The Bank of England’s decision to withdraw its support scheme for mortgage lending could give savers a much-needed boost as there’s been little comfort for them over the past few years.
So do savers finally have a reason to be cheerful? The governor of the Bank of England, Mark Carney, announced that from February 2014, the Funding for Lending Scheme (FLS) will no longer be used for household lending.
With mortgage lending increasing and house prices rising in much of the country, its focus will shift solely on to small businesses. Launched in August 2012, FLS was designed to provide banks and building societies with cheaper finance to fund mortgage lending.
Property market on the up?
While there are signs the property market is picking up, savers have become the victims of a nasty side effect – access to cheap borrowing has reduced banks’ need to compete for customer deposits, and interest rates have plummeted. In July 2012, the best rate on an instant-access account stood at 3.2% (for savings of £5,000), compared with just 1.55% today.
The withdrawal of FLS means a rate recovery could be on the cards – if demand for mortgages remains high, banks will need customer deposits to finance this borrowing. But recovery won’t happen overnight, and while the base rate remains at 0.5%, savers will remain hard pushed to find inflation-beating returns.
With the possibility of rising rates around the corner, it’s worth thinking carefully before tying your money up in a fixed-rate bond to avoid being stuck with an uncompetitive account. And don’t expect the rate on your existing account to increase automatically – be sure to keep an eye on other options and switch to a better deal.
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