Savers have never had it so good, says Defaqto

April 17, 2008 | posted by Chloe Cottam in Banking, Insight, Press Release, Savings | comments (0) |

Historically, when base rates changed, savings rates followed suit, but in the current credit crunch, those with spare cash and prepared to move their money around can take advantage of the banks’ and building societies’ eagerness to attract retail funds.

Last time the Bank of England’s base rate was changed to 5.00% was 17 months ago in November 2006. Comparing the fixed rates available then and those available now shows massive differences. The highest available 6 month fixed rate bond is now paying over 1.50% more than 17 months ago on a £10,000 investment.

David Black, Principal Consultant  - Banking at Defaqto, said: “With many people thinking  that the base rate is likely to fall further this year some of the fixed rate products available now look outstanding value.”

Variable saving rates look set to be reduced, but with some of the newer entrants, such as Kaupthing Edge & Icesave saying that they will hold their rates for the time being, people could still maintain or better their current rates going forward if they are prepared to move their money around.

“It is clear that some financial institutions are making their decisions about fixed savings rates in the light of their own particular circumstances and are not being influenced too much by what is happening to the Bank of England base rate. While this is the case, savers can consider taking advantage of the situation by locking into some very attractive rates.  Remember though, that only balances of up to £35,000 with any one institution are covered by the Financial Services Compensation Scheme.”

Comparison of past and current fixed gross AER rates for

a £10,000 balance with Bank of England Base Rate at 5%

Term of Bond

HIGHEST

rate   November 2006

HIGHEST rate       now

Additional interest
6 month fixed rate bond

5.27%

6.86%

1.59%
1 year fixed rate bond

5.80%

6.92%

1.12%
2 year fixed rate bond

5.72%

6.60%

0.88%
3 year fixed rate bond

5.71%

6.70%

0.99%
4 month fixed rate bond

5.60%

6.00%

0.40%
5 year fixed rate bond

5.58%

6.00%

0.42%

 

 

 
Term of Bond

AVERAGE  rate      November 2006

AVERAGE rate      now

Additional interest
6 month fixed rate bond

4.78%

5.97%

1.19%
1 year fixed rate bond

5.03%

5.64%

0.61%
2 year fixed rate bond

4.97%

5.36%

0.39%
3 year fixed rate bond

5.06%

5.37%

0.31%
4 month fixed rate bond

5.11%

5.27%

0.16%
5 year fixed rate bond

4.63%

4.79%

0.16%

Highest fixed savings rates currently available

Provider Product

Open by:

Gross AER % for £10,000

Fixed Term
Icesave 6 Month Fixed Rate

I

6.86

6 months
Birmingham Midshires Direct 6 Month Fixed Rate

PT

6.82

6 months
Kaupthing Edge 6 Month Fixed Term

I

6.80

6 months

 

 

 
Saga 1 Year Fixed Rate Monthly

PT

6.92

1 year
Kaupthing Edge 12 Month Fixed Term

I

6.86

1 year
Heritable Bank 1 Year Fixed

P

6.80

1 year

 

 

 
Icesave 2 Year Fixed Rate

I

6.60

2 years
Alliance & Leicester 2 Year Fixed Rate

B

6.30

2 years
FirstSave 2 Year Fixed Rate

I

6.30

2 years
Cheshire Building Society 2 Year Fixed Rate Bond

BIPT

6.30

2 years

 

 

 
Kaupthing Edge 3 Year Fixed Term

I

6.70

3 years
Icesave 3 Year Fixed Rate

I

6.50

3 years
FirstSave 3 Year Fixed Rate

I

6.30

3 years
Yorkshire Bank 3 Year Term Bond

BI

6.25

3 years

 

 

 
Anglo Irish Bank - UK 4 Year Fixed Rate

P

6.00

4 years
Heritable Bank 4 Year Fixed Rate

IP

5.75

4 years
Bradford & Bingley 4 Year Fixed Rate

BP

5.60

4 years

 

 

 
Anglo Irish Bank - UK 5 Year Fixed Rate

P

6.00

5 years
Heritable Bank 5 Year Fixed Rate

IP

5.75

5 years
United Trust Bank Ltd 5 Year Fixed

P

5.50

5 years
Birmingham Midshires 10 Year Fixed Rate

T

6.00

10 years

B = branch  I = internet

T = telephone  P = post

-Ends-

For further information contact:

Defaqto Limited          

David Black or Luci Mylward

01844 295 454

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Defaqto comments on Base rate change

April 10, 2008 | posted by Chloe Cottam in Banking, Insight, Press Release | comments (0) |

Following The Monetary Policy Committee’s decision to reduce the Bank of England Base rate by 0.25% to 5.00%, Defaqto’s Principal Consultant – Banking, David Black comments:  

“This 0.25% cut by the Monetary Policy Committee was widely anticipated and comes as no surprise. What remains to be seen is how much each individual lender will pass on of this cut to its variable rate borrowers. 

