To Save or not to Save?

The accepted wisdom has always been that you should save money no matter what circumstances you find yourself in. The fact is, it’s not always good to save and it very much depends on your personal circumstances.

If you have no debt (except your mortgage) and find yourself with spare cash at the end of every month then you have a choice, you can spend or save. With savings rates at the level they are at the moment you may be wiser to overpay your mortgage than to save money in a savings account. If this describes you, then decide what level of liquid funds you need to have at hand and then find out how much you can overpay your mortgage by. Depending on your mortgage provider this may be somewhere between £0 and 100%.

The situation is completely different if you are carrying any debts i.e. loans, credit card balance, etc. The difference between the interest charged on debts and the interest gained by saving is now so pronounced that you should seriously think about using any savings you have to pay off your outstanding debts.

Any interest you have gained from your savings is being wiped out by the interest you are paying on your debts. The sooner the debts are paid off the better off you will be and you can start saving again but this time you would be safe in the knowledge that you are actually gaining from putting your money away.

Where many people become confused on this is when they think not saving means having no money in reserve that they can use if they need to. Savings should only become savings if you do not intend using them in the next 6 months. Everybody needs a little bit of ready cash now and again for unforeseen expenses.

If this is all completely alien to you because you never have any money and you are always in debt then you need to take more drastic action. If you require any more information about debt you should log onto the Citizens Advice Bureau website.

The Best Best Buys website has a number of financial product guides to help you get a greater understanding of how Mortgages, Loans, Credit Cards and Savings Accounts work.

Building Societies Raise Their Standard Variable Rates

In recent weeks there has been a lot of press coverage regarding building societies raising their Standard Variable Rates (SVR). This is the rate of interest that they charge their mortgage borrowers when they come off any deal that they may have had, it is also sometimes referred to as the "Revert to Rate".

A total of 12 building societies have either raised their SVR or announced that they will be increasing it in the last two weeks. They include, Skipton Building Society, Kent Relience Building Society, Norwich & Peterborough Building Society, Mansfield Building Society, Marsden Building Society and the Cambridge Building Society. This is by no means the full list and it is expected that those who haven't announced it yet will so soon.

The reason they have all had to make this decision is that they are no longer making money from savers. Only last month the Building Society Association released figures to show that in 2009, £7.6billion less was deposited with building societies.

Historically building societies have used the funds they attract from savers to fund their mortgage lending but because the Bank of England Base Rate is so low the savings rates that they are offering are not attracting savers.

This leaves homeowners that currently have a mortgage with a building society that is on the institutions SVR in a tricky situation. If they do not have enough equity in their property it is unlikely that they will be able to access the best mortgages as the mortgage best buy tables at present show that institutions are looking for customers with between a 30 and 40% deposit.

In the last 18 months lenders SVR's have looked like a relatively attractive proposition as many lenders have been unwilling to lend and the number of available mortgages in the market has remained quite low. However there has been an increasing number of mortgage products coming onto the market in the last two or three months. A sure sign that financial institutions are more willing to lend.

The only thing that remains to be improved is the loan to value ratios (LTV) that banks and buliding societies are willing to lend at. Newcastle Building Society released a range of products at the end of last year that not only had a high LTV of 80% but the rates meant they were featured in many mortgage best buy tables.

In this weeks mortgage best buy tables, the Leek Building Society is offering a Discounted Variable Rate Mortgage with an LTV of 85% and an incredibly low fee. Leek Building Society are only a small society and they will not be able to offer this product for long but hopefully it is an indication that institutions are beginning to be more realistic with the LTV's on their mortgages.

So if you have a lot of equity in your property and you are sitting on a building society's SVR it may well be time to move. If you have less equity but are in the same situation you can find deals if you look but hopefully in the coming months more appropriate mortgage products will become more widely available in the mortgage best buy tables.

Aleksandr the Meerkat doesn't know about personal finance either

He’s may well be cute, he may well be cuddly, you can become his friend on Facebook or follow him on Twitter but as far as personal finance is concerned Aleksandr the Meerkat from the Compare the Market adverts is talking out of his furry little earhole.

If you take a look at the Compare the Market website you will find that in their Credit Card section they are promoting other financial products ahead of the best in the market. One can only assume it is for monetary gain. If it’s not it is because they don’t know what they are talking about. Either way the consumer visiting their website is being shown products that aren’t the best at the top of their charts.

For example in their Balance Transfer chart, Compare the Market place the best deal in the market, the Virgin MasterCard in fourth position and in their 0% on Purchases chart the best product in the market the Tesco Clubcard Visa does not feature at all.

Compare the Market get their financial data from Love Money (formerly The Motley Fool) in the form of a “White Label”. If you care to take a look at Love Money you will find that the same misleading information is displayed on their consumer finance website.

A “White Label” is when another website in this case Love Money, allow a company, in this case Compare the Market to produce their own version of the their website using their logo and corporate branding.

There are two ways the finances can work in a deal like this, either Compare the Market paid an annual fee to replicate Love Money in this way or Compare the Market get a cut of the money made by Love Money through the deals they have set up with the providers of financial products.

