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
    +4

    Comment number 16.

    This is where any banking reforms need to take into account the plight of savers.Seperating investment from high st banking is the way to go.Instead of high st banks paying billions in bonus's they can pay a decent interest rate on savings a/c's and be able to afford it as well.Spending on the never never is a recipe for diaster as the national debt now shows thanks to a spendthrift former govt.

  • rate this
    0

    Comment number 15.

    I'm doing well now-no savings & a low mortgage however my mortgage is 100% with the 15% deposit owed 2my parents.
    You're probably thinking I was 1of the reckless ones who the banks were stupid enough to fund -I almost agree however I would absolutely no chanceof getting on the property ladder now so if I can keep up with the baserate (no chance of a remortgage) I'll consider myself lucky.

  • rate this
    +8

    Comment number 14.

    In 2007 Barclays gave myself and my son lifetime mortgages at 0.19% over base - so currently 0.69%. This is the sort of bonkers deal they were peddling just to get deals on the books and sell them on. No wonder they are in an abysmal mess.

  • rate this
    +9

    Comment number 13.

    By not giving you any returns on your savings, they're hoping that you stop saving and spend. Buy lots of over-priced pretty things and thereby boost the economy.
    But with job security at a low, who's going to spend more than they need to?

  • rate this
    +2

    Comment number 12.

    Invest in Gold or Platinum. It's needed in technology and won't be here forever. Take a look at share prace history for the last year. Maybe Goldfinger got it right after all.

  • rate this
    +3

    Comment number 11.

    This article has forgotten another category of borrower: people who need non-mortgage loans. Such people are being kicked in the teeth with high interest rates. I know people paying 22.9% for loans from high street banks. This is where the banks are making massive profits.

  • rate this
    +6

    Comment number 10.

    Exactly #3, which is why I am making a start as an older person to do so. My two daughters (26 & 23) still live at home and have no debt. I show them my bills (gas, electric, council tax, water etc) so they know full well the cost of jumping on the housing ladder (more like a rack actually). So at least two people have been educated on the repurcussions of embracing consumerism and debt.

  • rate this
    +7

    Comment number 9.

    Savers and borrowers suffer by the UK's greedy and incompetent financial providers who put revenue, and bonuses before customers and shareholders.

    Mortgage holders should, as in most countries have fixed rate long term loans - saving interest rate fluctuations eroding living standards. Savers money is eroded by financial services companies levying unearned fees, salaries and bonuses.

  • 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
    +9

    Comment number 7.

    So the best advice for savers is to put money into property (prices falling), equity (markets falling) and cash (value falling). Looks like savers can only lose.

  • rate this
    +10

    Comment number 6.

    saving is a waste of time for the saver the banks loan out savers money at a high rate and the saver gets a derisory retun, it is only the security aspect that stops people from taking thie money out.
    the banks try to make it look like they are doing savers a favour but they are just ripping us off. if this stupid goverment made the nationalised banks more competitive the others would follow.

  • rate this
    +1

    Comment number 5.

    The only persons gaining from our investments are the greedy financial institutions and their vulture shareholders.

  • 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.

  • rate this
    +2

    Comment number 3.

    It's easy to say that kids shouldn't be encouraged to get in to debt but many will start life after university with student fee debts of well over £30k. In addition, the economies of the likes of the UK and USA are hocked to the eyeballs with debt. Our kids lives revolve around debt so why shouldn't they think it's the norm unless the older generations like ours do something about it?

  • rate this
    +3

    Comment number 2.

    Our young people need to be weaned off the expectation that everyone hocks themselves up to the gills with debt from leaving school to the grave. This financial hiatus just might be the time when people can grasp the concept that you don't have to have the Albatross of debt around your neck for most of your adult life.

    Our lives should not revolve around interest rates. There actually is a choice

  • rate this
    +3

    Comment number 1.

    With NS&I ending their Inflation-linked tax-free savings, there is little left that can beat the current rate of inflation. If you are earning, especially if you are at a higher rate of tax, then pensions can still be a good deal (up to £50K pa) as that is still tax-free - for now.
    Failing that, spend every penny you have, and stick your hand out when it dries up!

 

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