Money Insider: Base rate refuses to budge

On 5 March 2009 base rate was chopped to just 0.5 per cent, the last of six consecutive monthly cuts which had seen it tumble rapidly from 5 per cent to the record low where it has remained ever since.

The following 12 months have proved unpalatable for both savers and borrowers, but particularly tough for the latter, as they try to come to terms with the fall out of this economic situation.

Up until the credit crunch, the UK had witnessed a decade or more of seemingly never ending house price rises, coupled with low unemployment.

During this period there was an abundance of cheap credit available, either via plastic, loans or mortgages.

Because property prices were so buoyant it was masking some real debt issues as people in financial difficulties found it far too easy to remortgage their way out of trouble.

That 10-year credit binge is now well and truly dead, but the after effects have come back to haunt lenders and ultimately UK consumers.

Now that the housing market is in a far more fragile state and unemployment still close to a 13-year peak, banks, building societies and credit card providers have adjusted their stance when it comes to granting credit.

Even though base rate remains stubbornly low, lenders costs have gone through the roof due to record levels of bad debts and having to build additional capital reserves.

So while lending hasn't dried up completely, the amount of credit granted is now much lower as applicants are subjected to a far more rigorous risk assessment. The upshot of lower volumes and higher costs is that instead of borrowing costs falling along with base rate, they have actually edged higher and look to remain that way for the foreseeable future.

It's a similar story with mortgages, although this secured lending market has shown some gradual signs of improvement during the last year. Twelve months ago, the finest rates were reserved for those with a 40 per cent deposit, however lenders have gradually introduced finer rates on advances up to 80 per cent loan to value Anything over this level is priced to reflect the risk and perhaps in some cases as a way of dampening demand.

So while the base rate cutting strategy may have seemed like the right move by the Monetary Policy Committee at the time, I doubt there are many consumers feeling the same way.

Top mortgage products

Another week passes, bringing with it a raft of new mortgage products to choose from.

Mortgage volumes may be at a historically low level, but lenders are fighting hard to ensure they pick up a share of any good quality low risk business which may be available.

NatWest is offering a two-year tracker mortgage at just 3.29 per cent and no fee up to 80 per cent loan to value. Meanwhile, Co-operative Bank and Britannia continued their aggressive pricing strategy with a table-topping two-year fixed rate mortgage at 3.19 per cent and £999 fee to 75 per cent loan to value.

The cheapest rate on a five-year fix to 75 per cent loan to value now sits at a very tempting 4.69 per cent with a fee of £995 courtesy of Chelsea Building Society.

Mixed news for ISA savers

Following the launch of new headline-grabbing ISA deals from Santander and Nationwide Building Society last week, it's been a bit of a mixed bag this week for the tax-free savings market.

On the positive side, Clydesdale Bank and Yorkshire Bank launched a new five-year fixed-rate ISA paying a market-leading 5 per cent. While the rate is a best buy, there is a slight downside in that there's no monthly or annual interest option, and, as a result, you have to wait a full five years to receive your interest.

Leeds Building Society is paying a slightly lower rate of 4.6 per cent over the same term; however, during the five-year lifespan of the ISA you have the additional flexibility of penalty-free access to 25 per cent of your capital.

It was disappointing, although somewhat inevitable, that a couple of the fixed-rate best buys have been withdrawn. The 3.33 per cent one-year offer from Bank of Cyprus UK and 3.6 per cent from Aldermore were both pulled during the latter part of this week.

There are still a good number of competitively-priced products to choose from. However, it's important to look beyond the headline rate and to check that the terms and conditions of the account are right for you.

Andrew Hagger is a money analyst at Moneynet.co.uk