Savers have never had it so good, says Defaqto

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

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) | Print This Post

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) | Print This Post

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) | Print This Post

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

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

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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All change

March 4, 2008 | posted by David Black in Banking, Credit Cards, Insight, Mortgages, Personal Loans | comments (0) | Print This Post

The general concensus is that the Monetary Policy Committee won’t change the Bank of England Repo rate (base rate) in their meeting taking place this week. Expectations are that the rate is currently on a downward path although inflationary pressures may temper the MPC’s willingness to reduce further and faster.

There are clear economic worries too and suggestions that the US economy is in recession may lead to similar revelations over here in due course.

From a financial point of view the fallout from the US sub-prime credit crisis has meant that banks are generally unwilling to lend to each other and are finding it both more difficult and more expensive to raise wholesale funds.

This gives us an unusual situation.

If you’re a saver the best deposit rates are significantly out of kilter with the base rate. Ordinarily you’d expect to be doing well if you could find a savings rate that was equal to - or just below - the bank base rate. Now, however, you can beat the base rate by over 1% with certain cash ISAs or savings accounts. This is happening for two distinct reasons: firstly general eagerness to raise retail funds and secondly new entrants (typically foreign bank subsidiaries) who have to offer best buy status accounts to obtain sufficient customers through the resultant publicity. 

(more…)

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Providers may widen margins at customers’ expense - Defaqto’s David Black comments on base rate change

February 7, 2008 | posted by Luci Mylward in Banking, Credit Cards, Insight, Mortgages, Personal Loans, Press Release, Savings | comments (0) | Print This Post

Following The Monetary Policy Committee’s decision to reduce the Bank of England Base rate by 0.25% to 5.25%, 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. I will watch with interest to see whether the full cut is passed on to both savers and borrowers but I suspect that some providers may use the opportunity to widen their margins at customers’ expense.

“Prior to this cut the average Standard Variable Rate is currently 7.55%. Last time the bank base rate was at 5.25% (between 11th January and 9th May 2007) the average Standard Variable Rate was 7.05%.”

Ends

For further information contact:

Defaqto Limited 

David Black, Chris Johnston or Luci Mylward

01844 295 454

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