The announcement from the Bank of England’s new governor Mark Carney that the base rate will stay at 0.5% in 2016 would have provided welcome news for home owners, but is likely to have inspired the opposite reaction from the nation’s savers.
The Campaign group Save our Savers has warned that the base rate maintaining its historical low for the next three years will have a devastating impact on savers.
They argue that savers are set to lose a staggering £400bn in interest by 2016, potentially making it a struggle for many to build up a substantial savings pot.
Commenting on the dire savings outlook, Simon Rose, a spokesman for the Save our Savers group said: “In three years we have calculated that more than £400 billion in interest will be lost to our savers.
“We also fear that many will be tempted to expose their money to more risk, especially if they are looking to increase their incomes.”
While there are a number of ways that consumers can work to offset the low base rate, such as opting for a fixed rate savings account that offers a guaranteed rate, investing in buy to let property could become an increasingly popular option for helping savings to mature at a faster rate.
Buy to let reaches five-year high
With buy to let landlords able to achieve a yield of as much as 6.8% on their properties, compared to an average of 2.9% interest on the top five-year fixed rate savings account, it’s no wonder that many are jumping on the buy to let bandwagon. In fact recent figures have revealed a boom in the buy to let industry, with the Council of Mortgage Lenders (CML) revealing that the number of loans advanced to buy to let landlords by banks and building societies reached £5.1bn in the second quarter. This represents a five-year high for buy to let lending.
Commenting on the reasons behind the increase in buy to let lending, CML’s head of policy Jackie Bennett said: “Strong rental demand is contributing to the continuing expansion of the buy to let sector, but growth is also being helped by improved conditions in funding markets and more widespread availability of mortgages.
These conditions are creating more opportunities for landlords to remortgage, as well as helping to fund increased activity in the mortgage market more generally. This spring, we have seen the highest levels of lending to first-time buyers since 2007, alongside the continuing recovery in the buy to let market.”
Recent figures have revealed that rental yields for buy to let lenders have risen year-on-year. With the dream of homeownership still out of reach for many, and the National Housing Federation predicting that first time buyer house prices will leap by 42% by 2020, demand for rental property is set to continue to be strong.
Figures from the latest Buy-to-let Index from LSL Property Services show that rental yields in England climbed to 5.3% in June 2013, compared to 5.2% in June 2012.
Despite what seems to be a marginal increase, average monthly rents of £737 in June 2013 are 2.6% higher compared to June 2012, while buy to let landlords can achieve above average rental returns in some parts of the country.
As an example, the north-west has the highest rental yields in England and Wales at a rate of 7%. Low property prices in Yorkshire and The Humber mean that landlords can achieve rentals yields of 6.7%. Commenting on the figures, David Newnes, director of LSL Property Services, owners of estate agents Reeds Rains and Your Move, argued that an upward trend in buy to let was set to continue.
“The proportion of households in the private rented sector is still growing strongly, a trend that’s set to continue for the foreseeable future,” he said. However, he also outlined that improving conditions for first-time buyers could also have an impact on the market.
“Yet with better access to finance in the first half of this year, the immediate picture has become far brighter for tens of thousands of first-time buyers.
“And now these green shoots are starting to bear fruit for those still renting too, as milder competition for tenancies has kept a lid on the cost of renting,” he added.