Feel­ing the pinch? We’ve got tips on get­ting a bet­ter deal

Mort­gage rates have fallen to record lows while £179 bil­lion is sit­ting in savers’ ac­counts earn­ing no in­ter­est. We look at the im­pact of 10 years with­out an in­crease in in­ter­est rates.

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It’s now been a whole decade since the last time in­ter­est rates were in­creased by the Bank of Eng­land.

In July 2007, rates were in­creased by 5.5% to 5.75% – and since then, there has been a se­ries of rate cuts.

So what’s been the im­pact for savers and bor­row­ers – and how could you im­prove your fi­nan­cial sit­u­a­tion?

Har­g­reaves Lans­down has car­ried out anal­y­sis into the im­pact of de­scend­ing rates, which has left the Bank of Eng­land base rate at a record low of 0.25%.

For cash savers, the pal­try re­turns avail­able mean £1,000 stashed in a typ­i­cal in­stant ac­cess ac­count over the past 10 years would be worth just £878 in to­day’s money, once the erod­ing im­pact of in­fla­tion is also taken into ac­count.

And a huge £179bn is sit­ting in ac­counts earn­ing zero in­ter­est – up from £23bn 10 years ago.

In con­trast to the sit­u­a­tion for cash savers, the same £1,000 in­vest­ment in the UK stock mar­ket in July 2007 could now be worth around £1,323 af­ter ad­just­ing for in­fla­tion, Har­g­reaves Lans­down cal­cu­lates.

Cash savers have been feel­ing the pinch, but bor­row­ers have seen the cost of their re­pay­ments kept rel­a­tively af­ford­able with 0% credit card deals and record low mort­gage rates in re­cent years.

The typ­i­cal mort­gage rate has fallen from 5.8% in July 2007 to 2.6% by July 2017, ac­cord­ing to Har­g­reaves Lans­down’s anal­y­sis.

Bank of Eng­land fig­ures have shown con­sumer credit, which in­cludes credit card, per­sonal loan and over­draft bor­row­ing, has been grow­ing strongly re­cently.

This has fu­elled con­cerns that, as liv­ing costs rise, peo­ple could be­come over-re­liant on credit – leav­ing them vul­ner­a­ble.

Sig­nif­i­cantly, there have been signs of reg­u­la­tors mov­ing to tighten up on lend­ing. The Bank of

The av­er­age num­ber of homes for sale on sur­vey­ors’ books fell to just over 42 on av­er­age per branch in June – the low­est since the sur­vey by the Royal In­sti­tu­tion of Char­tered Sur­vey­ors (Rics) started in 1978. Eng­land has told lenders to prove they are not tak­ing on too much risk. The pe­riod of longer rates for lower means around eight mil­lion Bri­tons have never seen an in­ter­est rate rise by the Bank of Eng­land in their adult lives.

Alec Pill­moor, a per­sonal in­sol­vency part­ner at au­dit, tax and con­sult­ing firm RSM, says: “This new gen­er­a­tion of bor­row­ers could well get a nasty wake-up call.

“Those who have been tempted by at­trac­tive loan and credit card deals, car fi­nance of­fers and lowrate mort­gages may well find that any such rise could leave them with less cash be­ing avail­able to meet re­pay­ments when they fall due.

“Those who are strug­gling now would do well to con­sider rein­ing in any ad­di­tional bor­row­ing.”

Laith Kha­laf, a se­nior an­a­lyst at Har­g­reaves Lans­down, says savers can po­ten­tially make their money go fur­ther.

Shop around for the best rates, some­times it’s easy to just leave cash in your cur­rent ac­count, but chances are you could be do­ing bet­ter from a sav­ings ac­count.

Make sure your cash is held tax ef­fi­ciently. Low in­ter­est rates and the new sav­ings al­lowance have made peo­ple ques­tion the pur­pose of a cash Isa, but in­ter­est rates can rise and a cash Isa of­fers some fu­ture-proof­ing for your sav­ings.

Con­sider a stocks and shares Isa if you don’t need the money soon and can leave it in­vested for at least five to 10 years. Rates of re­turn are higher, but so is the risk so you need to be will­ing to ac­cept the ups and downs of the mar­ket.

The Bank of Eng­land in Lon­don

Fi­nan­cial fact:

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