Professional Loans Blog

Savers are benefiting from a spell of record interest rates as banks and building societies battle to attract funds to offset a further tightening of the credit market.

Several savings providers have launched new deposit accounts with fixed rates close to 7 per cent with many of these deals selling out within days.

Savers have been the big beneficiary of the current market difficulties as banks are in a period of better rates as the current credit conditions make it more difficult and more expensive to obtain wholesale funding and secured loans.

Providers that are less exposed to the credit markets are also offering higher rates to keep pace with the larger banks.

Several small building societies have been paying 6.9 per cent on fixed-rate bonds, while large high street banks have relaunched more attractive current accounts.

Financial advisers say it is extremely unusual to see savings rates rise when there is such a strong expectation that base interest rates had peaked.

The feeling is that interest rates will come down, yet we are still seeing high savings rates. Savings rates topped 7 per cent for the first time in six years at the height of the credit crisis in September but soon fell back closer to 6 per cent.

However, banks are again in need of cheaper short-term money. Lenders are having to examine different funding routes and customers are their main source of income.

On the other hand, one in three mortgage holders could face serious financial difficulties as the credit crunch starts to hit and banks and building societies are becoming increasingly strict on what terms they lend money. Mortgages and loans are becoming harder to get for those with less than perfect credit history.

According to the market research firm Mintel, 37 per cent of all mortgage holders, some 4 million households, would now be classed as either sub-prime or high-risk.

This means they stand a high chance of being offered less favourable terms when they come to remortgage or a loan. The research comes as experts suggest that 15.3 million consumers felt worse off than earlier this year.

According to this survey, 5.8 million adults say they need credit just to help meet their living costs, with the average person having to hand over 53 per cent of their monthly take-home pay on debt repayments.

Meanwhile, people coming off a fixed rate mortgage will face higher repayments and a rise in arrangement fees. Two years ago the average arrangement fee was £441, today it stands at £827.

While the banks will always work hard to attract new customers, they are also becoming increasingly picky as to who they accept as customers. While many of us may benefit from high street banks’ increased marketing activity and incentives to join them, some of us will be left red faced and classified ‘high risk’ due to the credit crunch.

To ensure you get the best deal and aren’t turned away should you apply for a loan or attempt to remortgage, shop around for the best deal and an account system that works for you in terms of interest rates and benefits.

Mel Varley is writing for Accepted.co.uk and offers views on remortgages in the UK. Go to www.accepted.co.uk for expert advice on remortgages and secured loans. No obligation quotes in minutes!