Malcolm Murphy the Business Development Manager at The Best Best Buys said, “This is fairly typical of the industry. That is why www.thebestbestbuys.com was set up. We compare and contrast the best buy tables that appear on the internet and in the press so as consumers don’t have to. There are very few financial comparison websites that truly have the best interests of the consumer at heart.”

Skipton Scrap Mortgage Promise

The Skipton Building Society has decided to break their Mortgage Promise, that their standard variable rate (SVR) will never be more than 3% above the Bank of England Base Rate.

They have informed their existing mortgage customers that as of the 1st March 2010 their new SVR will be set at 4.95% a leap of 1.45%. They have been able to do this as the Mortgage Promise they made had a clause in the contract to allow them to break the deal off under “exceptional circumstances”. Each of the customers this affects now has the option to change their mortgage without incurring any penalty or fee.

Unfortunately at present Building Societies have to make some tough decisions and we are seeing most of them raising their SVR. Skipton are only doing what others in the sector are doing, the only difference being they have had to scrap the promise they made to do it. On a business level you can understand the need for some action but it is the circumstances and the scale of the rise that are eyebrow raising.

The bit that worries me is that Skipton Building Society have recently taken over The Scarborough Building Society, should this have been allowed to happen if Skipton’s finances are in such a state that they have to raise their SVR by 40%?

In addition to this Skipton have already sold part of their group, Callcredit and in doing so allegedly raised £100million. The press release I read said that it had sold the company to support its balance sheet in order to takeover smaller societies that may be in trouble.

One last thing, the thing that bothers me most of all and I think it should bother others too. Skipton Building Society is supposedly a mutual society and operates under the premise that they are run for their members, both borrowers and savers by the appointed board. Yet they feel it is ok to break their promises and hike the borrowing rate up by 40%. In addition to this the members of this allegedly mutual society did not get a sniff of the money made on the sale of Callcredit.

How mutual does all that sound to you? Here at www.thebestbestbuys.com we don't think it is very mutual at all.

First Time Buyers in 2010 is it Boom or Gloom?

Earlier today I was looking at the Finance Markets Forum and one of their threads was all about the rosy days ahead for first time buyers, falling house prices and cheaper mortgages. So although the credit crunch has been nasty, there has been a positive correction in the favour of first time buyers, or has there?

It's weird because I read an article on Sunday 4th January 2010 in the Financial Mail that tells of the expected woes of First Time Buyers in the year ahead. The main thrust of the article was that although house prices are coming down (depending who you believe, where you live, relativity, etc.). There is still the matter of a 15% deposit and the stamp duty if you pay more than £125,000 for the property that need to be taken into consideration.

Who do you believe? The optimism of the flat statistics or the more real life version put forward by the Financial Mail? I am hoping that the truth lies somewhere between.

There are 90% mortgages available for first time buyers, the situation was improving at the end of last year, so let us hope that the tidings of joy from Mr Prestridge are a little premature and we continue to see more lenders offering higher LTV's in the next 12 months.

Hopefully the recovery continues and confidence returns to both lenders and employers. I personally believe this one is too close to call but I hope that first time buyers can access mortgages with higher loan to value ratios and attractive initial rates of interest.

It may not be the panacea the economy needs but it would be good to see any positive moves in the housing market, sooner rather than later.

Northern Rock: Who will win the race?

The year has gotten off to a great start with many rumours flying about that the Government is looking to offload Northern Rock ASAP. With the election looming it would be a real coup for Mr Brown to get rid of the albatross which is Northern Rock. The sell off will take the usual format, in that the deposits and any low risk mortgage assets will be sold, while the Government retains the more toxic end of the stick.

There are two financial institutions who have more than a passing interest in the purchase of the Northern Rock assets. There is also a third contender BBVA a Spanish bank who are said to be interested in following Santander into the British banking industry but it is not clear how serious their interest is.

Firstly we have Virgin Money, they missed out first time around and it was probably just as well for them as the financial crisis deepened and widened. I suspect now that their bid will be revised down the way and a lot closer to the real value of the company. The big motivation for Virgin would be that they could finally enter the mortgage market after more than 6 years of talking about it.

Virgin Money has been particularly active in the last week or two, the acquisition of the little known bank, Church House Trust bank. There has also been a well reported meeting between Richard Branson and Blackstone, allegedly about financing a bid for Northern Rock. Virgin Money has also popped up in the Best Buy Tables for unsecured personal loans. They also continue to dominate the Best Buy Tables for Credit Card Balance Transfer Deals where they are an ever present at the top of the charts.

The other contender is National Australia Group (NAG) who own two very well known British banking brands in Yorkshire Bank and the Clydesdale Bank. They are in good shape financially as they stuck to a conservative risk policy during the boom times and resisted the temptation to buy in readymade growth.

Yorkshire Bank and the Clydesdale Bank have consistently been in a number of mortgage best buys charts over the last 12 months. Like other banks in a similar situation i.e. HSBC, there is no doubt NAG have been cherry picking low risk customers and adding to their asset base at good margins.


