It’s now been one year since the turmoil in the financial markets caused the Bank of England to take an unprecedented step and cut the base rate a day ahead of its usual decision.
While the nation waited for the normal Thursday decision, behind the scenes the Monetary Policy Committee had held a special meeting, ahead of schedule.
The decision was made that the Bank of England, alongside other European powers and the US, would cut the base rate by 0.5 percentage points, down to 4.5%.
This sparked the beginning of the aggressive rate cutting cycle which saw base rate plunge to 0.5% by March. For more on this watch our video ‘All quiet on the base rate front’.
It has been a tough year for the UK’s economy – a tough two years in fact. Last month saw the second anniversary of the run on Northern Rock and it’s now been a full year since the collapse of investment bank Lehman Brothers.
Since then, the country has been rocked by falling house prices, businesses going bust and unemployment soaring.
Many savers stared ruin in the face following the Icelandic bank collapse, even if the government eventually stepped in and guaranteed most people’s money.
So what now? For months the base rate decision has not seemed to have any effect on the amount people pay for credit – it is still costly and difficult to access.
Bizarrely, it has not had the devastating affect many people predicted on savings either – competition for customers has pushed rates up far beyond the 0.5% base rate.
What’s happening to mortgages?
House prices are starting to gradually rise and September was the fifth month in a row to see an increase, propelling property prices back to the same level they had been a year before.
Although many people are still trapped by negative equity, many others are anxious to buy their first home while prices are low. Remortgagers naturally want to find a good mortgage rate while the base rate is so low.
Yet the mortgage market remains troubled. There are some great rates available – including 1.98% from Barclays and 1.99% from HSBC – but these deals are only available to people with a 30-40% deposit, or equivalent equity in their homes.
Anyone without that kind of deposit faces higher rates and fees.
What now for savers?
During the banking turmoil, savers flocked to safe havens for their cash. They wanted the security of government-backed providers like National Savings & Investment.
Now it’s all about the rate they can get on their money. Although the returns savers are seeing are smaller than they were 18 months ago, low inflation and base rate make this an excellent time for to put money away.
Of course, if you had cash in a fixed rate bond paying returns of 6.00% and more that’s just finished, the savings environment may not seem quite so rosy.
If you’re willing to fix again, you could secure a rate as high as 5.30% with Yorkshire Building Society if you’re happy to lose access to your cash for five years.
Lock away for two and you could still enjoy 4.35% returns with The AA.
Even within the easy access markets, there are rates as high as 3.30%, so don’t despair of finding a lucrative home for your savings.
If you’re over 50 and want to make use of your increased ISA allowance, read our article ‘Where to invest your ISA allowance’ for some guidance on the best rates.