Ways to benefit through the recesion

Some mortgage holders have saved thousands of pounds
It may be unfashionable to say so, but some people have managed to do well during the recession.

And if interest rates stay low, they may continue to do just as well.

This does not just go for people on low mortgages, but savers and car buyers too.


CHEAPER MORTGAGES
If you are one of those buying a home with a tracker mortgage - one where the interest rate is linked to the Bank of England's bank rate - you will know all about this.

The Council of Mortgage Lenders (CML) estimates that out of a total of 1.5 million trackers sold since April 2005, about 935,000 are still in force.

They will have been saving hundreds of pounds a month compared with the position back in July 2007 when the bank rate hit 5.75%.

Take someone with the average outstanding home loan of £110,000.


I think rates will be low for a long time and people on trackers will continue to benefit

Ray Boulger, John Charcol mortgage brokers
Since March this year, the bank rate has been at the historically low level of just 0.5%.

So if the borrower's tracker deal has been pegged at 1% above bank rate - now 1.5% overall - they are currently paying £442 a month in capital and interest payments, compared with £769 two years ago when they were being charged at 6.75%.

That is a saving of £327 a month.

Someone whose loan deal matched the bank rate exactly, at 0.5%, would now be paying only £391.

Ray Boulger of mortgage brokers John Charcol reckons these borrowers will continue to save money for some time to come.

"The view increasingly is that interest rates will stay low for longer, so I think rates will be low for a long time and people on trackers will continue to benefit," he says.

Most tracker deals come to an end after a few years - typically two, three or five - and then revert to the lender's standard variable rate (SVR) as the default option.

With the average SVR currently standing at just under 4%, that means some borrowers suffer a jump in their repayments once their tracker rate expires.

But Mr Boulger points out that some big lenders, such as the Cheltenham & Gloucester, Nationwide, Halifax and Skipton, have offered loans where the follow-on rate is capped at no more than 2% or 3% above the prevailing bank rate.

"It's a rare example of the small print working in favour of the customer," he says.


BETTER SAVINGS RATES
Conventional wisdom has it that while mortgage borrowers have benefited, savers have suffered.



The low level of savings rates has been deceptive
But the facts show that that is not true, if the savers in question have been canny enough to move their money into the accounts with the highest rates.

The key has been the gap between the rate on offer, and the current rate of inflation as measured by the retail prices index (RPI).

In September last year when RPI was 5%, the average savings account, where no notice was required for a withdrawal, offered just 3.6%, according to the financial information service Moneyfacts.

Taking into account the money lost to the 20% tax rate on savings, this meant that those people were facing a loss of 2.12% on their money each year.

Although the interest on an average no-notice savings account rate has now fallen to 0.84%, inflation has plunged even faster, to minus 1.4% on the RPI in September.

So again, adjusting for the impact of tax, this means that these borrowers are now making a net 2.07% a year.

The situation is much better for those who have kept an eye on the ever-fluctuating savings scene, and have moved their money to the highest paying no-notice accounts.

A year ago these offered 6.51% and gave their savers a return, after inflation and tax, of just 0.79%.

Now, although the best headline rates for these accounts have fallen to about 3.3%, the plunge in the inflation rate means the savers are now getting a much better real return of 4.53%, after inflation and tax.

"Since May savings rates, especially those offered by banks, have gone up to get more funding than ever for savers," says Michelle Slade of Moneyfacts.

"The market has become competitive and rates have become attractive as banks try to replace the funds they can no longer borrow from the wholesale financial markets," she adds.

So, as long as lenders are desperate to raise funds, this situation may continue.

But be warned.

You will not get these rates if you simply leave your money in the account you opened a few years ago. Welcome loans do unsecured loans for people with bad credit. Their unsecured loans start at £500 and go up to £25,000.

More than half of all savings accounts - 53% of them Moneyfacts says - in fact pay less in interest than the bank rate.

For instance, the popular Liquid Gold account with the Halifax, once widely advertised, still has millions of account holders even though it offers just 0.05% interest a year.

So inertia is the saver's enemy.