Money news, advice and predictions for savers and spenders. This week.
By Jeremy Gates
Despite the latest 1% cut in the Bank rate, there are widespread doubts that it will become much easier - and most importantly, much cheaper - for many people to buy a home.
This latest cut obviously boosts those who already have a mortgage - especially those at Cheltenham and Gloucester (C&G) who took two year fixes last summer at Bank Rate minus 1.01%.
Their loan now costs just 0.99% - the first time in living memory we've seen a mortgage rate below 1%.
Most borrowers on tracker rates benefit too: Ray Boulger at brokers John Charcol reckons that only half a million of the 3.9m tracker borrowers are likely to be caught by the collar which prevents the rate going too low, while the rest get the latest cut passed on in full.
However, for potential new borrowers, little has changed; borrowers with only a 10% deposit could still pay 6%-plus.
Andrew Hagger at finance website Moneynet.co.uk says: "Unless buyers have a substantial amount of equity in their property, say 25% of value, there is little evidence this succession of cuts is making mortgages any cheaper.
"Despite financial intervention from Government, there seems to be a general unwillingness among lenders to provide mortgage finance priced in line with the sharp downward movements we have already seen in Bank rate, the LIBOR rate on interbank loans, and other money market rates."
A thick fog encircles Standard Variable Rate (SVR) loans - following the December 1 decision by Nationwide BS to withdraw its 4.69% SVR to new applicants, after similar moves by Abbey, Alliance & Leicester, Halifax, Cheltenham & Gloucester (Lloyds TSB), Royal Bank of Scotland and Yorkshire BS.
Around 20% of 11m mortgage holders hold SVR loans. Nationwide has the most among the main lenders.
Ray Boulger at Charcol predicts: "Very few lenders will pass on the whole of this month's cut, and most will reduce SVRs by between just 0.25% and 0.5%.
"Some coerced by Government into passing on all of last month's 1.5% cut against their better commercial judgement may be parsimonious this time, unless there is further Government browbeating."
Francis Ghiloni, at mform.co.uk, a free service to find 'best buy' mortgages, says the clampdown on SVRs could hit borrowers keen to escape fixes left high and dry by plunging rates since the Summer.
Until six months ago, SVRs were mainly for borrowers too lazy to chase cheaper fixes and trackers.
But when the Bank of England cut rates by 1.5% on Nov 6, Government told lenders to cut SVRs by the same margin.
Michelle Slade at financial website Moneyfacts.co.uk, says a minority of lenders obeyed. The big lenders did as they were told, while others - including Standard Life Bank, First Direct and Barclays/Woolwich - left SVRs unchanged.
Ray Boulger, at John Charcol, says: "Nationwide was one of few lenders still accepting applications for SVR loans, both as new applications and top ups to existing loans.
"The attraction of SVRs is that they usually have no arrangement fee, and no early repayment charge. They are an obvious option for borrowers battening down the hatches before choosing between a fix or tracker loan when storms abate, perhaps in late-2009.
"Previously, when borrowers reached the end of a fix, they went onto SVRs at a higher rate. Now borrowers going onto SVRs might get a lower rate than before."
Ray Boulger thinks Government gained a 'Pyrrhic victory' in November by leaning hard on big lenders - the cost of victory outweighs the gains.
"To please the Government", he says, "I think Nationwide ended up with a lower SVR than it could comfortably accept. New borrowers can't get the rate any longer, but customers ending other deals automatically go onto SVR.
"Less than a month after the breakfast meeting rolling out the Brown/Darling masterplan to intimidate the major lenders into passing the full 1.5% November cut in their SVRs, the one with the lowest SVR and by far the largest proportion of its lending on SVRs pulls the plug for new lending at that rate."
The spread on SVRs stood at an unprecedented 2.25%, even before the latest cut was confirmed - between Nationwide at 4.69% and Scarborough BS (soon to be part of Skipton BS) at 6.94%. Now the spread could become even wider
Many lenders won't dare to make SVRs any cheaper - fearing massive demand if they do so.
Ray Boulger says: "Clearly, SVR loans could become an endangered species. Given the finite supply, lenders who cut SVRs for existing customers might have to stop them for new customers."
"In any event, the problem which remains is a lack of competition in the mortgage market because of an acute lack of funds. The only real competition is for borrowers needing a loan to value (LTV) ratio up to 60%.
"For loans above 75% LTV, there is very little competition. There are virtually no trackers above that level."
Several lenders intend to pass on the latest cut in full: the small print of Cheltenham & Gloucester's SVR says it cannot exceed Bank rate by more than 2%, so it cannot now charge more than 4%.
Lloyds TSB is cutting its SVR to 4% - for existing borrowers only, coming off other deals. Its new two year fixes start at 3.89%, to a maximum 75% LTV.
