The decision of the Bank of England to increase interest rates from 2.25% to 3%, in response to rising inflation, will likely lead to intensified competition for the best credit deals. 

This is only elevated by an economic climate that continues to provide challenges for businesses and consumers.  also underlines the importance of lenders having efficient affordability and credit scoring strategies. 

Nonetheless, speaking to Payment Expert, Tasha Chouhan, UK & IE Banking and Lending Director at Tink, warned that lenders aren’t utilising the full spectrum of tools available and are falling short within their approach – which could have a significant impact on supporting those that need it most. 

She stated: “Interest rates skyrocketing to heights not seen since the 2008 financial crisis means the scramble for the best credit deals is set to become increasingly competitive. 

“Coupling this with soaring mortgage rates limiting buying power, and the BoE’s latest data around the fall in mortgage approvals, the need for more robust and inclusive creditworthiness assessments to support consumers has never been more evident.

“Yet, our research shows that 50% of lenders are still using outdated and limited credit scoring models – potentially excluding millions of people from credit who can afford it.”

Chouhan was also keen to emphasise that the swift nature of bringing lending models up to date is vital in the current climate, highlighting the need for firms to draw on modern technology when they are embarking on affordability checks, which have a pivotal impact on the economy. 

She added: “There is no place for such models in our current economic climate, and the sooner this is recognised, the better the outcome will be for both lenders and consumers. We need to move away from outdated lending models to unlock fairer, more inclusive affordability checks. 

“New forward looking models can draw on technology that enables people to use the data in their bank account to provide a real-time, holistic view of their income and affordability. It’s vital to protect potentially at risk or vulnerable consumers from problem debt or default as the economic climate worsens. 

“At the same time, data-driven affordability checks are key to promoting financial inclusion, as people now more than ever need access to safe, affordable borrowing options.”

The move marks just the eighth time that the Bank has increased rates after it first lifted them to 0.25% from 0.1% in December last year. It is also the largest rise since 1989, taking the rate to its highest level since the global financial crisis in 2008. 

The move by the Bank of England will accelerate a change in the way consumers approach financial products and services, likely fuelling competitiveness in a market that is already undergoing a digital evolution. 

Off the back of the pandemic, consumers were increasingly drawn to digital offerings and challenger banks continued to excel into the mainstream. 

Jaidev Janardana, CEO at digital bank Zopa, told Payment Expert that he believes ‘high street banks are taking customers for granted when it comes to savings because they prioritise their revenues over delivering better value to their customers’. 

The climb in rates comes at a time when, in Janardana’s view, consumers must maximise every penny of interest on their savings, in order to mitigate the impact on their personal finances. 

Providing an example, he explained that ‘a leading high street bank is still offering a paltry 0.25% interest on its easy access account, meaning it pays just £25 for every £10,000 saved in a 10% CPI environment’. 

Further emphasising that unwavering loyalty comes at a monumental cost to consumers, he added: “A saver with £10k in the bank is losing out on almost £200 interest per year by sticking with their high street bank Vs seeking out the best rates; while a saver with £20k in the bank is losing out close to £400 per year by not switching.  

“Savers often trust that their bank will increase their rates automatically when the Base Rate goes up. This sadly isn’t the case though and their loyalty is not being rewarded.”

Looking ahead to how consumers should take control, he continued: “Savers should look for value and only reward those banks that really work hard to make their savings go further, moving from a low to a high yield interest savings account like Zopa’s Smart Saver.  

“Those re-evaluating their options should consider savings options that combine a high interest rate, good service, accessibility, and tools to manage their money instantly with a few taps from their smartphones. 

“Consumers should also look at immediate steps they can take to improve their financial resilience, cross-industry initiatives like offer excellent resources to start this journey. 

“These steps include but are not limited to using a credit-building service to improve credit scores, signing up to a debt consolidation tool to reduce monthly financial obligations, and switching utility providers to access better priced utilities on a marketplace.”

The news was also addressed by recently appointed Chancellor Jeremy Hunt, who outlined just how impactful the issue is for the British economy. 

Posting on Twitter, he said: “Inflation is the enemy and is weighing heavily on families, pensioners & businesses across the country. So our number one priority is to grip inflation, & today the Bank has taken action in line with their objective to return inflation to target.

“Interest rates are rising across the world as countries manage rising prices largely driven by the COVID-19 pandemic and Putin’s invasion of Ukraine.

“Sound money and a stable economy are the best ways to deliver lower mortgage rates, more jobs and long-term growth. However, there are no easy options and we will need to take difficult decisions on tax and spending to get there.”