While those with mortgages may be partying over low interest rates, for those with savings, the Government’s attempts to lower the interest it pays on its ever-increasing debt (up from £700bn in 2010 to £1.4trn by 2015) are disastrous for anyone with savings.
You’ve probably read in the papers that savers are losing around £120bn a year in income from their savings because of low interest rates. But low interest rates have been even more damaging. Many people, who are risk averse and would never consider putting their money into stock-market investments, are being forced by low interest paid on bank accounts to move their money into supposed “investments” as they try to protect their money from inflation. (The Government claims inflation is only about 2.7% – probably it’s nearer 5%)
Since 2008/9, about £60bn of savers’ money has gone into investment products sold by banks and usually called something like “Guaranteed Growth Bonds” or “Guaranteed Investment Bonds”. I have previously explained why these are truly dreadful for savers but wonderful for the banks and City spivs who have created them www.snouts-in-the-trough.com/archives/7404
Up to 2008, we were putting about £10bn a year into unit trusts – since 2009 this has rocketed to £23bn a year, giving unit trust managers £75bn more than they would have got if interest rates had stayed at a normal level www.snouts-in-the-trough.com/archives/7414
So, that’s at least £135bn of our savings that have flowed out of things like 2- and 3-year fixed interest accounts and into risky stock-market schemes. Savers will be paying around 3% a year to the people who have sold these schemes and who manage their money. That’s an extra £4bn (£135bn x 3%). I don’t know how many people will benefit from this extra £4bn a year – let’s say it’s 5,000 at most (I suspect it’s fewer). Then splitting this £4bn amongst these 5,000 financial services insiders, that’s an extra £800,000 a year each – all due to desperate savers moving money from relatively safe bank accounts into financial products developed by City spivs to make themselves rich at ordinary savers’ expense. Low interest rates have certainly been rather good for the Tories’ friends in the City.
Equity Release – A couple of days ago I wrote a piece warning of the dangers of Equity Release www.snouts-in-the-trough.com/archives/7529 . Here’s another reader’s story:
“Dear David. Been away so I have only just read your article about equity release. My parents took out a type of equity release whereby they could live in their home for the rest of their lives and receive an income for the rest of their lives. I forget the sum but it was not a great deal perhaps £350- – £400 a month. They did not tell us their children. The company then owned 85% of the house and had to approve any change or alteration to the house. My father died after about 18 months and my mother 4 years after that. The difficulties we had to get them to allow my mother to move to a smaller home closer to us were horrendous and then of course when she died they took most of what was left giving us 4 weeks from the date of my mother’s death to clear the house. Words cannot describe how I felt about these scum. They made about £250.000 on the deal in about 5 years.
It was painful to lose the money I must admit, but much more painful was trying to get them to allow my mother to move to be closer to us in her last days. They are inhuman”
What concerns me most about interest rates for borrowers is if you look at the “going rate” for mortgages taken out in the last few years it is around 4%ish for residential mortgages and 5% for buy to lets. This is against a backdrop of a 0.5% base rate There are plenty of lower rates for new borrowers, but when the offer period ends they revert to the reversionary rate (going rate)
If interest rates do start to rise, and the margin remains the same, there’s going to be a lot of pain.
The silver lining in this storm cloud is the government have a vested interest in keeping rates low for as long a possible.
Your link above returns a “Not found”. I’d be interested to read it if poss.
The first of your links above returns a “Not found” message. Can you fix it?