(Bloomberg) -- UK households are earning more interest on their fixed-term savings than they are paying on their mortgages for the first time on record, Bank of England figures show.
The average rate paid on the stock of “term deposits” in the UK overtook the rate paid on the stock of mortgages in August and the wedge has since increased to 0.32 percentage points.
Data released by the BOE on Wednesday show that fixed-rate savings earned 3.52% on average in October compared with the 3.2% average mortgage cost. August was the first time average mortgage rates fell behind fixed savings rates since the BOE series began in 2016.
The figures reveal the starkly different experience of savers and borrowers now that interest rates are rising. They also suggest banks are passing on higher rates despite concerns among lawmakers that the benefits are not feeding through to households.
Savers have shifted £111 billion ($141 billion) into fixed-rate products since the bank first raised rates in December 2021, when term savings earned just 0.33%.
The stock of mortgage debt is over five times larger, at £1.45 trillion, but has increased by only £64 billion since December 2021. At that point, the average mortgage rate on the stock was 2%.
The BOE has warned that the income boost to savings is complicating monetary policy, as higher rates are designed to bear down on spending. However, much of the squeeze on households has yet to be felt as mortgages roll off fixed-rate deals.
In its November Monetary Policy Report, the BOE said that “the direct cash-flow effects of changes in interest rates have increased average household incomes.”
That is partly because the total stock of mortgage debt is less than the £1.7 trillion in total household deposits, which includes current accounts and cash ISAs.
“That means for an equivalent change in interest rates the impact on interest income is greater than the impact on mortgage costs,” the BOE said.
Four fifths of mortgages are on fixed rates, which means “changes in interest rates do not immediately affect payments on the majority of mortgages.”
--With assistance from Andrew Atkinson.
©2023 Bloomberg L.P.