Moneyfacts Comments on Savers and Borrowers Budget 2016

Personal_Finance / UK Tax & Budget Mar 16, 2016 - 05:00 PM GMT

The 2016 Budget was announced today and has now been reviewed by Moneyfacts.co.uk. So what does the new Budget mean for savers and mortgage borrowers?

Rachel Springall, Finance Expert at Moneyfacts.co.uk, said:

Savers

“The announcement of a new ‘Lifetime ISA’, available from April 2017, will no doubt be an interesting opportunity for any saver between the ages of 18 and 40 who is looking to save towards a home or their retirement. The 25% Government bonus means that for every £4 saved the Government will add a £1 top-up. The option to access the pot at any time and replace the withdrawal is positive; however, for those using it to save towards retirement, any withdrawals before the age of 60 will result in the loss of the Government bonus and a 5% charge. This may well cause confusion for anyone looking at saving for their retirement, so they would be wise to take out independent financial advice before setting up an account.

“Anyone using their ISA allowance will also be pleased by next year’s rise in the tax-free allowance to £20,000, which will take effect from April 2017. However, those looking for an ISA right now will still be very disappointed by the returns available on current on cash ISAs. It seems the famed ‘ISA season’ failed to make an appearance this year.

“Savers may be pleased by the Government’s attempts to encourage regular saving, which have included the introduction of the Personal Savings Allowance, the Help to Buy: ISAs and the upcoming Help to Save initiative – but none of these schemes will improve interest rates. Only when providers regain their desire for savers’ cash will we start to see interest rates rise on savings accounts. Not even a Bank of England base rate rise can guarantee an improvement in the market as the link between base rate and savings rates has been severed for many years.

“Base rate has now been at its historic low of 0.50% for seven years, and savers have been the casualties. Because of external forces, providers in recent years have lacked the appetite for savers’ deposits, resulting in a reduction in savings rates.

“As a result, the average one-year fixed rate bond has fallen from 1.40% yearly to 1.29% in just one year. This is a sector that has been increasingly dominated by the challenger banks, but tellingly, even these deals have not been left unscathed by the rate cutting frenzy.”

Borrowers

“Borrowers have clearly been the winners over the last few years in the savers vs borrowers’ battle. A low base rate and an increasing willingness among lenders to provide finance means that consumers are benefiting from both record low interest rates and an abundance of mortgage deals. Indeed, the average two-year fixed mortgage rate has dropped from 3.06% to just 2.56% in only one year.

“Those looking to get on the property ladder will also be edging closer to their dreams of home-ownership thanks to the Government’s Help to Buy scheme and the Help to Buy: ISAs. However, due to the Mortgage Market Review, they will need to make sure they can afford their mortgage not only now, but also in a potentially higher interest rate future.

“There’s no telling what the future will bring for the mortgage market, but with rates currently sitting at such low levels, now is the perfect time to take advantage of the deals on offer. Borrowers would also be wise to overpay their mortgage to reduce their loan while rates remain at their current level. It’s anticipated that rates will rise in the future, but we don’t know exactly when this will happen, so borrowers should take advantage now while they have the chance.”

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Moneyfacts.co.uk is the UK's leading independent provider of personal finance information. For the last 20 years, Moneyfacts' information has been the key driver behind many personal finance decisions, from the Treasury to the high street.

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