Market News
Bank rate: winners and losers
05/03/2010
The year of the Bank of England Base Rate being held at a record low of 0.5% has created both winners and losers, moneysupermarket.com claims.
Hannah-Mercedes Skenfield, mortgage spokesperson at moneysupermarket.com, said: "Undoubtedly the biggest winners from the fall in interest rates have been those consumers who have been sat on standard variable rates (SVRs). Traditionally lenders’ SVRs have usually been higher than the deal that was ending so consumers would have to remortgage as a result. Now we have a situation where many consumers are sitting on extremely low rates and have no incentive to move. We have started to see SVRs starting to increase again, and rates for remortgaging starting to fall so for some consumers, now is the time to consider looking for an alternative deal.
"The losers have been those consumers who have little equity in their property or those who have been looking to get a foot on the housing ladder, particularly first time buyers. There have been some positive signs in the mortgage market over the last 12 months; we saw the number of available mortgage products fall below the 2000 mark in 2009 but we have seen a steady increase since with numbers in excess of 2,700 which shows that the recovery in the market is in place, although it is a way short the height of 2007 when there was over 30,000 products. In addition, those who are even able to access a deal with an LTV of 90% will have found themselves paying a hefty premium for the privilege, often as much as 6.05%.
"Lenders have benefited from a low LIBOR and after a period of inactivity they are starting to loosen their purse strings and pass on some of these benefits to consumers in terms of lower rates. Borrowers need to be wary though as some lenders have introduced products with low ‘headline’ grabbing rates only to charge high fees which make the mortgage less competitive compared to products with higher rates. There are some good deals in the market at the moment so borrowers should consider fixing before rates start to rise again."
Kevin Mountford, Head of Banking at moneysupermarket.com, said: "There is no doubt that savers have been the biggest losers during the past 12 months, with rates dropping dramatically. This coupled with recent rises in inflations has meant that it is almost impossible to gain a real rate of return on your savings pot.
"We have seen the average of the top easy access rates fall by 0.16% in the past 12 months and the average best ISA rates fall by 0.56%. There are still some good deals to be had though, especially if you’re prepared to lock your money away and fix the rate for a set amount of time. The average of the top 10 fixed rate bonds is 5.04%, 4.54% above base rate, up 1.05% on this time last year.
"Savers really do need to be on their toes in the current market as lenders chop and change their rates. If you want the best rate then you really do need to shop around."
Tim Moss, head of loans at moneysupermarket.com, said: "There was a time that a personal loan was the perfect solution for anyone looking to borrow to buy a car or consolidate existing debts. Unfortunately the personal loan market has changed beyond all recognition with rate shooting up and borrowing for relatively small amounts becoming uneconomical. Although we have seen rates rise across the board, it has been borrowers who are looking for less than £5,000 who have been hit the hardest. The average rate for a £3,000 loan has almost doubled since 2007 when the average loan rate was 7.58% despite base rate being at 5.25%.
"Many lenders have closed their books completely to consumers looking for a loan while others will only accept customers who have hold other banking relationships. The last 12 months has not been kind to borrowers looking for a loan and there is little sign of this changing in the near future."