Interest rates and your finances: Expert views

 

On Thursday the Bank's Monetary policy committee is expected to continue the trend by keeping the interest rate on hold

Safe bets are in short supply for savers and borrowers trying to predict when interest rates might rise again, with the Bank of England rate still at a record low.

Savers are guessing whether to stick with risk-free accounts that offer little or no return, or twist by putting their funds into riskier, but potentially more lucrative, products.

Many believe that with typical interest rates so low, things have never been so bad for savers.

Meanwhile, mortgage borrowers are deciding whether to place their bets on a variable-rate deal that may be linked to the low Bank rate, or on a fixed-rate mortgage.

For some, low mortgage rates mean those getting a home loan - assuming they can raise a deposit or have sufficient equity - have never had it so good.

The BBC News website asked a number of experts and commentators for their views on the climate for savers and borrowers.

Here is a selection of their answers.

Savers

There is virtually nowhere to put cash with safety and get a positive return above inflation, says Brian Tora of investment managers JM Finn.

Savings Savers are unlikely to find instant-access accounts offering interest at more than inflation

"You will be hard-pressed to get 3% interest, even if you secure the money for a year or two," he says.

"I do not see it getting any better."

But he points out that if inflation stays high for a long time then this will eat away at debt, but will be "very bad news" for savers.

With an uncertain future for the economy, he suggests that savers diversify, by putting their money in areas such as property, equity and cash.

The returns for savers depend on their tolerance for taking risks, says Michael Hughes, the former chief investment officer at Baring Asset Management.

Falling Bank rate

  • 8 October 2008: 4.5%
  • 6 November 2008: 3.0%
  • 4 December 2008: 2.0%
  • 8 January 2009: 1.5%
  • 5 February 2009: 1.0%
  • 5 March 2009: 0.5%

"The only way you are going to get a higher return is by taking some degree of risk," he says.

He says the tax system encourages some people to target their savings and investments so as to take advantage of capital gains tax, which is levied at a lower rate than income tax.

Income tax on the interest gained on savings should be waived, according to Simon Rose, spokesman for the Save Our Savers pressure group.

Simon Rose Simon Rose, of Save Our Savers, says the balance is too much in favour of borrowers

"It would be vital for driving the economy," he says.

"Low interest rates are supposed to get things moving, but this is not working."

He adds that a rising inflation rate is causing increasing pain to savers, and not enough is being done to bring it under control. He says he is "sceptical" that it will come down in the near future.

Alongside this, low interest rates are pushing the balance too far in the favour of borrowers, he says.

"For pensioners, people on fixed incomes and the thrifty, things are effectively being taken by stealth and essentially transferred to imprudent borrowers and the government," he says.

Borrowers

Mortgage rates have fallen to levels which many commentators regard as some of the lowest for decades.

House keys Mortgages can be difficult to secure for first-time buyers

"For some people, they never would have had it so good," says Ray Boulger, of mortgage broker John Charcol, pointing to rates of below 5% available for a 90% loan-to-value, five-year fixed-rate deal.

But he points out that this is not the case across the board. There are some rates for first-time buyers that are cheaper than before the credit crunch, but many still need to raise a large deposit to get a home loan.

He expects the Bank rate to remain steady until mid-2013, and even when it does start to rise, the rate will only go up slowly.

Yet he predicts the availability of mortgages could be squeezed - not because of economic conditions in the UK, but in Greece.

With banks exposed to Greek debt, a worsening situation could see them retreating and restricting the amount they lend to UK consumers.

Rob Cairns, chief executive of the Furness Building Society, has been in the trade for 36 years.

Rob Cairns Rob Cairns says people with a stake in their homes are especially keen to keep up mortgage payments

He says that mortgages now are as affordable as they have ever been. The issues for many considering taking a home loan are whether they will still have a job in a few months time and if house prices might fall further, making a loan cheaper, he adds.

Some mortgage deals that require a 10% deposit have returned, he says. There are some options for first-time buyers under which a local authority will act as guarantor for the top slice of the mortgage, requiring a deposit of just 5%.

The amount of lending to first-time buyers has been low in recent years, compared with the boom in the housing market.

He also predicts that the return of a 100% mortgage is unlikely.

"The industry has previously been stung with 100% mortgages. As long up homeowners have got a stake in the property they are far more likely to honour the debt," he says.

Activity in the housing market will not do "terrific things" until the Bank rate rises, he says, predicting a 0.25 percentage point rise next August followed by an identical rise by the end of 2012.

 

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  • rate this
    +2

    Comment number 42.

    There is no point saving, as far as I can see. I've just spent every penny I have to pay off my mortgage (11 years early), I pay the most I can into a pension - and I am now going to spend the extra money from not paying for my house on me. I've never borrowed, nor do I intend to, but now, I don't intend to save either. Time to have a little fun.

  • rate this
    0

    Comment number 37.

    this is what makes it an impossible decision whether to buy a house. my partner and I have been saving for the past 6 years to get a deposit for a house, now we have it we are wary of buying because of fluctuations in the housing market, don't want to end up with negative equity cos I'll never be able to save this kind of money again and if interest increases won't be able to afford the payments

  • rate this
    +10

    Comment number 8.

    Having been 'thrifty' and debt free for most of my life, I sometimes wonder why I bothered. I get gouged for taxes - to pay off national debt - and the costs (eg: profits) of the financial institutions who readily funded the reckless spendthrifts to balance their default losses

    Maybe I should have bought a lot of nice things on the never-never

  • rate this
    +2

    Comment number 4.

    Our government seems content to steal from those of us that have saved by way of taxes, low interest rates, and inflation, apparently so that the spendthrifts among us can be subsidised out of debt.

 
 

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