lending platform such as Lending Works does not set its loan APRs and/or rates of return offered to lenders based on the Bank of England rate, and, as such, is not directly affected by rate movements.
Of course, our own base rate - which represents the equilibrium at which we balance the demand for our loans with the influx of lender capital - is susceptible to market forces. Yet investor returns, and our personal loan rates, have held steady since the Bank acted, and there is little expectation on our part of this changing significantly in the near future.
Is Monetary Policy actually having any effect on households?
It remains early days, and one wouldn't want to draw any sweeping conclusions less than two months after the event. Yet one can't help but wonder if, in these unusual economic times, a disconnect between monetary policy and the cost of borrowing (and interest rates on savings accounts) at household level is emerging.
Some perspective should be maintained: banks are not obliged to replicate BoE rate changes. Also, in a historical context, a 25-basis point rise is hardly ground-breaking, and a 0.75 per cent Bank rate is still pushing an all-time low. But there does seem to be very little interest among the established guards of the High Street to attract the deposits of savers, while competition to entice people to borrow has been undeterred by policy tightening.
At least part of the reason must be attributed to quantitative easing, and an economy which has had hundreds of billions pumped into it as part of the recovery. Monetary policy changes also don't happen in a vacuum, and a small adjustment can easily be negated by fiscal decisions, wider economic stimuli or politics. And perhaps, as data comes in for the month of September, the overall picture may change anyway.
Even still, the lack of response thus far to the August rate hike is curious. Previously, banks have been (rightly) derided for failing to pass on the full benefit of a rate increase to their savers, whilst quickly putting up loan and/or mortgage rates - therefore either pocketing the difference or lavishing it upon shareholders.
This time around, they've stayed true to form by sitting on their hands with savings accounts. However, borrowers have yet to feel any of the pinch. Take from that what you will. Nevertheless, it’s safe to say that August's rate decision has had a limited impact so far - good or bad - and Governor Mark Carney may thus have a lot more scope to ‘normalise’ rates at a quicker pace than he previously thought.
There is barely a week to go until the conclusion of the 2017/18 financial year, which means that, as ISA season begins to hot up, time is running out to take advantage of your ISA allowance.
At the Summer Budget in 2015, George Osborne had multiple nuggets of good news for investors in peer-to-peer lending (P2P), most notably the announcement of the new Innovative Finance ISA (IFISA).
Over the last decade, there can be little dispute that the reputation of mainstream banks – and particularly the so-called ‘Big Four’ (HSBC, Barclays, Lloyds and RBS) – is at its lowest ebb.
The peer-to-peer (P2P) lending industry is now regulated by the Financial Conduct Authority (FCA). The regulatory framework has been designed to protect customers and promote effective competition.
Loan underwriting is the process that we undertake to analyse all of the information provided by each loan applicant and their credit file to assess whether or not that applicant meets our minimum loan criteria. As part of that process all data is verified, analysed and summarised to paint a picture of each applicant.
When you earn interest from a regular bank savings account, for example, the bank automatically deducts basic rate tax (currently 20%) before paying your interest. With interest earned from peer-to-peer lending, tax is not deducted automatically so lenders will need to declare their income to HMRC.
As 2018 draws to a close, with our bellies full of Christmas turkey, it's only natural to look back on the past 12 months and reflect. No doubt, it's been a turbulent one economically and politically, and not everyone has had it all their own way.