“Prior to this cut the average Standard Variable Rate was 7.21%. Last time the base rate was at 5.00% (between 9th November 2006 and 10th January 2007) the average Standard Variable Rate was 6.80%” 

-Ends-   

Notes to Editors: 

1 Dependent on the content of the release 

For further information contact: 

Defaqto Limited          

David Black, Chris Johnston or Luci Mylward

01844 295 454  

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Borrowers suffer triple whammy with tracker mortgages, says Defaqto

April 8, 2008 | posted by Chloe Cottam in Banking, Insight, Mortgages, Press Release | comments (1) |

In the days before the credit crunch, people took out mortgages that tracked the Bank Base Rate because they thought the rate would drop in the future. The loading above BBR was generally stable in the region of 0.5% to 0.75%, depending on the length of the tracker term.In today’s increasingly difficult conditions, all this has changed. Not only has the number of available BBR tracker mortgages dropped by almost a quarter since July 2007, the higher loadings on the BBR have, on average, has more than negated the half percent decrease in BBR since then.

For two year trackers, the period with the most plans on offer, the average loading above BBR increased from 0.49% to 1.17% over the eight months since July 2007, an increase of 139%,  while the BBR rate fell from 5.75% to 5.25% over the same period.

It’s a similar picture for three year trackers with an average loading increase from 0.52% to 1.14%, an increase of nearly 120%. For the other main mortgage term products, there have been increases, even if they have not been quite as swingeing.

For the consumer the pain doesn’t stop there. Not only has the number of mortgages on offer decreased while loading percentages have increased, but application fees have seen huge uplifts since July. Fees for a typical 2 year mortgage have gone up from £688 in July 2007 to £1,005 currently, a 46% increase. This gets worse at the tracker term increases, rising to a massive 139% for term trackers.

David Black, Principal Consultant - Banking at Defaqto said: “With banks and building societies trying to repair their balance sheets in an atmosphere of financial mayhem, it is hardly surprising it is the poor consumer who is caught in the middle and is having to pay more for less choice. It is almost as though we are going back to the days when lenders felt they are doing you a favour by offering you a mortgage.”

-Ends-

Bank Base Rate

Tracker Mortgages

July 07

April 08

% Increase/  Decrease
1 year

 

 
Number

7

3

-57.1
Average % Loading

0.48%

1.19%

147.9
Average Fee

£505

£486

-3.8

 

 

 
2 year

 

 

 
Number

265

159

-40.0
Average % Loading

0.49%

1.17%

138.7
Average Fee

£688

£1,005

46.1

 

 

 
3 year

 

 

 
Number

75

74

-1.3
Average % Loading

0.52%

1.14%

119.2
Average Fee

£606

£1,016

67.7

 

 

 
5 year

 

 

 
Number

29

17

-41.4
Average % Loading

0.72%

1.04%

45.0
Average Fee

£444

£789

77.7

 

 

 
Term

 

 

 
Number

215

199

-7.4%
Average % Loading

0.75%

1.15%

53.3
Average Fee

£442

£1,060

139.8

 

 

 
All

 

 

 
Number

591

452

-23.5
Average % Loading

0.6%

1.16%

93.3
Average Fee

£573

£1,013

76.8

For further information contact:

Defaqto Limited 

David Black,Chris Johnston or Luci Mylward

01844 295 454

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Are the UK’s economic fundamentals sound and are they underpinning the housing market?

April 8, 2008 | posted by Chris Johnston in Mortgages | comments (0) |

House price movements can be seen as either a glass “half – full or half – empty” situation – it all depends on how you chose to view the figures.

The latest statistics from Halifax which show a fall of 2.5% in March, should, according to the Halifax, be viewed in the context of significant price rises last year and against the background of sound economic fundamentals which are supporting house prices.

These sound economic fundamentals are described by the Halifax as a strong labour market, low interest rates and a shortage of new houses. However, how robust is the labour market? With 62% of GDP accounted for by consumer spending and with rising inflation and with undoubtedly greater expenditure diverted to mortgage payments, the labour market is more fragile than it appears.

