Borrowers gain, savers lose

Borrowers have been getting huge benefits as lenders have been reducing their mortgage rates in the last few months. Ironically, while borrowers are enjoying windfall gains, savers are losing out as providers cut the savings rates they are offering in order to maintain their balance sheets.

Data collected by Moneyfacts.co.uk has shown that the demand for saver’s money forced many providers to increase savings rates until November 2009. But savings rates have been falling since then and are now back to the levels seen last summer.

Moneyfacts.co.uk spokesperson Michelle Slade said, “Savers’ money was in high demand during 2009, leading many banks and building societies to offer rates as much as 10 times the base rate.

“Providers must strike the right balance between savers and borrowers in order to maintain their balance sheets. No provider will offer market leading deals to both at the same time.

However, she said that the competition has now shifted towards the mortgage market with the increase in products and LTVs. Providers are offering very low interest rates on mortgages and other products to attract more customers.

This trend resulted to the lower demand for savers’ money and because the providers’ focus have also shifted, they are also lowering rates on savings.
 
Slade explained, “Many savers have just experienced their worst ever year’s returns and 2010 is not shaping up to be much better. The only benefit is likely to come from the forthcoming ISA season that will see providers battling it out to attract savers’ tax free allowances.”