How does your bank rate?

You should keep a close eye on the reaction of your bank or building society to a change in the Bank of England base rate, as this can have a sizeable impact on your finances.

Some banks pass on potential savings, but others use rate changes to squeeze extra profit from customers. Figures compiled for Times Money show that the two worst offenders since the base rate was cut to 5.5 per cent in December are Intelligent Finance and Manchester Building Society. Both were quick to reduce interest rates on savings accounts, but they have, so far, refused to pass on the benefits to borrowers who are on variable-rate mortgages.

A further 31 banks and building societies – including NatWest, Lloyds TSB, Halifax, Abbey and Alliance & Leicester – cut savings rates more than mortgage rates.

The figures from moneysupermarket.com also highlight four angelic building societies – Barnsley, Chesham, Chorley and National Counties. This quartet left savings rates alone, while easing the pressure on borrowers with a full quarter-point cut in standard variable rates.

Only 14 other providers, including HSBC and its internet-only operation, First Direct, managed to protect savers from the full rate cut while still reducing mortgage rates. Nine of these were small building societies.

Kevin Mountford, of moneysupermarket.com, the price comparison website, says: “It is reasonable to assume that changes in the base rate should be passed on equally to savers and borrowers. This is particularly true for consumers who hold their mortgage and savings with the same bank or building society. However, the industry looks increasingly at changes to the base rate as a chance to recalculate margins.”

Consumers with both their savings and a mortgage with one of the 33 “devils” will feel hard done by, particularly if they have an instant-access savings account and a variable-rate mortgage. The wider the difference between the cuts, the more customers are penalised.

Halifax squeezed savings rates by 0.05 percentage points more than mortgage rates. At Bradford & Bingley and Egg, the difference was a tenth of a point, with a full quarter-point cut to savers but only 0.15 points cut from borrowing rates. Mr Mountford adds: “If consumer’s do not believe that they are being treated fairly by their providers, then they should seriously consider moving.”

In theory, banks and building societies should treat savers and borrowers equally, whether raising or lowering rates in response to base-rate changes. In reality, however, while most savings rates remain closely linked to the base rate, mortgage rates have become less so since the credit crunch began to bite last year. With the wholesale cost of money increasing, many banks have seen profit margins fall, making them reluctant to cut standard variable rates (SVRs) or lower fixed rates for new customers.

Tracker deals for existing customers are unaffected because they are linked directly to the base rate. But many providers, including Nationwide, have increased tracker rates for new customers. David Hollingworth, of London & Country Mortgages, the broker, says: “It is important to be aware that lenders can choose not to pass on a rate cut. But there are lots of deals where borrowers can side-step these issues. A tracker ensures that your deal follows the base rate.”

Saffron Building Society cut its SVR by only 0.19 percentage points, but it is offering a competitive tracker deal pegged at 0.06 points below the base rate for three years, giving a current rate of 5.44 per cent. The deal is for loans of no more than 85 per cent of the property’s value and carries a fee of £699. Intelligent Finance, which has a number of good offset mortgages, is offering an offset three-year tracker at 0.34 points above the base rate, at 5.84 per cent. You can borrow up to 75 per cent of the value of your home, with a fee of £799.

Savers should look at the way a bank or building society responds across the board to a base rate change, says Sue Hannums, of AWD Chase de Vere, the independent financial adviser. “Comparing how a provider treats savers and borrowers can give a clue as to whether it will play fair in the future,” she says. “The most important factor is the interest rate – and if the devils of the banking world are paying better savings rates, go with them.”

Alliance & Leicester cut the majority of its savings rates by 0.23 percentage points last month, but its eSaver account offers the best returns on an instant-access account. It pays 6.5 per cent, with a 0.35 per cent bonus until next January. Bradford & Bingley cut much of its savings range by 0.35 points, but its eSavings account still pays an excellent 6.4 per cent.

Mr Mountford says: “Consumers need to decide which products and deals offer the best value for their situation. The economic climate suggests that we will see more base-rate cuts over the next year, but the willingness of banks to pass these on to customers must be considered when choosing a savings account or loan.”

Rentals for as low as £60….Central London

How would you like to live in a spacious Central London pad for £60 a week, all bills paid? If you are a flexible professional and have no pets or children, you could do just that by signing up with Camelot Property.

The company sources “guardians” to move into vacant properties across the country for stints of three months-plus. Homes range from suburban semis to sprawling castles and decommissioned fire stations.

The idea is that you keep the place in working order, deter squatters and spare the owner the cost of contract security. Stephen Davies, of Camelot, says: “Most guardians are youngish and want quality accommodation with minimum expense. The properties are shared by an average of five people.”

Among the placements now listed at www.camelotproperty.com are two in a detached house in Guildford, two in a farmhouse in Midlothian, sixteen in Chingford town hall and twenty in flats in Woolwich. Mr Davies says that the condition of properties varies – all are clean and safe, but some come unfurnished and in need of a good tidy.