Are interest rates that low? The expectation is that the Bank base rate will be brought down to 5.0% or lower from its current rate of 5.25%, but this is high in comparison with the Eurozone rate of 3.75% and the US rate of 2.25%.

As to the shortage of new houses, this is not necessarily a brake on house price falls. The experience of Japan could be instructive. A boom in house prices in the 1980’s which ended in 1991 was followed by more than a decade of house price falls.

A different view of the economic fundamentals is that there is a crisis in banking, part of the financial services sector which accounts for around 10% of GDP, the Government is borrowing more than anticipated, sterling is falling, inflation is gathering pace and the high rate of consumer spending that has characterised the last ten years, has come to an end. In addition, consumer debt is at a dangerously high level.

With the economy so dependent of consumers borrowing to spend, the party is definitely over, and a new equilibrium will undoubtedly emerge in due time in which house prices assume a realistic valuation.

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The changing face of ethical investment

April 8, 2008 | posted by Chris Johnston in Investment | comments (0) |

In the good old days, deciding to invest ethically was simple. All you had to do was to avoid putting your hard earned cash into companies involved with tobacco, alcohol, pornography or armaments and certain pharmaceuticals. Your conscience could be clear if you invested anywhere else.

Gradually the definition of ethical investments has changed from excluding certain funds to only including those investments that pass through the various screening processes put in place by fund managers who wish to describe their funds as ethical.

The link between today’s ethical fund definitions and the original position are the funds which are known loosely as being environmentally-friendly. The are investments that can demonstrate that they are sensitive to the environment and have policies which encourage recycling or that minimise the use of natural resources or have reduced contamination in the way they carry out their business. In fairly recent times the terminology has changed again to “Socially Responsible Investments” and a new breed of ethical investments has appeared.

Taking Centre Stage

These are investments in alternative energy sources and it is these which now appear to have taken centre stage. If you want to invest in socially responsible funds, all you have to do is to select funds that are described by their managers as being socially responsible investments. However, all this means in practice is that the funds meet the fund managers’ screening criteria. Whether the fund meets the widest possible definition of ethical investment, including the carbon footprint of the fund, may not be known.

While anything that encourages responsible investing can only be a good thing, this needs to be balanced by an equal if not greater focus on the market opportunities and skill of the managers in charge of the funds, if investors are to achieve the returns they are looking for.

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Platform providers need transparency of proposition and charging structures, says Defaqto report.

April 7, 2008 | posted by Chloe Cottam in Insight, Investment, Press Release | comments (0) |

Despite assurances from market players about the transparency of their propositions, some IFAs claim that platforms are too expensive and that they still struggle to understand the concept, according to a report recently published by Defaqto.

The findings from the review of the adviser platform market coincide with the FSA’s feedback on its platform discussion paper. This highlighted concerns over the complexity, cost and training issues relating to the use of platforms.

Defaqto’s report, entitled: ‘Adviser Platforms in the UK 20081 - Stand and Deliver’, includes results from a study of IFAs conducting investment business. The study found that among the reasons given by IFAs for not adopting platforms were that there was not enough awareness of either their functions or of the available products.  Other reasons were that platforms required to be fully understood by clients before they would request them, while some IFAs simply thought that they were too expensive.

Matt Ward, Defaqto’s Principal Consultant for Pensions & Wealth Management, stated that: “Although it is acknowledged that platforms should be seen as a service it does not preclude providers from putting together marketing and support material which clearly defines the capability of a proposition and details the component parts. Clearly, more work needs to be done in getting the ‘platform’ message across to IFAs, and this needs to be followed up with ongoing support.”

Further, Ward comments: “Advisers also need to be in a position to compare and contrast propositions ahead of further adoption considerations for their practice and the fact that this process is not currently a straightforward one does not reflect well on the market.”       

-Ends-

 

Notes to Editors:

1The report ‘Adviser Platforms in the UK 2008- Stand and Deliver‘  is on sale priced £1,200 excluding VAT for a PDF version and £595 (No VAT payable) for a single printed copy. For further information please contact Chris Johnston on 01844 295457, or the Sales Department on Freephone 0808 1000 804 or visit http://www.defaqto.com/

For further information contact:

Defaqto Limited          

Matt Ward, Chris Johnston or Luci Mylward

01844 295 454

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Are Bank Base Rates becoming less relevant to the real economy?

