Money news, advice and predictions for savers and spenders.
By Jeremy Gates
Britain's lowest ever Bank base rate of 0.50% celebrated its first birthday this week, and while it has provided an easy ride for borrowers on cheap variable rate (SVR) mortgages, savers, however, saw their income almost wiped out.
Moneysupermarket.com's Hannah Mercedes-Skenfield says: "Many borrowers are sitting on extremely low SVR rates, which many took when fixed rate loans came to an end, and they have no incentive to move."
Nationwide BS confirms the trend, and in its latest market bulletin says: "Since mid-2009, there has been a steady increase in the proportion of new loans taken out at variable, rather than fixed, rates."
"In July, the proportion of new loans taken out on base-rate tracker or discounted variable rate deals hit a low of just 14%. By December, it rose to 39%, with fixed rate deals down from 80% to 54% in the same period."
Nationwide thinks buyers like variable rate loans because they want to keep more of their income each month. Figures suggest fixed rate loans cost 1.58% more than variable rate deals.
Lenders, though, are starting to cut the cost of fixed rate loans, and are launching them as a safe haven for borrowers unnerved by the sliding pound, general election jitters and the long-term implications of Britain's massive debts.
Post Office Mortgages' new range of 75% LTV (loan to value) loans includes a 3.19% tracker and two, three and five-year fixes from 3.89%.
Marco Hughes, Post Office's personal lending director, says: "If you're thinking about switching your mortgage, now is the best time to do it, before rates rise further. With many SVRs at or above 4%, there are already better deals out there."
Martijn van der Heijden, head of mortgages at HSBC, says: "Mortgage rates are difficult to predict over the next few years, and volatility may be unavoidable. Borrowers who can't absorb an increase of up to 3% on their rate should seriously look to fix payments."
HSBC fixed rate mortgages range from two years at 3.69%, to five years at 5.29%.
First Direct, HSBC's online subsidiary, has a new lifetime tracker mortgage (maximum LTV 85%) at 3.99%, currently 3.49% above the Bank base rate. Borrowers with a 35% deposit (LTV 65%) pay 2.39%.
First Direct also levies no early repayment charge if borrowers want to get out, possibly when rates rise, and into a fix.
Chelsea BS has new fixes too: 4.69% for five years to a maximum 75% LTV, or 5.04% for an 80% LTV.
Andrew Paddock, Chelsea BS mortgage product development manager, says: "With so much speculation about future levels of inflation and mortgage rates, people welcome an opportunity to fix payments at a competitive rate for five years."
Santander, supplier of one in five new mortgages in 2009, is cutting rates on 80% LTV deals: A two-year tracker at 3.25% for two years, and a two-year fix at 4.95%, with £995 fees, are for purchasers, rather than remortgagers.
In economic crises, variable rate loans can go wrong: Halifax SVR customers paid a stonking 15.4%, a record, in March-October 1990.
No one expects a repeat of that anytime soon, and Barclays predicts the base rate could reach 6.5% in the next five years.
However, there are severe problems in the mortgage market. Over the next four years, some £300 billion in Government support to lenders, in the form of the Special Liquidity Scheme and Credit Guarantee Scheme, must be repaid. That suggests volatility in mortgage rates for years to come.
David Hollingworth, at brokers L&C Mortgages, says: "The gap between fixes and variable rate mortgages is narrowing. People who want to know exactly where they stand tend to choose a fixed rate loan.
"But trackers, linked to the base rate, have attractions for borrowers who can absorb changes in monthly payments. Trackers are currently available at 2-2.5% over base rate, meaning a current pay rate of 2.5-3%.
"Britannia/Co-Operative Bank has a new two-year fix at 3.19%, to a maximum LTV of 75% with a £99 fee, and Yorkshire BS has a 3.09% two-year fix, with a 60% LTV limit.
"For five-year fixes, expect to pay an extra 1.5% on the rate. HSBC at 4.64% is probably the cheapest, on a 60% LTV. Chelsea at 4.69% has a 75% LTV with a £999 fee."
For borrowers seeking security after the election, L&C has an exclusive: A two-year 3.60% fix, up to 80% LTV, with £1,094 fee.
At brokers Charcol, Ray Boulger says: "It is probably still right to stay on a tracker, but turbulence on the foreign exchange markets shows clearly where risks to our economy lie, and that risk is partly political.
"For some weeks, we will be susceptible to opinion polls, and Greece shows how markets get the bit between their teeth if they decide a country is in difficulty.
"Our difficulties are less severe than Greece, but for a hung Parliament or a Labour win - which could mean Mr Brown staying as Prime Minister and possibly not Mr Darling as Chancellor - a long-term fix of five years has attractions. You can get them under 5%, with a reasonable amount of equity.
"Darlington BS has a five-year fix at 4.99%, with LTV up to 80% and fee of 1% plus £75.
"For an overall Conservative majority or coalition, suggesting earlier action to tackle Britain's debts, consider lifetime trackers, but look out for a possible early repayment charge if you want to get out and into fixed payments. There are trackers with no penalty charge after two years.
