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
    +1

    Comment number 56.

    The longer the targetted policy of negative real yields lasts, the biggeer the political dilemma grows..... there are now thousands upon thousands of households used to paying minimal borrowing rates... the % increase when rates eventually start to rise will cripple them... another ticking timebomb.

  • rate this
    0

    Comment number 55.

    My mortgage rate is base plus 0.99% (ie 1.49%) and my job is secure. From that position what's not to love about recessions? If I was a saver with my own business that was in trouble it would be a nightmare. Strange days indeed.

  • rate this
    +1

    Comment number 54.

    We should follow Iceland's example - a country that wants to punish the bankers responsible for the crisis http://bit.ly/qLPeK7

  • rate this
    0

    Comment number 53.

    I am a saver all it has done is to force me to save more and chase the highest 1 year fixed rates i can. No one is getting a rate of 0.5pc so the forced low BOE rate is meaningless. I have however noted that energy companies are showing no restraint regarding price hikes. So were not all in this together. Rates need to rise soon else all i can conclude is that were in a depression not a ressecion.

  • rate this
    -1

    Comment number 52.

    NOT FOR PUBLICATION
    hi i recieved an email from the bbc about my post on this thread, re an interview with a journalist but i accidently deleted it, if it can be resent i would appreciate it. stan howard

  • rate this
    +1

    Comment number 51.

    There are many more savers than borrowers. Savers cannot spend so it hurts the economy. Low interests fuel inflation (including import prices) : this hurts the economy. Low interest rates fuel bad investment decisions and create asset bubbles. Low interests reward reckless borrowers and punish prudent savers : moral hazard. Artificially low interests are both economically and morally wrong.

  • rate this
    0

    Comment number 50.

    Joe
    The UK govt can't really default like Greece as they just print more money to pay it's debt. Greece can't as it's part of the Euro. It would however devalue the £ and costs more for the UK to borrow etc

    "Does YOUR interpretation of a Bank Deposit being 100% capital secure not justify the low returns..on deposits?"

    Yes, I completely agree. You can't have a high return with no risk.

  • rate this
    0

    Comment number 49.

    Don't forget that mortgage holders are not the only beneficiaries of a low interest rates. We desperately need new, wealth- creating industries to start up, with capital investment required. That won't happen if cheap loans are not available. Govt has to ensure banks lend to the right ones though, not the safe service sector wealth- shifting middle men agencies but real ones which truly add value.

  • rate this
    0

    Comment number 48.

    43.Bob Dylan

    Even if I ignore the fact that the Government would not be able to guarantee the cash balances of millions of depositors in the event of a mass scale Banking collapse.

    Does YOUR interpretation of a Bank Deposit being 100% capital secure not justify the low returns currently received on deposits?

    Want a better return, do the WORK, can't/don't want to, ACCEPT the alternative.

  • rate this
    0

    Comment number 47.

    My best investment over the last twenty years has been four gold crowns. they'll pay for my cremation and a few drinks afterwards.

  • rate this
    0

    Comment number 46.

    43.Bob Dylan

    Correct.

    But that is guaranteed by the government which in turn however unlikely has a RISK of defaulting.

    Tell me. If the banks had gone into administration, would the FSCS of had enough money to give all those many millions of depositors their money back? If they couldn't meet their obligations would that not have constituted a default?

    Which is why we saved the Banks!

  • rate this
    +1

    Comment number 45.

    16.BMT Seperating investment from high st banking ... they can pay a decent interest rate on savings..
    --

    If the high street bank aren't allowed to invest how do you think a bank will be able to give you a free service and pay you decent interest?

    They won't. Savings account will disappear and you'll need to pay a fee for your current account. There is no such thing as a good risk free return.

  • rate this
    0

    Comment number 44.

    41.BMT
    53 Minutes ago
    35.JonDM And a Tory apologist should be....If that was aimed at me,sorry,you're way off beam old boy.I vote for the Monster Raving Loony Party,if we're going to have nutters running things then lets at least have qualified nutters.What say you?Gotta go now,the men in white coats is here.ttfn
    =
    Just for that I rated comment up

  • rate this
    +4

    Comment number 43.

    @36.Joe "In the Bank, you risk the Bank going under, a possibility and thus a risk."

    The only risk is if you have over £85k cash in one bank or investments over £50k and that financial entity defaults. If you are lucky enough to have more than that, just open more banks to spread it around as the FSCS guarantees any deposits under that.

  • 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
    +2

    Comment number 41.

    35.JonDM And a Tory apologist should be....If that was aimed at me,sorry,you're way off beam old boy.I vote for the Monster Raving Loony Party,if we're going to have nutters running things then lets at least have qualified nutters.What say you?Gotta go now,the men in white coats is here.ttfn

  • rate this
    +1

    Comment number 40.

    The problem is that to the banks and the government, you're now a resource to exploit. The banks will readily screw you over and then charge you for the privilege.
    The government are only interested in economic growth, even if the size of the economy is artificially inflated. If you borrow lots and spend lots, the banks/economists will be happy. The rich become richer and the rest become slaves.

  • rate this
    +6

    Comment number 39.

    This has been a terrible country for savers ever since 1997 when Gordon Brown decided to destroy pensions and encourage everyone to borrow beyond their means. It was no surprise in 2009 when he ordered the Bank of England to slash interest rates to make savers subsidise the property speculators.

    When will this government realise that we need people to save, not over-borrow?

  • rate this
    0

    Comment number 38.

    25.1tank
    1 Hour ago
    I don't think most of the people giving advice are actually qualified to be doing it in the first place. I hate it when banks try and tell you what to do with your money after they couldn't even look after (ours) in the first place.
    =
    Good post - with a slight ammendment - see above!

  • 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

 

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