Market tracker: Where next for savings and loans?
Though the Bank of England held its rates in September after cutting them to new lows in August, markets are hinting they haven’t bottomed out yet. Some commentators think Mr Carney’s next move will be to cut rates further, potentially as soon as November.
No savings best buys have improved in the last month, and most have got worse. Even the loss-leading Help to Buy accounts are being squeezed. Virgin’s previous best-buy account has retreated to the middle of the pack, so Barclays has the best rate going, for now at least.
The Bank of England’s rate trackers (below) show it’s been a bad month for savers across the board, with average rates on instant access accounts now just 0.3%, a whisker above the base rate:
(Click on the graph below to enlarge):
Of course, the upside of ultra-low rates are that mortgage costs are being pushed to new lows.
Standard variable rates (SVRs) dipped sharply in August as lenders passed on the base rate cut to borrowers. Mortgage rates are falling across the board and the best deals are for new customers, so don’t settle for a slightly cheaper SVR. Most people who’ve let their fixed-rate terms expire could save £100s a month by switching to the best deal.
One tricky question for people looking to remortgage is whether to go for a fixed rate deal, or chance a variable rate mortgage. Fixing will protect you against a rate rise, but could mean you miss out if rates fall further.
Current mortgage rates suggest banks and building societies expect the Bank of England to drive the cost of borrowing down further in the months to come. Usually, borrowers need to pay a slight premium to fix their mortgage repayments, but according to the Bank of England (see table above), it’s now cheaper to fix than stick with a 25% deposit, further suggesting the only way is down for the base rate.
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The unsecured lending market – that’s credit cards and personal loans – hasn’t been so forthcoming in passing on cheaper deals to borrowers. According to the Bank of England's data shown in the table below, rates on £10,000 loans are slightly cheaper, though smaller loans are considerably more expensive than they were a year ago.
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Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
Every mortgage lender has a standard variable rate of interest, or SVR, on which it bases all its mortgage deals, including fixed and discounted rate and tracker mortgages. When special deals come to an end, the terms of the deal usually state that the borrower has to pay the lender’s SVR for a period of time or pay redemption penalties. The lender’s SVR is, in turn, based on the Bank of England’s base lending rate decided by the Bank’s Monetary Policy Committee (MPC). Every time the MPC raises its rate, mortgage lenders generally increase their SVR by the same amount but when the MPC lowers its rate, lenders are often slow to pass this on or don’t pass on the full cut to borrowers.
The difference between two currencies; specifically how much one currency is worth relative to each other. For example, if £1 is worth $1.50, converting sterling to US dollars, the exchange rate is 1.5. Converting dollars to sterling at those levels, the exchange rate is 0.66, so $1 is worth 66p. There are a wide variety of factors that influence the exchange rate, such as a country’s interest rates, inflation, and the state of politics and the economy in that country.
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.
The catch-all term applied to investors who buy properties with the sole intention of letting them to tenants rather than living in them themselves, with the proceeds from the let usually used for the repayment of the mortgage. Buy-to-let investors have to take out specialised mortgages that carry higher interest rates and require a much bigger deposit than a standard mortgage. Other expenditure can include legal fees, income tax (on the rental profits you make), capital gains tax (if you sell the property) and “void” periods when the property is unlet.
Also referred to as the bank rate or the minimum lending rate, the Bank of England base rate is the lowest rate the Bank uses to discount bills of exchange. This affects consumers as it is used by mainstream lenders and banks as the basis for calculating interest rates on mortgages, loans and savings.