0% Rates on Everything

Tuesday 10 March 2009

Very soon thousands of borrowers might be paying nothing for their mortgage, if the base rate cut takes effect this week. This will widen the gap between borrowers on a fixed and a tracker rate. Those, who are on a fixed rate, will eventually be paying 6-6.5% for the next 18 months, while those on a tracker rate might be paying 0%. The banks that offered cheap tracker rates in 2007 are Halifax, Cheltenham & Gloucester and Co-operative Bank. Brokers calculated that the interest rate on tracker rate declined by 4.5% in the last 6 months, which reduced monthly payments by almost 90%. Borrowers on standard variable rate (SVR) of the biggest lenders, such as Halifax, Nationwide and Cheltenham & Gloucester, as well as Skipton Building Society, will also benefit from the rate cut. Unfortunately, the rate cut will bring bad news for savers, whose returns will decrease greatly. It has been estimated, that an average return on a saving account now constitutes 0.83%. The minimum return reaches 0.01%, that is, £1 annual interest for each £10.000 saved. This cut on the saving accounts is referred to by many as "a kick in the teeth for savers". Many banks try to encourage the savers and promise not to cut rates on saving accounts. For instance, Barclays says the rates will remain unchanged, and RBS/NatWest claims that the reduction will not exceed 0.2%. Experts believe that a 0.2-0.25% cut on saving accounts rates will take place in a few weeks. Savers still have the opportunity to switch to fixed-rate bonds before they are withdrawn.