So far as other lenders are concerned, it might be better if they take their time.
Ray Boulger says: "Usually, lenders adjust the rate at the start of the next month, following the change in Bank rate.
"In this case, lenders who delay a decision until later in December might make a larger cut after a further downward move in LIBOR (the interbank lending rate)."
But the cost of helping borrowers is massive pain for a much bigger army of savers.
Michelle Slade at Moneyfacts.co.uk warns: "If base rates continue to fall, we could end up with a situation where the vast majority of accounts pay less than 1% interest."
:: INFORMATION: John Charcol (0800 718191 and www.johncharcol.co.uk).
POUNDNOTES
:: The latest cut in savings rates is another blow to a group seen as one of the biggest victims of the credit crunch: around seven million FREDS - people Facing Retirement Earning Doubts - have grave doubts about their finances as bills pile up, says pensions and insurance group LV= (Liverpool Victoria).
Its survey says 5m fear the rising costs of food and utilities, around 4.5m fear recession, around 4.2m are alarmed by media reports of crisis, and 3.1m worry about share volatility.
LV= says problems are intensified because one fifth of this age group aren't saving anything towards retirement, and a half haven't increased the amount they are saving. Among one in ten increasing the amount they save, the average monthly sum they set aside is £225.
Just Retirement, an equity release specialist, confirms the figures; it says one in four retire with debts, and a further 26% nearing retirement are concerned about likely debts.
Problems are worsening because people nearing retirement are seeing incomes fall, or lost altogether.
Nigel Barlow at Just Retirement says 62% of households with one adult or more above retirement age have savings of less than £10,000, and 75% have less than £20,000 set aside.
Nigel Barlow says: "It is important people don't panic and look carefully at all their assets. Servicing a mortgage in retirement obviously cuts retirement income, so they may be able to use some of the value in their house to remove their debt."
Both Mike Rogers, LV= chief executive and Nigel Barlow at Just Retirement think the over-60s will access the £1trillion-plus locked up in bricks and mortar earlier in retirement.
:: Small investors brave enough to dabble on the stock market continue to "bottom-fish" for firms which have seen their value plunge, says leading execution-only broker TD Waterhouse.
Their top choice this week is Rio Tinto, which is flat on its back after BHP Billiton's decision to drop a £43bn takeover, while the number two slot goes to housebuilder Taylor Wimpey, battling to reach an agreement with lenders over its £1.9bn debt.
Also in the best buys list this week are HBOS (7), Tesco (8), miner Kazakhmys (9) and retailer DSG International.
Waterhouse has a £9.95 fee for online deals, and £18.95 on telephone, assuming a minimum ten trades per quarter.
Waterhouse enquiries: 0845 607 6001 and www.tdwaterhouse.co.uk.
:: Government plans to help homebuyers in danger of seeing their homes repossessed have been welcomed by John Fairhurst of Payplan as "good news- but only for those who suffer an unexpected change in their circumstances, like job loss."
However, Fairhurst says that most Payplan clients in mortgage arrears have not experienced a drop in income, but simply cannot keep up debt repayments. Those facing repossessions also "owe an average £42,000 in unsecured debt."
Payplan Mortgage Arrears hotline: 0800 917 7819.
:: First time buyers aged 16-35 who are keen to gather a deposit can earn a variable 6.50% (no partial withdrawals allowed) on Abbey's First Home Saver Account provided they save between £100 and £300 per month. Minimum opening balance is £100-£5,000, and maximum balance is £50,000.
The account is not available to those who already have a mortgage - and when the account is eventually closed, account holders must agree to a "no obligation" interview with an Abbey mortgage advisor.
Abbey enquiries: 0800 234 6065.
HIGH FIVE SAVERS:
Phone No Rate Account Period Deposit Interest paid
Principality BS 0845 045 0452 5.76% (F) Fixed Rate Bond 115 Six Month Bond (P) £1,000 OM
SAGA www.saga.co.uk 5.66% Online Tracker Account None (S) £1 Yly
Manchester BS 0161 833 8015 Premier Guarantee Instant £1,000 Yly
Principality BS www.principality.co.uk 5.50% e-ISA None £1 Yly
ICICI Bank www.icicibank.co.uk 5.37% HiSAVE Savings None £1 Yly
TOP FIVE BORROWERS:
Phone No Rate Period Max% Adv Fee Incentive
First Direct 0845 610 0100 4.49% for term 80% £599 Yes
HSBC 0800 494999 4.64% for term 60% £799 Yes
Market Harboro BS 01858 412250 4.65% for two years 75% £595 Yes
Mansfield BS 01623 676345 4.79% for three years 75% £599 Yes
Principality BS 0845 045 0006 4.99% to 31/12/10 75% nil 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 476476 (All rates subject to change without notice)
DEC 5/08
