Interest rates may now be at their lowest-ever level, but the Bank of England's latest cut simply highlights the increasingly fragmented state of Britain's mortgage market.
MARIANNE TAYLOR and CATHERINE FEGAN
LENDERS
Interest rates may now be at their lowest-ever level, but the Bank of England's latest cut simply highlights the increasingly fragmented state of Britain's mortgage market.
Not all homeowners will benefit from yesterday's 0.5% reduction.
The best news is for those on tracker deals, around 40% of customers. Unless they are among the 300,000 whose deal is "collared", meaning the lender can refuse to lower rates beyond a certain point, their payments are guaranteed to fall. For those with a £150,000 mortgage, the latest cut means their loan is likely to be around £400 a month cheaper than in October.
However, many of those on Standard Variable Rates (SVRs), around 10% of mortgage holders, have had less reason to celebrate recently. Only three of the big lenders, HSBC, Nationwide and Lloyds TSB Scotland, promised to pass the latest rate on to customers yesterday, although a number of smaller building societies followed suit. Halifax Bank of Scotland, RBS and Abbey all say their rates are "under review" but are unlikely to pass on the cut.
Which brings us on to the majority of Britain's mortgage holders, the 50% who currently find themselves on fixed rates, many of which are already much higher than a year or two ago. They will not see any benefit at all.
Iain Somerside, of The Mortgage Shop in Renfrew, welcomed yesterday's cut, but urged the Bank of England to go even further.
He said: "Those with tracker mortgages will certainly benefit, but there are still many people on fixed rates that are pretty high. Over the next few months we need to see a number of things happen: firstly, interest rates need to come down to 0%, and stay that way for some time. I'd like to see lenders holding their margins without squeezing customers. Finally, it is absolutely key that first-time buyers are brought back in."
Mr Somerside added that there are signs that the re-mortgage market was starting to become more buoyant.
"We are seeing some good tracker deals coming on to the market, but even those are around 1% higher than a year ago," he said. "Also, to get the best rates customers have to have a sizeable deposit - perhaps 20, 30 or even 40% - and their credit record must be immaculate. These days even one late payment, on say a credit card or loan, could lead to applicants being rejected - a year ago the lenders didn't really care."
Alistair Darling today repeated calls for the banks to increase the availability of lending. Speaking to a Cabinet "listening" event in Liverpool, the Chancellor said: "We have to ensure that, having ensured the banking system is there, that it starts to lend.
However, Council of Mortgage Lenders director general Michael Coogan said banks and building societies had to be cautious, and weigh up the benefits of passing on cuts.
"This cut is a double-edged sword for retail-based lenders," he said. "The market is still not functioning properly and is likely to lead to a fragmented approach by lenders."
SAVERS
The biggest losers in a world of low interest rates are those who are saving.
The move has led to tumbling savings rates, with 40% of accounts now paying returns of 1% or less on deposits of £5000.
About 7.5% of accounts now pay a token 0.1%, and this proportion looks set to increase following yesterday's announcement.
Scotland's savers, many of whom are pensioners, are bracing themselves for further reductions in the returns they get on their money.
Since the financial crisis began, older people, many of whom depend on the interest from savings deposits as a source of income, have looked on helplessly as their nest-eggs have depleted.
The latest cut could mean thousands are forced to make reductions on already stretched living costs or, worse still, reluctantly dip into their capital.
Lindsay Scott, spokesman for Help the Aged Scotland, said the interest cut could come as a hammer blow for pensioners in Scotland and called for an urgent overhaul of the pension system.
"If the banks and building societies cut interest rates again there is going to be a major backlash from older people," he said.
"Pensioners on low pensions rely on their savings to supplement their income and every half a percentage cut makes a difference.
"Every single penny counts to them, believe me. We have a pathetic pension system here in Britain, one of the worst in Europe, and it's time it was addressed.
"The majority of pensioners are already making cutbacks.Lots of them live in one room and with less money coming in, the future looks very uncertain."
Jeffrey Deans, managing director of Save and Invest, a wealth management business with offices in Glasgow and Edinburgh, said savers will have to look at alternative investment options.
"Some savers, particularly those who rely on deposits to bolster their incomes, will be under huge pressure," he said.
"If you are a saver in today's economic environment I would advise looking very carefully at what you are getting and consider other options.
"Corporate bond funds are one of the best ways to invest at the minute but I would advise anyone with big savings to get independent financial advice.
"We have elderly clients who have been saying for some months now that they aren't getting as much back on interest from their savings and now it could be the beginning of crippling times for these people."
Some advisers say anyone with cash they can afford to lock away should act quickly to secure one of the best fixed-rate deals available.
Other ways of storing money include stocks, shares and online banking in foreign accounts, all of which seem like risky investments in the current climate.
Potential savers have been discouraged to save online following the collapse of Icelandic internet bank Icesave, which saw thousands lose much of the money they had invested. Further trepidation has resulted from the confusion over compensation when money is lost.
In Britain, the Financial Services Compensation Scheme pays out up to £50,000 lost by an individual saver if their bank or building society fails, rising to £100,000 for joint account customers.
Mr Deans said that dipping into capital should be an absolute last resort.
"Nobody knows how long they are going to live," he said. "With that in mind, it would be inadvisable to start using capital as a means of income. Unfortunately, there are pensioners out there who are facing tough decisions."
A spokesman for Age Concern Scotland highlighted the fact that pension payouts for those nearing retirement could also be affected.
He added: "Age Concern Scotland calls upon the Westminster government to ensure that vulnerable pensioner incomes are not adversely affected by this latest interest rate cut."
Some of the best deals
- PRINCIPALITY
Regular Saver Bond - 6% for six months
A maximum deposit of £500 each month means a possible investment of up to £6000.
- CLOSE BROTHERS
Two-Year Bond - 5%
The rate is only guaranteed on applications received before close of business on Tuesday January 13, and requires a minimum deposit of £10,000.
- BARCLAYS
Monthly Savings Account - fixed rate of 5.84% for 12 months
Maximum deposit of £250 each month.
- ING DIRECT
4.89% for 12 months. Only available to new customers.
- ALLIANCE AND LEICESTER e-saver - 3.60%
Minimum deposit of £1, and withdrawals affect interest rates.
- ICICI BANK UK
HiSAVE Savings account - 4.50%
Caution is advised, as credit markets as of November 2008 suggested ICICI may be weaker than other international banks.
- ANGLO IRISH BANK
Easy Access Deposit Issue 2 - 4.55%
Minimum deposit of £1.
- STROUD AND SWINDON BUILDING SOCIETY
Easy Access account - 3.75%
Minimum deposit of £500.
