PENSIONSANDSAVINGS.COM

31 January 2014

• Bank of England statistics confirm bonanza for mortgage holders
  
• Mortgage borrowers may be £3,300a year better off and savers over £4000pa worse off
  
• Low rates are huge help for mortgagees – no wonder so many don’t want rates to rise

Analysing the Bank of England’s statistics on interest rates in mortgage and savings markets since 2007 shows fascinating results.  The extent of income gains for mortgage borrowers is startling and the losses for savers are significant.  Those with the largest mortgages benefit most, of course, while all savers have lost out as a result of record low rates.

£100,000 tracker or SVR mortgage repayments now c.£3300 a year lower than 2008: A borrower with a £100,000 tracker mortgage have benefited by over £3200 a year extra income as a result of the drop in mortgage rates since end 2007.  Tracker mortgage repayments are £3,280 a year lower and those on Standard Variable Rates are paying £3290 a year less than in December 2007.

Saver with £100,000 is Cash ISA or fixed bond now losing £4,250 or £4,500 income: By contrast, a saver with £100,000 of savings in Cash ISAs or fixed rate bonds is more than £4,000 a year worse off than in December 2007 due to the interest rate falls.  The average Cash ISA in December 2007 paid £5350 a year interest, but by December 2013 it was just £1090 a year – £4260 a year lower.  The average fixed rate bond paid £5990 a year in 2007, but only £1440 a year in December 2013 – a loss of income of £4550.

One third of households with mortgage have had enormous income boost: The huge gains for mortgage holders may help explain the support for low rates that has persisted even in the face of economic recovery. Although only one third of households actually has a mortgage, while the other two thirds either own their home outright or are renting, the interests of those with mortgages have been driving the policy agenda. Those with largest mortgages (middle-aged with more expensive houses particularly in the South East) have a vested interest in opposing rate rises. Meanwhile, savers have little voice or power to alleviate their losses, or are being forced to take much more investment risk.  The Table below summarises the borrowers vs. savers situation

Interest saved on £100,000 mortgage vs. interest lost on £100,000 savings

	Annual interest Dec 2007	Annual interest Dec 2013	Difference	Monthly interest Mar 2008	Monthly interest Dec 2013	Difference
BORROWERS
£100,000 tracker mortgage	£6200	£2920	£3280pa gain	£517pm	£pm	£273.33pm gain
£100,000 SVR mortgage	£7680	£4390	£3290pa gain	£640pm	£pm	£274.16pm gain
SAVERS
£100,000 savings in Cash ISA	£5350	£1090	£4260pa less	£445.83	£90.83	£355pm less
£100,000 savings in fixed rate bonds	£5990	£1440	£4550pa less	£499.16	£120.00	£379.16pm less

Source:  Bank of England statistics, Table G.13

– uses closest comparable figures