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Clare Francis: When the Bank of England's monetary policy committee met this time last year and voted to keep interest rates on hold at 5%, little did it know that we were only days away from the financial crisis which brought the British banking system to the verge of collapse.
Since then the base rate has fallen to half a percent. It has been at this level since March and the MPC has voted to keep it on hold again this month.
However, mortgage and savings rates have been affected very differently with what has happened to interest rates over the past year.
Borrowers looking for new mortgages have been hit by the stubborn refusal of banks and building societies to pass on lower borrowing costs to their mortgage rates. Savers on the other hand are enjoying highly inflated rates making it one of the best times to be a saver for many years.
As the graph illustrates mortgage rates haven't fallen in line with the base rate cuts and reduction in wholesale borrowing costs. Lenders have been under pressure to reduce the rates on new mortgage deals, but many have dug their heels in, and as result the margin between the base rate and the average tracker rate has widened rather than narrowed.
There have been a few signs of things improving for borrowers. HSBC raised hopes when it launched a two-year discount with a rate of 1.99%. First Direct, also owned by HSBC, has cut the rate on some of its trackers. Abbey and Alliance & Leicester, which are part of the Santander group, have also reduced the rates on some of their fixed rate mortgages.
While this is obviously welcome news, unfortunately it doesn't look as though it's going to result in a widespread reduction of mortgage rates. I spoke to Hannah Skenfield, moneysupermarket.com's mortgage manager, to find out why.
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Q1: So Hannah, why are mortgage rates still so much higher than the Bank of England base rate and Libor? Because obviously when base rate started falling last year, the reason the banks and building societies gave was that wholesale borrowing costs were still significantly higher than the base rate and weren't falling in line, But obviously we've seen LIBOR rate come down significantly over the last few months and yet mortgage rates are still so much higher, so how can the lenders defend that now?
Hannah Skenfield: Well basically there is still quite a lot of bad debt around, so what we're seeing is lenders are being very cautious about who they're actually lending to. So for example, you need quite a big deposit, you definitely need an excellent credit rating to be able to get the products which are available.
That said though we are starting to see, with HSBC and most recently A&L and Abbeys rate cuts, there is a little bit of light at the end of the tunnel.
Q2: And obviously it is good news and we're seeing some really good mortgage rates available. That said, as you've mentioned it's the people with the largest deposits who are getting access to these really good rates. HSBC requires you to put down 40% which rules a lot of people out. So what's your advice if you are struggling to get a mortgage? Because if you've only got 10% or 15% to put down there's still a shortage of choice out there, isn't there? What should people do?
HS: Absolutely. Well buying your first house is obviously really exciting and I remember buying my first house, but I think what people should make sure that they should do is save up as much of a deposit as they possibly can. Now house prices are not going to shoot through the roof I don't think anytime soon, so they have still got a little bit of time, so there isn't this urgency that they have to buy right now.
People who are looking to re-mortgage maybe and who are quite worried about maybe their property has gone into negative equity because the prices have dropped for example, what they should do first off is to approach their existing lender and see what they can offer them, and then perhaps engage the services of a mortgage broker or an IFA who will be able to search the wider market and see what's available for them.
CF: Great advice, thank you Hannah.
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It continues to be a bumper time for savers. The leading easy access accounts are paying more than 3%, and you can earn in excess of 4% if you're happy to lock your money away for a couple of years. We're also seeing some activity in the cash Isa market ahead of next month's rule changes, which means that the over-50s will be able to invest a higher amount tax-free each year.
If you are 50 or over and you are looking to take advantage of the higher Isa allowance, the advice is not to act just yet. You obviously won't be able to pay in the extra money until the 6th October and we may see other more competitive products come onto the market in the next few weeks.