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RATE HIKE FEAR DRIVES UP COST OF MORTGAGES

January 31, 2014

TIM WALLACE

BANKS are already starting to hike the rates on five-year fixed mortgages, new data has revealed, following hints from Bank of England governor Mark Carney that rates will rise in the coming years. Figures seen by City A.M. show the five-year swap rate, used to calculate the loans, hit 1.7 per cent this month, up from below one per cent last spring according to the Legal and General Mortgage Club . The rise is a 65 per cent jump in relative rates. The hike comes as savers are still being crushed by low interest rates. New data from the Bank of England shows that those using time deposits - locking money away for up to several years - saw their rates fall. Numbers from the Bank yesterday revealed the average new time deposit paid just 1.58 per cent last month, down from around two per cent a year earlier and three per cent in late 2011. The squeeze has persisted for several years - a borrower with a 100,000 tracker mortgage from 2008 would now be over 3,000 per year better off from the low rates. In the same period a saver with 100,000 is 4,000 worse off a year, according to analysis by pensions expert Ros Altmann . The aim of low rates from the Bank of England is to boost the economy, making it cheap to borrow and spend. But the situation is so bad for savers that the low-rates have been accused of damaging growth. "I am far from convinced the very prolonged period of low rates is helping the recovery. When borrowers are paying more, and getting less and less for their money, it is a net negative for the economy," said ex-Bank of England rate-setter Andrew Sentance . Personal finance sites have seen a flurry of deals in recent months - but only from foreign banks, not the highstreet lenders used by most savers. The Bank of India , ICICI - also Indian - and Pakistani lender United Bank top the league table for three-year bonds, and have raised rates recently, according to SavingsChampion.co.uk. Though relatively unknown, all three are regulated in the UK . "This is potentially a branding exercise - when rates are so low it is an opportunity for banks to push their nose into the lead," said the site's director Anna Bowes , adding some longer-term bonds have been withdrawn shortly after being introduced. ALLISTER HEATH : Page 2


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Source: City A.M. (UK)


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