Record low base rate three years on - the winners and losers

With March 5 marking the third anniversary since Bank of England base rate dropped and remained at a record low of 0.5 per cent, MoneySupermarket has analysed the impact on the nation's savers and borrowers.

The comparison site looked back over the three years since base rate was reduced to 0.5 per cent and found a number of rate fluctuations across average mortgage and savings products, despite base rate remaining flat.

Mortgages

In the mortgage market, two year tracker mortgage rates dropped following the base rate cut and hit a low of 2.41 per cent in August 2011, before beginning to rise again. The average rate on two year tracker mortgages is still 0.44 per cent lower than in March 2009.  For fixed mortgages, average rates on two and three year fixed rate mortgages actually rose following base rate cut, with rates peaking at 4.15 per cent and 4.65 per cent respectively, before falling to record lows towards the end of the year. The current average two year fixed rate mortgage is 2.82 per cent, a drop of 0.97 per cent since March 2009.  Average three year fixed rates have fallen by 1.01 per cent to 3.51 per cent, but the bigger picture reveals rates were actually at their lowest in October 2011 at 3.38 per cent.

Although mortgage rates are at their lowest level ever, a MoneySupermarket site poll showed only 26 per cent of respondents are better off due to lower mortgage rates, while a further five per cent said the base rate change has not impacted their finances at all.

Clare Francis, mortgage spokesperson at MoneySupermarket, said: "On the face of it, borrowers are the winners of the low interest rate environment and, as our poll shows, many are feeling the benefit with low monthly mortgage payments. However, not all feel so lucky.

"Many of those looking to remortgage over the last few years have struggled because the leading deals have required sizeable deposits. This has also caused problems for those trying to get onto the property ladder. But things are getting easier; average mortgage rates have come down and the number of loans available for mortgages up to 90 per cent of the property's value has increased in recent months, providing a much needed boost for first time buyers.

"One thing to watch out for though, is the cost of setting up a mortgage. Some deals have arrangement fees of up to £2,000 and these are often masked by a low headline rate. However, the impact of the fee on the total cost of the mortgage may mean it's actually cheaper to take a loan with a slightly higher rate but lower set-up costs. Borrowers should make sure they factor this in when comparing mortgage deals."

Savings

Despite the flat base rate, the savings market has seen average rates for easy access savings rising from 2.98 per cent in March 2009 to 3.00 per cent currently. However, during that time, easy access accounts saw variations above and below these rates, with a peak of 3.09 per cent in September and December 2011. Meanwhile, despite the top five average easy access ISA rates dropping 0.29 per cent, from 3.29 per cent in March to 3.00 per cent currently; average rates have increased since their lowest levels in February 2010 at 2.55 per cent.

According to the MoneySupermarket poll, savers felt the impact of the falling base rate more than borrowers, with 51 per cent saying they are worse off due to lower savings rates.

Kevin Mountford, Head of Banking at MoneySupermarket, said: "It's no surprise savers have been the biggest losers as a result of Bank of England base rate falling, especially those who relied on the interest from savings to provide a regular income. However, despite base rate remaining flat over the past three years, rates on easy access and cash ISAs have increased steadily during this period, with the best rates over six times that of base rate - unheard of prior to the financial crisis. If you are looking for a regular income from savings then fixed rate bonds pay higher rates, but you need to be prepared to lock your money away to gain the best returns.

"Although rates may appear to be low, it is still worth taking advantage of the best deals on the market, especially when base rate is expected to remain low for the foreseeable future. With the majority of accounts paying less than base rate, many savers can still significantly improve their situation by being savvy and switching.

"Banks now need to hold more deposits and as such are offering inflated prices in their fight to secure our hard-earned savings."