Free money! Cheap money! Merry Christmas!
Last week we pondered aloud how people would be affording Christmas this year. A lot of people, it seemed, would be using ‘savings’ or ‘disposable income’, both items rare on the ground for many. We then told you about a protected savings scheme being launched by Co-op, just in time for next Christmas, which wasn’t a fat lot of help right now. But never fear, it seems Christmas has indeed come early, and the unlikely plump and bearded gift-giver is none other than the banks.
You heard right. It seems, after years of being told, encouraged, cajoled and finally incentivised to start lending money to people again, the banks have finally started listening. There are now very cheap mortgage deals available to those with a 40% deposit, but new deals for those with only 10% in cash too.
Tesco Bank is offering a 1.99% two-year fix at 60% loan-to-value (LTV) and HSBC a 2.44% two-year fix at 60% LTV, and these are just two of the much wider range of low rates on offer for low LTVs. The Co-operative Bank's announcement earlier this month of a market-leading rate for those with a 10% deposit (a two-year fix at 3.99% with no arrangement or valuation fees) shows that FTBs and those without hefty deposits can also now get better deals.
Experts say the fixed-rate mortgage war is a result of the Treasury's Funding For Lending scheme (FLS), which aims to help banks make loans to families and businesses cheaper and more easily available. It has also become cheaper for providers to borrow money on the wholesale markets, with the three-month Libor rate almost halving over the course of this year to just 0.31%.
Personal unsecured loan rates are currently the lowest they have ever been, with Marks and Spencer bank offering 5.5% on loans of £7,500 to £15,000. And experts predict this rate will fall to around 5%, owing to growing confidence in the market. Marks and Spencer also indicated that the credit might be more readily available than it has been in the loans market for some time. They suggested that the acceptance rate for their 5.5% loan was “considerably higher” than 51%.
Even credit card companies have slashed balance transfer fees when taking out a 0% card- down from 2-3%+ to less than 1% from Barclaycard. Many card companies are also generously increasing people’s credit limits without be asked to. A jolly Christmas present indeed.
But do we need to beware of a sudden influx of available credit? While increased lending availability is certainly good for the economy, have we, the population, learned our lessons of the past five years, or will there be people rushing out to buy an extravagant Christmas on credit?