"Both Nationwide and Scottish Widows have trackers with this so-called droplock option, which lets you switch into a fix at any time with no charge. Nationwide loans start at the Bank base rate plus 2.14%, up to 70% LTV, with a £995 fee.
"ITL Mortgages (part of Stroud & Swindon BS) has a lifetime tracker of base rate plus 3.39% - currently 3.89% - capped at 5.89% to January 31, 2013. The cap means you cannot pay more than that for three years."
Andrew Hagger at Moneynet.co.uk points out that borrowers leaving variable rates for trackers and fixes should always check to see if the new loans limit the level of overpayment allowed each year; on SVR loans, there is rarely any limit.
:: Information: HSBC (0800 169 6333 and www.hsbc.co.uk); First Direc (www.firstdirect.com); Chelsea (0800 169 1177 and www.thechelsea.co.uk); Santander (0800 389 6704 and www.santander.co.uk); Post Office (0800 707 6204 and www.postoffice.co.uk/mortgages or from any Post Office branch); L&C Mortgages (0800 373 300 and www.lcpl.com); Charcol (0800 718 191 and www.charcol.co.uk).
Poundnotes
:: The new Virgin Credit Card Exclusive, available until March 18 only through Moneysupermarket.com, offers 0% for 12 months on balance transfers (with 2.98% fee) and all card purchases, so it's an obvious way slash interest charges on existing debts. After the introductory period, the rate reverts to 18.9% APR (variable).
Holders of this card also get access to Virgin's discount scheme, such as 50% off Virgin Balloon flights, 20% off Virgin Experiences, 10% off Virgin Holidays, and High Street vouchers for other savings.
Peter Harrison, card expert at Moneysupermarket.com, says: "The Virgin Credit Card Exclusive is perfect for everyday use and for transferring debts, so you only need one card in your wallet. With other cards, because of the negative repayment hierarchy, you must carry two cards - one for everyday use, another for balance transfers.
:: For savers keen to play it safe, Santander/Alliance & Leicester have launched structured products, with returns linked to shares in London's FTSE 100, or property prices measured by the Halifax House Price Index.
Maturing in 2014 and 2015 on minimum £1,500 investments, all the plans are designed to beat likely returns from cash-based accounts. The offer period runs until April 8, or earlier if sold out. Further details are available from branches which arrange an appointment with a financial advisor.
Nationwide BS is launching a new Protected Equity Bond, linked to several of the world's leading stock markets, and is designed to return a minimum 11% gross over six years.
Both schemes can be held within, or outside ISAs for tax advantages. If the maximum potential is achieved, it would represent an annual return of 6.99% AER.
:: First Utility has become Britain's cheapest energy supplier, with an online plan costing £889 on average, against £899 at British Gas. Its standard plan averages £1,074, also just under British Gas.
Emma Bush, at uSwitch.com, says: "This is great news, with First Utility offering a viable alternative to the big six energy suppliers." Bush says online plans work out around £300 per year cheaper than standard plans.
:: Savers still trying to find a cash ISA before the April 5 deadline will find it hard to beat the Santander Flexible ISA, says Andrew Hagger at Moneynet.co.uk.
The rate of 3.50% is guaranteed for 12 months, but the account is structured to pay 3% above the base rate, so investors will cash in if the Bank of England raises the base rate later in the year.
For a two-year ISA, Andrew Hagger tips Aldermore at 3.60%, while Bank of Cyprus has a one-year at 3.33%.
:: High five savers
Phone No Rate Account Period Deposit Interest paid
AA 0845 603 6302 5.10% (F) Telephone Fixed Rate Bond Five Year Bond (T) £500 Yly
SAGA 0845 850 0664 5.10% (F) Fixed Rate Savings Five Year Bond (S) £1 Yly
Santander www.santander.co.uk 3.50% Instant £1 Yly
Secure Trust Bank 0800 408 2020 3.25% 120 Day Notice Issue 1 120 Days £1,000 Quarterly
FirstSave www.firstsave.co.uk 3.25% 90 Day Notice 90 Days £100 Yly
:: Top five borrowers
Phone No Rate Period Max% Adv Fee Incentive
HSBC (Rem) 0800 494999 2.39% discounted for two years 60% £999 Yes
First Direct 0845 610 0100 2.39% variable for term 65% £499 Yes
Norwich & Peterboro BS 0845 300 2522 2.95% for three years 75% £695 Yes
Co-op Bank 0800 633 5286 3.19% to 30/06/12 75% £999 Yes
Post Office 0800 707 6204 3.59% variable for term 80% £599 Yes
Code:
*F - Fixed
*P - Operated by Post
*B - Operated by Post/Telephone
*T - Operated by Telephone
*W - Operated by Internet
*H - Operated by Internet/Telephone
*S - Available only to those aged 50 or over
*R - Available to those aged 60 and over.
:: Source: Money£acts - Tel: 01603 476 476 (All rates subject to change without notice).
