Owning Property Is Better For Financial Security

Owning Property Is Better For Financial Security

Mortgage Payments Vs Savings: Property Provides Better Returns Over Traditional Saving Methods

There was a report in the Daily Express last week that said property owners have saved more than others with traditional savings accounts and ISA’s.

The report reckoned that the Bank of England’s record low interest rate has saved property owners almost £20,000 (GBP) over the last six years in inflated mortgage payments. However traditional savers have lost out by almost the same amount, prompting calls for more help for savers and warnings that borrowing could create a new debt crisis.

Bank of England statistics reveal that the record low interest rate of 0.5%, reached 5 years ago today, has been a mixed blessing for the UK.

Interest rates started to tumble back in 2008 and by March 2009 the Bank of England’s base rate had reached 0.5%, promoting cheaper borrowing.

Property owners with a £100,000 Standard Variable Rate (SVR) mortgage could have saved almost £20,000 (GBP), because mortgage payments were around £3,300 (GBP) a year lower than they were in early 2008 before the financial crash ended the previous property boom.

Savers with £100,000 (GBP) in cash ISAs lost around £18,500 (GBP) over the same period.Warning of trouble ahead came from former Government policy adviser and present Governor of the London School of Economics (LSE) Dr Ros Altmann, who said: “Interest rates should be raised as we need a signal that the Bank of England is on top of the situation. It’s irresponsible that people are being encouraged to take on debt. Living for today is how we got into this mess in the first place, the economy was built on funny finance and raging property prices. A cost of living crisis means millions of households are struggling to pay spiralling rents and people nearing retirement have witnessed the value of their pensions and annuities diminish, have we not learned anything? The policy stance has rewarded borrowers and punished savers. The message is, ‘You’re a mug to save’. The interests of those with mortgages has been driving the policy agenda. But rising house prices lead to rising rents, which are particularly problematic for the young. Borrowing has been encouraged, while saving has been penalised. Rates have been kept far too low for far too long. People are being encouraged to take on debt. It’s irresponsible and that’s the bottom line. Too many powerful groups have vested interests in keeping the monetary taps open. The economy is clearly recovering and so rates should already be rising. Powerful vested interest groups” have benefited from low rates and quantitative easing – pumping money into the economy – but not hard-working families.

Mark Carney, Governor of the Bank of England (BoE) said “Interest rate policy will in future be determined by a wider range of indicators than just unemployment. The Bank will not consider raising the base rate from 0.5% until unemployment has fallen below 7%”.

Many economists believe that the BoE base rate will rise gradually to 2% by the year 2017.

The pound (GBP) hit a three-year high against the dollar last month, providing some evidence that the UK’s economic recovery is almost complete, but it also prompted fears of higher interest rates ahead.

Property owners in prosperous areas of the country have seen property prices rocket over recent months, but soaring property prices make it tough for new buyers as low interest rates make it difficult to save for a deposit.

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