UK savings rates expected to fall below loan deals
Eurozone crisis puts pressure on banks
London Savings rates are set to fall below the cheapest mortgage rates in 2012, as banks bolster their margins to cope with tightening — and expensive — credit markets.
Analysts also say that the fees and commissions that banks charge on investment products will have to rise, as high-street names start passing on higher costs to customers. Their gloomy predictions are mainly based on the continuing debt crisis in Europe, which is still pushing up the cost of accessing finance for UK lenders.
“The cheapest mortgage deals are still lower than the best savings rates but I don’t know how l ong that will last,” warned Ray Boulger, mortgage expert at broker John Charcol. “We are already seeing the trend of higher mortgage rates and lower savings deals begin — and it probably won’t stop until the Eurozone crisis is resolved.”
Although business improved in many parts of the f inancial services industry in late 2011, a survey of banks, insurers and asset managers by the Confederation of British Industry and P wc ( Pricewaterhousecoopers) has found that f irms are highly pessimistic about the next 12 months.
Significant change
Banks said that the tighter credit conditions, the cost of meeting new regulatory requirements and the expectation of more loan defaults and bad debt were likely to put pressure on the savings and mortgage rates they offered to customers.
As well as cutting more jobs, the banks reported a signif icant change in the outlook for their average “spreads” — the difference between their savings and l ending rates. Many expressed a desire to pass on the higher cost of accessing money from the wholesale markets.
Although the Bank of England base interest rate has remained static for more than two years, and is not predicted to move in 2012, mortgage rates have moved upwards in recent months, on the back of higher interbank lending rates.
Banks wary of lending to one another have turned instead to savings deposits — offering to pay more than 3 per cent on money held in instant access cash accounts, and more than 4.5 per cent on cash committe d t o l o nge r - t e r m bonds.
Troublesome
Banks with weaker credit ratings, such as Lloyds Banking Group, have found borrowing from the market particularly troublesome, said Boulger — who noted that this was already reflected in the fact that their savings rates were competitive, but their home loan rates less so.
ING, which once offered some of the best lifetime tracker mortgage rates on the market, has pushed up its loan rates sharply to 3.74 per cent, while HSBC’S online brand First Direct has maintained its market-leading two-year tracker mortgage rate of 1.99 per cent.
These decisions were a reflection of the ease or difficulty lenders faced when trying to access funds from the markets, said Boulger.
But, despite expectations that the spread between savings and loan rates will become less favourable to customers, Sylvia Waycot from data provider Moneyfacts argued that new entrants could help keep savings rates buoyant.
Although Virgin Money, which has taken over Northern Rock, has chosen not to compete for the highest savings rate with its new easy-access savings account paying 2.85 per cent, it has deliberately not included an introductory bonus — so that its rate does not fall dramatically after a year.
— Financial Times