The weekly cost depends on the property’s condition and location, ranging from £10 to £70 for quality digs in the capital. This includes utility bills and council tax. A fee of £50 is also charged on each placement, together with a refundable deposit of £300.

Prospective guardians are interviewed in person by Camelot staff and shown around each property. Mr Davies says that a suitable applicant can often be placed within a week.

He says that guardians can use the accommodation much as they would their own homes. However, all properties come with a number of rules and responsibilities and are checked at least once a month by an inspector, who holds a spare key. Smoking and house parties are out, and the space – including any communal and vacant areas – must be kept clean and tidy. Guardians waive all tenancy rights and can be asked to leave with only two weeks’ notice after the first three months. But Mr Davies says that most of those who want to find a new place with Camelot do so within days.

There is no rule against couples, but most guardians are single. “Couples tend to want their own place and children, which rules them out,” he says Those who are too settled for life as a guardian with Camelot may prefer occasional breaks as a home sitter. A number of websites recruit people willing to take care of the homes, and often pets, of people who are away on holiday or business for a few days or weeks. These placements, frequently in picturesque homes, tend to be paid, in most cases £9.66 a day. For more information, go to www.homesitters.co.uk.

CASE STUDY: More space and savings on rent

Jennifer Reinfrank, 30, has lived with 15 other people in a former young offender institution in Camberwell, in London, for the past six weeks. The building is a grand 19th-century villa and the actress is delighted with her large room, which costs £70 a week including bills.

Ms Reinfrank, originally from Germany, says that she is saving about £150 on the cost of renting and has more space and a prime location. “It’s great,” she says. “My only worry is how long we will be allowed to stay. I will definitely look at other Camelot options in the future.”

Auctions of repossessed homes soar

The number of repossessed homes being sold at auction has doubled since last year, a leading auctioneer said yesterday.

Allsop, the UK’s biggest property auction house, said that nearly 40 per cent of the properties going under the hammer at auction next month were repossessed by banks or building societies. Last February, just 20 per cent of properties auctioned were repossessed.

Gary Murphy, a partner at Allsop, said: “The number of repossessions we deal with leapt after last summer. Between 45 per cent and 50 per cent of properties in our last three sales were repossessions.”

The average sale price of properties auctioned by Allsop at the last auction in December was £200,000.

Mr Murphy said that property investors were struggling with spiralling mortgage costs after five base rate rises and only one rate cut in the last 18 months. “The rise in repossessions is down to the fact that borrowers are having difficulties repaying their loans and a large proportion of these are buy-to-let investors who failed to appreciate the pitfalls of property investment,” he said.

There are fears that repossessions will soar this year as lenders, especially sub-prime lenders, tighten their lending criteria. Some sub-prime lenders are now refusing to lend more than 75 per cent of the value of a property.

Homeowners who could only raise a small deposit when they bought their home and who cannot lay their hands on a sizeable lump sum to make up the difference when their mortgage deal comes to an end, run the risk of losing their home.

The Council of Mortgage Lenders (CML) has predicted that the number of home being repossessed will rise by 50 per cent this year to 45,000.

Steart Lilly, president of the National Association of Estate Agents (NAEA), said: “Sadly, over the last couple of years, some financial organisations have been keen to lend money where perhaps they shouldn’t have done.”

Grainne Gilmore, Economics Correspondent

Sorry, First-Time Buyers, But The Threshold’s Even Higher

“Moneyfacts, the financial-comparison service: Of the 30 lenders that were offering 100% mortgages to cash-strapped first-timers a year ago, just 22 remain… But two important factors remain unchanged for first-time buyers. Firstly, despite the recent, marginal falls in the valuation of the average property, house price inflation has risen by 179% in the past 10 years – from around £70,000 at the end of 1997 to £197,093 today… This leads on to the second factor – that many would-be first-timers still aren’t able to save enough for the big deposits required.” 

100% Mortgages More Difficult To Get

“A recent report has indicated that it is getting increasingly difficult to find 100% mortgage deals, which were once commonly available to first time buyers with no deposit available to put down on a property… One reports shows that around a third of lenders that offered 100% mortgages have now stopped offering them, and in addition to this many lenders have also raised their LTVs, demanding at least a 10% deposit on a mortgage loan instead of the traditional 5%. This is just one of the adverse effects of the credit crunch for consumers.” (Thrifty Scot, Jan. 28th)

U.K. Real Estate Trends

“Research group Hometrack Ltd.: U.K. house prices declined for a fourth month in January as slowing economic growth sapped confidence among buyers… The average cost of a home in England and Wales fell by 0.3%, the same rate as in December, to 174,700 pounds ($346,000)… The supply of homes for sale declined 4.6% in the month as people became more pessimistic about future price gains. Richard Donnell, director of research at Hometrack: “With most buyers also being sellers, households are now waiting until there are signs of general stability before committing.”