Andrew Hagger: It's time lenders stopped bashing the credit-worthy
Saturday 29 August 2009
For people with a small deposit, the mortgage market has been a gloomy place in this post-crunch environment. However, there is hope, from the five-year fixed-rate deal launched by Leeds Building Society this week.
While it's become common for lenders to reserve the top rates for buyers fortunate enough to have a 25 per cent or 40 per cent deposit, the new Leeds BS mortgage is available even if you only have a 15 per cent stake and is keenly priced at 5.75 per cent fixed for five years, with a fee of £999.
It is understandable that lenders are operating on wider interest margins during these tough economic times, but there's too much emphasis on rebuilding balance sheets and not enough focus on offering a reasonable rate to credit-worthy clients. This does not mean first-time buyers, but people who in many cases have an exemplary repayment track record spanning a number of years, who are being unfairly clobbered because of a fall in property prices.
With signs that the house-price reversal has halted, let's hope that we start to see more lenders looking after customers with a 75 per cent-plus LTV requirement.
If banks and building societies continue with their pricing stance, which seems heavily weighted in their favour, there is a risk that any recovery in the housing and mortgage markets could be strangled.
High-street giant Santander is trying to muscle in on the fixed-rate savings arena with the launch of a 4.2 per cent rate for two years. While it's not far from the top of the pile, there are a handful of accounts offering a better rate of return and all demanding a smaller opening deposit than the £10,000 required by Santander.
If it's a two-year fixed savings bond you're looking for, the best deals today are from West Bromwich BS at 4.45 per cent minimum £5,000, closely followed by the AA and ICICI Bank UK both paying 4.35 per cent from £500 and £1,000.
You may not think it's worth shopping around for an additional quarter per cent here or there, but with a sizeable balance of £50,000, that 0.25 per cent will give you an extra £250 gross interest over two years. The biggest conundrum with fixed-rate savings bonds is how long to tie up your money.
The difference between the best one and two-year rates is 0.55 per cent and the same again between two- and three-year terms with 5 per cent on offer from Barnsley BS currently top for three years. Looking at an even longer term, there is not much incentive to opt for a four-year deal (5.15 per cent) while the best rate for five years (5.45 per cent) still seems too long with the intense level of competition in this market at the moment.
An approach where you don't put all your savings eggs in one basket may be a strategy worth considering; perhaps spreading your cash between fixed terms of one and three years to hedge your bets and to take advantage of rate increases that may be available in 12 months.
For those lucky savers coming off fixed-rate bonds of 7 per cent plus, taken out 12 months ago, getting their hands on a similar rate on a straightforward cash-based fixed-rate bond today just isn't going to happen.
An annual income of 7 per cent is possible however, with the Barclays Wealth six-year regular income bond launched this week. It promises the enticing fixed rate regardless of the performance of the underlying FTSE 100 index.
It may sound appealing, but it's not without risk as there's no guarantee that you'll get your capital back. Such products may suit the more serious investor as part of a wider portfolio, but should come with a health warning as they're no place for those relying on their life savings to supplement their income.
Don't miss the boat
While the Santander stable may not be the front-runner in the fixed-savings stakes, it's a different story if you want credit interest from your current account.
By switching your cheque account to Abbey or Alliance and Leicester you will earn 6 per cent AER on the first £2,500 of your balance for 12 months – an offer that leaves the rest of the current account market trailing way behind. If you take advantage of this deal by 5 September you'll also qualify for a regular saver account offering 6 per cent AER, too.
The terms and conditions are strict, but if you're confident you can set aside between £10 and £250 per month for a year without making any withdrawals, missing a payment or changing a payment amount, then you can benefit from the highest rate currently available for this type of savings account.
Andrew Hagger is a money analyst at Moneynet.co.uk
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