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.
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What a good review.
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