Best accounts for over-55s to invest house profits
More than 2.5 million over 55-year olds are planning to release money from their home by selling their property over the next 12 months. As a result, £89 billion is expected to be moved into savings accounts, new research from Ford Money has revealed. The research found that more than one in 10 (13%) of those over 55 are planning to release money from their home by downsizing or moving to a cheaper location within the next 12 months. In addition to this, a further 8% are planning to move home over the next five years.Ford Money also found that those planning to sell this year are expected to receive £85,250 each, with the majority planning to save an average of 52% of the released money, £44,330 each, for an average of six years.
Commenting on the research, Suzanne Lewsley, chief deposits officer at Ford Money, said: “Cash savings are a sensible, low-risk investment option for people nearing retirement but, with over-55s planning on hoarding their equity for a little over six years, they need to ensure they aren’t only choosing the right type of product, but also the best possible rate for the long-term, so that they can grow their money further.”
Product Spotlight: Three-year fixed rate ISAs
ISAs enable you to take advantage of your tax-free cash ISA allowance, while three years is a good trade-off between not locking your money away for a long time and getting a decent interest rate on your savings.
• Aldermore takes the top spot with its 3 Year Fixed Rate Cash ISA, offering an interest rate of 1.55% AER for a minimum deposit of £1,000, paid either monthly or on the anniversary of opening. In addition, this online-only ISA allows withdrawals, but these are subject to the loss of 180 days’ interest. Further additions are welcome for 14 days from account opening, as are transfers-in from cash, stocks and shares and Help to Buy ISAs.
• Marsden Building Society’s Fixed Rate Cash ISA (Issue 122) offers a rate of 1.55% AER on a minimum deposit of £5,000, with interest paid yearly until it matures on 30 April 2023. Further additions can be made but early access is on closure only on 360 days’ loss of interest. Transfers in from cash ISAs are welcome. The ISA can only be opened and operated in branch.
• Next up is Buckinghamshire Building Society with its Fixed rate Cash ISA Bond Issue 101 offering a return of 1.50% AER paid yearly or monthly on a minimum investment of just £100. This ISA allows further additions while early access is on closure only and results in 365 days’ loss of interest. Transfers-in from cash ISAs is permitted.
Top products – At a glance
Homeowners benefit from increased competition on mortgage packages
The true rates on two and five-year fixed rate mortgages being offered by the top 10 lenders (according to UK Finance data for Largest Mortgage Lenders by gross lending) have fallen by as much as 0.14% since January 2020.
A true rate considers a range of different factors that can impact the mortgage rate, including the initial interest rate and the product fee being charged. Research from the latest Moneyfacts UK Mortgage Trends Treasury Report found that when looking at the true rate on 75% loan-to-value (LTV) mortgage deals on an advance of £150,000, Coventry Building Society’s two-year deal fell by 0.14% between January and March 2020. Of the top 10 deals being offered on a two-year fixed term, seven deals had seen true rates fall, while the remaining two saw no difference.
The same analysis of the five-year fixed rate chart found that five deals had seen true rates fall since January 2020, while a further four saw no difference.
Commenting on the fall in true rates, Eleanor Williams, finance expert at Moneyfacts.co.uk, said: “With some fees in this sector currently as high as £2,000, or more, borrowers need to be careful that they are not swayed by just a tempting rate and should carefully consider the total deal they are taking on. This is particularly true on shorter-term deals; for a two-year fixed mortgage, the borrower will only have 24 monthly repayments over which to recoup the difference between the repayment required on a lower rate deal with a high fee, and the monthly payments they would make on a higher initial mortgage rate but with a significantly lower, or in some cases no fee.”
Product Spotlight: Two-year fixed rate first-time buyer mortgages
First-time buyers looking to fix their mortgage with a two-year deal have several competitive rates to choose from, all of which will provide the security of knowing their rate is fixed for around 24 months.
• Newcastle Building Society tops the chart, offering a rate of 2.59% (5.1% APRC) fixed until 30 June 2022, after which it reverts initially to a discounted variable rate of 4.49% (collared at 3.00%) until 30 June 2025, before reverting to an existing borrower’s rate of 5.99% variable for term. This deal has a maximum 95% loan-to-value (LTV) and a minimum loan amount of £30,000. It charges £498 in product fees and does not offer any other incentives.
• Nottingham Building Society takes the number-two spot with a two-year rate of 2.65% (5.3% APRC) fixed until 01 July 2022, which then reverts to 5.74% variable for the remainder of the term. This deal is available to borrowers with at least a 5% deposit (95% LTV) and there is an incentive of free valuations for all, and free legal fees as well for those looking to remortgage. The product fee is £999.
• Third is Yorkshire Building Society’s two-year deal offering a rate of 2.77% (4.5% APRC) fixed until 31 May 2022, reverting to 4.25% variable thereafter. With a maximum LTV of 95%, this mortgage has a minimum loan amount of £50,000. It has a product fee of £250 but offers the incentive of free valuation, as well as £500 cashback. This deal also allows for overpayments, underpayments and payment holidays.
Base rate cut impacts savers and borrowers
Along with the Bank of England (BoE) cutting base rate from 0.75% to 0.25% this week, the Monetary Policy Committee (MPC) also voted to introduce a new Term Funding Scheme with additional incentives for small and medium-sized enterprises (TFSME). This follows on from previous schemes such as Funding for Lending and an earlier Term Funding Scheme, the latter of which is due to be repaid by the banks in 2022.
Rachel Springall, finance expert at Moneyfacts.co.uk, said: “In the short-term, the base rate reduction is likely to see more banks and building societies trim their savings rates in the coming days and weeks. Savers should prepare themselves for the potential of further interest rate reductions and for the continuation of reduced competition or even stagnation.
“This potentially could include changes to both rates available on open accounts and those accounts closed to new savers. Savers should be careful to check for alerts from their bank or building society about changes in their savings rates.”
The cost of borrowing, in particular mortgages, is expected to reduce quickly. However, this will only immediately improve the pockets of those mortgage borrowers on tracker rate mortgage deals. New mortgage rates for fixed deals should also see some reductions although with rates already very low these reductions may be quite small. Banks are also expected to reduce the cost of personal loans, while rates for overdrafts and credit cards are expected to remain the same.
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