It is also believed that NAG are set to benefit from the forthcoming branch sell off that was triggered by the European Competition ruling on Lloyds TSB takeover of HBOS as they look to buy up branches that Lloyds Banking Group have to sell. However, they won’t get it all their own way as Tesco is believed to be interested in the branches as well as they gear up to launch the Tesco Money Shop.

I personally think there is a case to support either of the potential bidders, Virgin as they could neutralise the bad connotations the words Northern Rock conjure up with their well known and well respected brand. While NAG bring a lot to the table with their good governance, past experience, existing processes and back office infrastructure.

The one thing I am 100% certain about is that both the Government and the British Tax payer want rid, sooner rather than later. I suspect that this issue will all be resolved no later than the end of April 2010.

A Review of the last 12 months in the Mortgage & Saving Markets

You don’t need me to tell you that it has been a tough 12 months for many of us in financial terms. It was the year we all felt the rather nasty effects of the credit crunch.

The review looks at the changes in the mortgage and saving market in the UK from the perspective of the user of financial services. After all there has been so much going on it’s hard to know which bits are actually the important bits.

This synopsis of the mortgage and savings market covering the last 12 months is meant as an executive summary, helping you see past the numerous headlines and outcries and get a handle on what actually happened in the last year to both savings and mortgages.

The most important thing for me is the effect of the turmoil in the financial markets and not the turmoil itself. It is so easy to get lost in the details and miss what actually happened.
In order to examine the changes in the market I have looked at how mortgages and savings started the year, then how they looked in June and finally what was happening in December.

• Mortgages in 2009
• Mortgages in December 2009
• Savings in 2009
• Savings in December 2009
• Mortgages in 2010
• Savings in 2010

Hopefully this approach gives each of the subjects a beginning, middle and end. I then finish off with a best guess for the next 12 months.

Mortgages in 2009
At the start of the year mortgages were available with Loan to Value ratios of between 75% and 95% and Lenders such as the Dunfermline Building Society, Britannia Building Society, The Bank of Ireland and Royal Bank of Scotland were still featuring in the Best Buy Charts in both the newspapers and on the web.

The initial rate of interest on a short term fixed rate mortgage was averaging out at 4.85% at the top of the market.

By June 2009 mortgages were very much in short supply, with many lenders effectively looking to “cherry pick” customers. The profile they were looking for was bordering on risk free; remortgages with a loan to value of no more than 75% and an impeccable credit history.

HSBC/First Direct and The Co-operative Bank seemed to dominate the market for mortgages as neither of these two institutions required any real support from the Government in terms of them continuing to trade. This freedom and relatively competitive position meant they could capitalise on the situation in the mortgage market.

Mortgages in December 2009
By the end of 2009 competition was returning to the UK mortgage market for the first time in 18 months. Loan to Values were creeping up, with more lenders starting to offer 90% mortgages and the Newcastle Building Society launched a number of mortgages with LTV’s of 80% and competitive initial interest rate.

This has been taken as a sign that “liquidity” was improving within the banks and building societies and the willingness to lend is returning. Hopefully that will mean that in the coming 12 months it will be easier to get a mortgage and the banks will begin to loosen the lending criteria they base their decisions on.
At the end of the year the average rate at the top of the market for a short term fixed rate mortgage was approximately 3.99%.

Savings in 2009
At the beginning of the year it was possible to get a no notice savings account or a notice savings account with an Annual Equivalent Rate of Interest of between 4% & 4.5% without too much trouble. In fact if you were looking at internet based accounts you had a choice of at least four institutions that offered over 4.3%.

Many institutions were desperate to attract funds to support their lending operations, many banks and building societies offered good savings rates to attract deposits.

However, by June 2009 Savers were looking at interest rates on their savings of about 2.5%. This was the case for instant access, notice accounts and even internet based savings accounts. This was a significant drop in interest rates over the first 6 months of the year and proved costly for savers that rely on their savings to provide an income.

Savings in December 2009At the end of 2009 there had been some improvement on the interest rates being offered by the financial institutions.
Depositors can now expect to find savings accounts with instant access available with a rate of approximately 3% and notice accounts are available with rates in excess of 3% but still well short of the rates enjoyed at the beginning of 2009.

Mortgages in 2010
• Availability of mortgages will continue to improve
• Mortgages with higher LTV’s will become available
• Increased cost to the borrower (Bank of England Base Rate is expected to rise around April)
• Lenders are starting to increase their Standard Variable Rate now

Savings in 2010
• Low returns expected to continue
• Banks are less reliant on deposits to fund their lending operations
• If the Bank of England Base Rate rises in April as predicted it will not significantly affect rates as lenders try to make better margins.

To conclude 2009 has been a bit of a roller coaster of a year in financial terms but there are signs that things are starting to improve. By the end of the first quarter of 2010 everybody will be in a better position to make predictions about the future.

The next 12 months look as if they are going to be flat but hopefully stable. With stability comes confidence and as we get through the year, businesses will start to take on staff and job security will return.