April 7, 2008 | posted by Chris Johnston in Banking | comments (1) |

On Thursday 10th April, the Bank of England’s Monetary Committee will set the Bank Base rate against an extremely difficult economic background. The Committee is charged with ensuring monetary stability and of keeping inflation within 1% of the 2% annual target level.

The fault lines in the economy are likely to make this month’s decision as difficult as it has ever been. Inflation, by whatever measure, is likely to show a rise in March under pressure from fuel and some food price increases, while house prices look as if they are coming down while mortgage rates are going up.

The reluctance that banks are showing to lend to each other is reflected in the LIBOR rate, which for 3 months, is just over 6%, which is 0.75% above base rate, compared with a typical spread of 0.25% to 0.50% above base rate for much of the first half of 2007.

It looks as if financial institutions are making their decisions about lending rates and lending decisions in the light of their own particular circumstances and are not being influenced too much by what may happen to the Bank of England base rate.

In the current economic conditions, trying to manage the economy by moving interest rates is looking increasing like a measure that has passed its sell by date. A cut in the rate will encourage inflation but is unlikely to influence mortgage rates and keeping the rate the same will just prolong the current status quo. A rise in the rate will potentially choke off even more demand and make the outlook for growth and jobs that much more dismal.

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Are you covered for lost baggage?

April 4, 2008 | posted by Chloe Cottam in Insight, Insurance, Press Release | comments (0) |

With the chaos that has surrounded the opening of Heathrow’s Terminal 5, and the late Easter school holidays upon us, families are looking to take a break and the issue of baggage being lost or delayed is prominent.When travelling abroad, if your luggage is lost or delayed and you need to purchase items such as a change of clothes, hygiene products or any other necessary items, you would expect your insurance policy to reimburse you. Similarly, if your flight was delayed you would expect your insurance policy to provide some form of compensation for you being stuck in the airport lounge.

Defaqto has looked into the single trip travel insurance market to see what cover is provided for lost and delayed baggage as well as being delayed at an airport. The research noted:

  •  14% of single trip policies do not provide any cover for delayed baggage.
  •  40% of single trip policies only provide a maximum cover of £100 or less for delayed baggage.
  •  40% of single trip policies only provide a maximum cover of £100 or less for compensation for flights being delayed.
  •  74% of single trip policies provide £20 or less for the first 12 hours of being delayed at the airport.
  •  82% of single trip policies provide £20 or less for the each subsequent 12 hours of being delayed at the airport.

Mike Powell, Consultant for General Insurance at Defaqto, said:  “With the problems that have occurred with the opening of Terminal 5 and the fact that there has been widespread reports in the media of people not being able to collect their luggage and flights being cancelled or delayed, consumers do not always consider what cover is provided by their travel insurance policy for these types of eventualities. It is therefore important to check what is provided by a travel insurance policy before purchasing cover.”

-Ends-

 

For further information contact:

Defaqto Limited          

Insight person, Chris Johnston or Luci Mylward

01844 295 454

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Consumers needn’t be in the dark over key pensions tax incentives

April 4, 2008 | posted by Matthew Ward in Investment, Pensions | comments (1) |

Defaqto don’t give out an award for “Most simple and effective pensions marketing material of the year” but if we did my vote would probably go to Hargreaves Lansdown. Along with their end of tax year call to arms for ISAs, HL ensure that they urge potential and existing clients to take advantage of similar pensions tax advantages.

Without the use of industry jargon HL’s marketing material, sent directly to consumers in HL mailshots or available on the HL website, explains the following terms in a very concise but effective manner: 

  • Annual pension tax allowance
  • Tax relief available to basic/higher rate tax payers on pension contributions
  • Legislative update on tax relief terms

This type of material is to be applauded and is a necessity if more UK consumers are to understand the benefits of pensions when making savings decisions, especially the underpinning advantage of tax relief on pension contributions.Research1 carried out for Defaqto’s Retirement Savings & Income Report 2007 revealed that a meagre 9% of consumers saw that pension savings plans offer good tax incentives suggesting that many are not aware of this USP.Although the research findings show that 31% of consumers do view pension savings plans as important for supporting them when they retire, 20% viewed them as a necessary evil, 16% viewed them as too confusing to worry about while a further 14% felt that pension savings plans are less attractive than other investments like residential property.If the UK is to tackle the pensions savings gap head-on consumers will need to be encouraged to engage with pensions, and other retirement savings methods, and must be made aware that ‘there is something in it for me’. Marketing campaigns which include educational content are certainly a step in the right direction. 1Research conducted on behalf of Defaqto by GfK NOP with a survey sample of 1,000 consumers

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