Julian Knight: These morally bankrupt policies are penalising Britain's prudent savers

The elderly parents of a close friend of mine are selling the family home they have owned for donkey’s years not because they are too infirm to live there, want to downsize or fancy a little cottage by the coast. The reason is that their savings – no matter how cleverly placed – are earning next to nothing and now they have to break into the capital of their home.

They took a look at equity release and decided it wasn’t for them – and frankly I can’t blame them. Instead they are going to release a wodge of capital by selling and moving on.

You could say eventually they would have to have sold regardless and better they make the decision when they are fit and healthy. But that misses the point that because of the pitiful rate paid to savers, combined with the hidden (from official statistics) inflation that everyone is suffering from, they are being forced to up sticks at least five years before they needed too. And it really doesn’t have to be this way for my friend’s parents.

The Monetary Policy Committee has just left rates on hold at 0.5 per cent for the 28th month on the trot. Setting aside for a minute the fact that this is helping to imbed inflation back into the economy, holding rates so very low also means there is no benefit for people to put away money, and for those who have cash squirrelled away they are actually much poorer. This has all been made worse by the fact that the banks have been given a free ride to pay savers a pitiful amount so to help in the gradual repair of their balance sheets.

It is one of the great ironies of the financial crash that those who did the right thing and set money aside have been paying the price for the horrendous mess, all because the policymakers decide that we must continue to spend rather than save. As a result, since rates were cut to 0.5 per cent, those relying on savings for income have in effect seen their wealth cut by about 10 per cent, when inflation is taken into account.

One of the most notable achievements of the last Labour government was to cut pensioner poverty dramatically, but due to the careless approach of the Bank of England in recent years, this hard-won gain is being taken back. And as opposed to paying tax – as most pensioners do – many will have been forced into the insidious arms of the means-tested benefits system.

So successful has been the policy of disincentivising thrift that the savings ratio – the amount of money we put away out of our total income – has fallen to about a fifth of the historic norm and well behind that of our nearestcompetitors France and Germany.

In turn, low levels of saving actually stultifies growth in banking because the lower the deposits held the less banks can lend out – particularly now that regulators seem interested in how much money a bank actually hold. What’s more, it has crucified the mutual building society sector as you can see from the actions of Norwich & Peterborough right.

There is also a moral dimension to all this. Not only are the responsible and best in our society – the savers – being punished, but also life options are being closed off. A little more than a decade ago I was working in a job I hated. I needed to make a radical change. Savings were key to the transition. I was able to use them to support myself as I retrained. Savings equals options, and there is nothing like the back-up you have when you are not beholden to a job to pay the rent or mortgage the next month.

Yet the MPC continues to hold rates; millions of thrifty people get poorer and the moral bankruptcy of all this is ignored.

Cashback mortgages creep back into the market

Last week saw the return of the cashback buy-to-let home loan. Platform, part of the giant Co-op financial services company, started to offer a £500 cashback incentive – as well as free valuation service – on its range of buy-to-let mortgages.

Now, £500 is hardly an indication that the UK mortgage industry is partying like it’s 2007 (cashbacks of £10,000 were not uncommon back then) but nevertheless it’s significant as it underlines the increasing competition in the buy-to-let sector. We have had firms returning to this type of lending and even the odd new launch such as Yorkshire building society.

The fact is that during the recession and to many’s surprise, buy-to-let landlords have been resilient with relatively low levels of repossession. With fewer people able to get their own standard mortgage more have stayed in rented homes boosting rent levels. At the same time, interest rates have been kept artificially low – last week the Bank rate was kept at 0.5 per cent – limiting costs to buy-to-let landlords.

The truth is that, apart from overseas investors, buy-to-let is just about the only game in town in much of the housing and mortgage market.

Is it a merger or a shotgun wedding?

If you’re a member of the Norwich & Peterborough (N&P) building society, you’ve probably had a rather large and bulky envelope thundering through your letterbox in the past few days. This contains information and a voting pack for the special general meeting to be held next month over the proposed merger of the N&P and the larger Yorkshire building society.

N&P’s management insists that this is not a shotgun wedding, but there is certainly a whiff of cordite about the whole occasion.

Essentially, N&P needs the merger badly because since the credit crunch, like many other building societies, it has seen its profit margins squeezed to within an inch of life. A mis-selling scandal related to the collapse of Keydata has also blown a £50m hole in the balance sheet. In short, the N&P needs to get big to retain its current branch network and broad range of offerings – it, unlike quite a few societies, offers a current account.

People who are members of N&P because they have a mortgage with the society have a great incentive to say yes. N&P says that it will equalise its standard variable mortgage rate between it and the Yorkshire if the merger gets the go-ahead, which in effect means a 0.35 per cent cut in rates to borrowers. That’s about £20 a month for some on a £100,000 mortgage.

