The best new mortgage deals

The Bank of England Base Rate has been at the historic low of 0.5% for 30 months now. But at what cost to the British public?

‘A watched Base Rate never rises’  is fast becoming the proverb to define the UK’s current economic state.

The Bank of England interest rate has now been sat at the historic low of 0.5% for over 900 days, last budging down from 1% on 5 March 2009.

The reaction to this lengthy low rate has been mixed; economic splint propping up our broken economy for some, artificially sustained cash corrosive to others.

But what has been the real-time impact of these low interest rates on consumers?

Winners

Mortgage holders have emerged as the real winners from the ongoing low Base Rate. The Bank of England estimates that these borrowers have saved £51 billion in interest payments since the rate dropped to 0.5%.

Those currently on tracker mortgages – that is, deals that are pegged at a set percentage above the Base Rate – have benefited the most from continued low rates. Indeed, some of these borrowers have seen their rates drop to less than one percent since the bank rate was slashed back in 2009.

And indeed, the tracker mortgage market is still extremely competitive. Just take a look at these deals:

As you can see, HSBC are still dominating the lifetime tracker market offering a range of competitive rates with low or non-existent fee levels. And the great thing about its lifetime tracker deals is that there are no early repayment charges to pay if you want to remortgage to another deal, should rates suddenly start to rise.

Because, of course, interest rates won’t stay low forever...

The £51bn question

The $64,000 question (or perhaps more appropriately – the £51bn question) buzzing around the mortgage sector at the moment is quite simply; ‘when is the base rate going to rise?’ Commentators and the international money markets alike have been to-ing and fro-ing on the issue for months now. And still, no one really has any clue.

But what is certain, is that when the Base Rate does eventually budge; the mortgage market will morph from beauty into beast, with tracker rates rising and fixes ballooning.

In fact, fixed mortgage rates will almost certainly start to ramp up before the Bank of England makes a move. This uncertainty over the exact timing of when prices will start to inflate from their current 23 year low is causing many borrowers to lock in their rate now.

Figures quoted from Ben Thompson, MD of Legal & General Mortgage Club show that over 70% of their new business is now made up of fixed products. First-time buyers dominate this figure; with 84% opting to fix instead of track.

But who can blame them, when fixed rates like these are currently so common...

But the low base rate hasn’t spelt good news for all...

Losers

Figures from the Bank of England show that savers are estimated to have lost out on £43 billion in interest earnings since the Base Rate was slashed to 0.5%. Indeed, the average savings account interest rate now sits at less than 1%.

What’s more, this low cost of borrowing is also pushing up the rate of inflation at a pace far above the Bank of England’s target. This is in turn eroding the nest eggs of Britain’s savers at a rate of £55bn each year, according to the Save Our Savers Campaign.

However if you offset this £43 billion figure against the £51 billion saved by mortgage holders, the overall impact of low interest rates emerges as a £8 billion boost to British bank accounts.

Yet this doesn’t really paint the full picture...

Disproportionate impact

According to the Council of Mortgage Lenders around 36% of the British population holds a mortgage. So that’s only just over a third of the population who have benefitted from low interest rates. And that’s not counting those that locked into a long-term fixed rate deal prior to the 2009 Base Rate cut, and have hence missed out on current low rates.

Conversely, figures obtained from the Save Our Savers Campaign show that around 85% of households in the UK have some form of savings product. Now, obviously a good chunk of these savers will also hold a mortgage – but still, this percentage difference does somewhat dilute the idea that low interest rates have put a straight £8bn into the pocket of the British public as a whole.

Moreover, low interest rates have a tendency to hit certain groups especially hard. Figures from the National Pensioners Convention shows that five million retired people rely on savings to provide at least half their income. If interest rates plummet for these savers, so does their day-to-day budget.

Factor in that a majority of these pensioners will have already paid off their mortgage, and it becomes obvious why many are concerned about the disproportionate impact of low interest rates on this vulnerable demographic.

One more piece of good news...

Finally – just to end on a high note – in addition to dropping mortgage rates, the cost of borrowing using smaller credit facilities has also been sweetened by the low base rate. 24 price reductions in eight months have pushed loans down to their cheapest rate in four years. The market leading Sainsbury’s Finance and Alliance & Leicester loans for between £7,500 and £15,000 over five years currently boasts a 6.3% interest rate.

While the zero-interest periods on credit cards have also continued to grow. The best balance transfer deal now offers a huge 22 months at 0%, while the top purchase card stands at 15 months interest-free.

But obviously, these deals are only worth taking advantage of if you absolutely need the money and are 100% positive that you can pay it back.

What are you?

A Base Rate winner or loser?

Let us know using the comment box below.

More: Six solutions for suffering savers | The sneaky mortgage rate that may cost you £££ | Fix for five years at 3.34%