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2nd March 2021
Moneyfacts reflects one year on from the financial shock of the pandemic
This month marks the one-year anniversary of Bank of England base rate cuts and the start of the first UK lockdown. During this time, consumers would have seen notable changes whether they are a saver or borrower, and the latest analysis from Moneyfacts.co.uk reveals how the landscape has changed a year on and what may be yet to come:
-Savings rates have plummeted to record lows as providers have cut and pulled offers over the past year. A large inflow of savers’ cash could further cause providers to review interest rates as deals could be oversubscribed.
-Mortgage product availability fell dramatically last year, limiting choice for first-time buyers or those looking to remortgage with a small deposit. Product volumes are slowly returning, but 5% deposit deals are still few and far between.
-Consumers with card debts will find less choice to make a balance transfer on an interest-free offer and those using an overdraft may be better or worse off compared to this time last year. More card offers could be tightened as caution remains.
Rachel Springall, Finance Expert at Moneyfacts.co.uk, comments “Savers searching for the best possible return for their cash will be disappointed to see interest rates have fallen to record lows over the past year. Consumers may well have put away more cash during lockdown, but before then the impact of the Coronavirus had initiated two base rate cuts in March 2020, which combined with a subsequent drop in competition, decimated the savings landscape.
One of the most popular savings vehicles are easy access accounts and it would not be surprising to see savers continue to favour deals where they can get instant access to their cash. However, as the average rate on easy access accounts has dropped to 0.17%, some savers looking for a better return may need to review their options, such as with a fixed bond, but keep in mind that these vehicles have also seen large rate cuts.
It is hoped that competition will return to the saving market, but it will no doubt be a steady process and not an overnight sensation. Savers would be wise to take advantage of any tax-free savings vehicles or Government initiatives such as the Help to Save scheme in the meantime and of course any plans for a new Government-backed NS&I savings deal to help combat the deficit.
Borrowers sitting on a standard variable rate mortgage(SVR) may have seen their repayments fall in light of the two base rate cuts seen in March 2020, but they could stand to save much more by switching to a fixed rate deal. However, the impact of the Coronavirus may have made it difficult for some consumers to move their mortgage, some may even be mortgage prisoners if their circumstances have changed drastically due to the pandemic.
Mortgage availability was hit hard during 2020 and there was more caution adopted by providers with regards to their lending criteria, however the sector to see the biggest shake-up was for borrowers with a small deposit. Lenders pulled mortgages aimed at borrowers with a 5% deposit and even now this area of the market only caters for specific types of consumers. Lenders’ reservations to offer low deposit deals trickled into the 10% deposit market, but thankfully over the past few months we have started to see lenders return, giving first-time buyers and borrowers with limited equity some hope.
Consumers who may be in the process of getting a new deal or hope to buy a property will no doubt be cautious of any fundamental changes to taxation rules and mortgage availability in the months to come. The mortgage market remains fluid and so it is always wise to seek out independent advice to keep abreast of any movements, even if consumers don’t plan to make any decisions quite yet.
“Consumers who had credit card or overdraft debt may well have been impacted in paying off their balance by the influence of the Coronavirus pandemic, but thankfully there were repayment holiday measures brought in place for those who were struggling. Those consumers who are now looking to move their card debts will sadly find less choice of interest-free balance transfer cards and find the average length of these deals has shortened since March 2020. The tightening was somewhat inevitable as providers made changes in response to the persistent debt measures.
Banking customers would have also seen big changes to their overdraft tariff during 2020, as the Financial Conduct Authority(FCA) stepped in to ban fixed fees, but this now means some current account providers charge almost 40% EAR on their arranged overdrafts. In light of the shake-up, consumers would be wise to review their account and switch if they find it is no longer competitive. However, current account perks have weakened in light of the Coronavirus pandemic as providers moved to adjust their packages to sustain certain offers, and only in recent weeks have we seen switching cash incentives make a comeback.
It is important consumers weigh up all the benefits and charges while also considering their spending habits when choosing a new deal. No one can predict how this year will pan out but if consumers take time to budget, switch and save, it could not only improve their current situation but also set them on the right path towards achieving any financial goals.”
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