What is the Next Step for Borrowers and Savers?
With the recession in full swing in the UK and predictions of worse conditions to come, both borrowers and savers are wondering what they should so in the future. Small returns on investments are making it extremely difficult for savers to earn the money they were counting on for future needs, such as retirement.
Borrowers on the other hand are benefiting from the low mortgage rates and more consumers are able to become homeowners. Repayments have become much easier for homeowners to handle due to the reduced interest and thus lower monthly payments.
For savers, the Bank of England has cut its rates for the sixth consecutive month so that it currently stands at 0.5% – down from 5% at the start of the recession.
Older people are very concerned about the lack of earnings on their savings because they have depended on this money to supplement their incomes and pensions. According to Moneyfacts, just over 25% of all variable rate accounts pay less than 0.10% on savings accounts.
According to Andrew Hagger of the financial website Moneynet.co.uk, the steady decline of the interest rates since October of 2008 has given many UK savers an extra item to worry about when it comes to financial worries.
He says, “It is starting to look as if some providers may have reached their targets for Isa deposits already and are content to offer a poorer deal to those who have been slow off the mark.”
The Bank of England states that there are some signs of recovery in the interest rates on fixed rate bonds, but who knows how long this increase will last. The UK banks and building societies say that they are doing their best to retain and attract savers by keeping the interest rates up as much as they can. This effort has also resulted in the decision not to lower mortgage rates to new levels at this time.
Homeowners with tracker mortgages have received the most benefit from the falling interest rates. According to a recent survey conducted by Halifax on the amount of disposable income that homeowner now have as a result of the decrease in interest on their loans, the amount of income spent on mortgage payments has dropped from 48% to about 31% in 2009 alone.
Experts recommend that these consumers should take advantage of the extra money to pay off some of their other debts so that they will be in a much better financial situation once interest rates start to rise.
Brian Morris, head of the Building Societies saving policy said, “In the current low interest rate environment there is evidence that households are looking to repay debt rather than save, and it is possible that there will be a net withdrawal – before interest credited – from the total UK savings market in 2009.”
Lenders are still on the lookout for borrowers with good credit ratings to whom they can extend a mortgage on a new home. However, Nationwide recently announced that its mortgage rates would no longer be tied to the low rates set by the Bank of England.
Some of the UK lenders still do require a 25% deposit on the mortgage and this is one factor that is keeping many first time homebuyers out of the market in spite of the low rates of interest and low payments. However many savers are realizing the importance of using this income as their deposit because they are earning very little on it by keeping it in a savings account.
The decline in house prices has also started to show signs of easing, which means that the housing market may have bottomed out. Many borrowers did refrain from taking out a mortgage waiting for the prices to reach their lowest point. With low interest rates and low prices, no may be the time to get involved with the mortgage market so that you can establish equity for the future as prices start to rise.
Tags: bank of england, save money, borrow money, mortgage rates, base rate, interest rates
