There are many people in the UK who have, over the last fifteen years, decided to borrow too much money. As the economy has turned sour The Bank of England has tried to help out these over stretched borrowers by keeping the base rate at the historic low of 0.5% for four years. Additionally it has pumped £375,000,000,000 into the ‘economy’ (QE) which has helped to sustain house prices. The UK government has also come to the rescue by providing up to £80,000,000,000 of ‘cheap’ money to banks (FLS) so that they can offer even cheaper mortgages.
Unfortunately the Funding for Lending Scheme has had a negative impact on savers because banks no longer have to rely on attracting depositors. Thanks to low interest rates and FLS the current rate of return being offered on savings products is appalling. Most savings accounts offer a rate which is far below inflation. Effectively savers are losing out on billions of pounds of interest whilst the cost of servicing mortgage debt has been reduced significantly.
As we are ‘all in this together’ I think savers should do even more to help out over-stretched borrowers. Perhaps a proportion of the interest paid on ISA’s could be redirected to mortgage accounts to reduce the cost of borrowing even further. After all it’s not the fault of highly indebted consumers that we are all in this economic mess. They were under pressure to take on more debt by the banks; it was very difficult to say no. The overwhelming desire to compete with the neighbours leads to a re-mortgage, a new car, house extension or exotic holiday. I’m sure many savers feel deep sympathy over borrower’s unfortunate circumstances.
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