Savers and investors in N&P have nothing concrete in the way of incentive to vote yes – unless holding on to to what they have is the prime concern. However, they probably will do so as the best place for the building society is in the arms of the bigger and stronger Yorkshire. But with N&P about to be swallowed up, what price all those medium sized societies keeping their independence? Not high, I reckon.

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Life and Style
Arts and Entertainment
Rocky road: Dwayne Johnson and Carla Gugino play an estranged husband and wife in 'San Andreas'
filmReview: In the face of all-round devastation, even Dwayne 'The Rock' Johnson appears a little puny
Arts and Entertainment
Bright lights, big city: Melrose Avenue in Los Angeles by dusk
Harry Kane makes Paul Scholes' Premier League team of the season
footballPaul Scholes on the best players, managers and goals of the season - and the biggest disappointments
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Guru Careers: Pricing Analyst

    £30 - 35k: Guru Careers: We are seeking a Pricing Analyst to join a leading e-...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE £45K YR1: SThree: At SThree, we like to be dif...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + competitive: SThree: Did you know? SThree is a mul...

    Guru Careers: C# Project Team Lead

    £55 - 65k (DOE): Guru Careers: A unique opportunity for a permanent C# Develop...

    Day In a Page

    Fifa corruption: The 161-page dossier that exposes the organisation's dark heart

    The 161-page dossier that exposes Fifa's dark heart

    How did a group of corrupt officials turn football’s governing body into what was, in essence, a criminal enterprise? Chris Green and David Connett reveal all
    Mediterranean migrant crisis: 'If Europe thinks bombing boats will stop smuggling, it will not. We will defend ourselves,' says Tripoli PM

    Exclusive interview with Tripoli PM Khalifa al-Ghweil

    'If Europe thinks bombing boats will stop smuggling, it will not. We will defend ourselves'
    Raymond Chandler's Los Angeles: How the author foretold the Californian water crisis

    Raymond Chandler's Los Angeles

    How the author foretold the Californian water crisis
    Chinese artist who posted funny image of President Xi Jinping facing five years in prison as authorities crackdown on dissent in the arts

    Art attack

    Chinese artist who posted funny image of President Xi Jinping facing five years in prison
    Marc Jacobs is putting Cher in the limelight as the face of his latest campaign

    Cher is the new face of Marc Jacobs

    Alexander Fury explains why designers are turning to august stars to front their lines
    Parents of six-year-old who beat leukaemia plan to climb Ben Nevis for cancer charity

    'I'm climbing Ben Nevis for my daughter'

    Karen Attwood's young daughter Yasmin beat cancer. Now her family is about to take on a new challenge - scaling Ben Nevis to help other children
    10 best wedding gift ideas

    It's that time of year again... 10 best wedding gift ideas

    Forget that fancy toaster, we've gone off-list to find memorable gifts that will last a lifetime
    Paul Scholes column: With the Premier League over for another year, here are my end of season awards

    Paul Scholes column

    With the Premier League over for another year, here are my end of season awards
    Heysel disaster 30th anniversary: Liverpool have seen too much tragedy to forget fateful day in Belgium

    Liverpool have seen too much tragedy to forget Heysel

    Thirty years ago, 39 fans waiting to watch a European Cup final died as a result of a fatal cocktail of circumstances. Ian Herbert looks at how a club dealt with this tragedy
    Amir Khan vs Chris Algieri: Khan’s audition for Floyd Mayweather may turn into a no-win situation, says Frank Warren

    Khan’s audition for Mayweather may turn into a no-win situation

    The Bolton fighter could be damned if he dazzles and damned if he doesn’t against Algieri, the man last seen being decked six times by Pacquiao, says Frank Warren
    Blundering Tony Blair quits as Middle East peace envoy – only Israel will miss him

    Blundering Blair quits as Middle East peace envoy – only Israel will miss him

    For Arabs – and for Britons who lost their loved ones in his shambolic war in Iraq – his appointment was an insult, says Robert Fisk
    Fifa corruption arrests: All hail the Feds for riding to football's rescue

    Fifa corruption arrests

    All hail the Feds for riding to football's rescue, says Ian Herbert
    Isis in Syria: The Kurdish enclave still resisting the tyranny of President Assad and militant fighters

    The Kurdish enclave still resisting the tyranny of Assad and Isis

    In Syrian Kurdish cantons along the Turkish border, the progressive aims of the 2011 uprising are being enacted despite the war. Patrick Cockburn returns to Amuda
    How I survived Cambodia's Killing Fields: Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape the US

    How I survived Cambodia's Killing Fields

    Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape to the US
    Stephen Mangan interview: From posh buffoon to pregnant dad, the actor has quite a range

    How Stephen Mangan got his range

    Posh buffoon, hapless writer, pregnant dad - Mangan is certainly a versatile actor