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AUDIO: How FLS has subdued savings and ISA markets

AUDIO: How FLS has subdued savings and ISA markets

Category: Annuities

Updated: 14/03/2013
First Published: 14/03/2013

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.
Sylvia Waycot, editor of, speaks to BBC Radio 4 Moneybox's Paul Lewis regarding the diminishing number of savings products in the market and why she believes the Government's Funding for Lending Scheme is mostly to blame.

Sylvia also offers some insight as to why, just weeks before the start of the next tax year, the ISA market appears somewhat subdued.

Sylvia Waycot on Moneybox with Paul Lewis by Moneyfacts


Paul Lewis:
Now a government scheme to boost lending for mortgages and small businesses has been blamed for plunging rates paid to savers. The Funding For Lending scheme will make available up to £80 billion from the Bank of England, which banks can borrow at rates that can be as low as around three-quarters of 1%. The hope was it would boost the mortgage market and provide valuable funding for business expansion. But if the banks don't need to borrow from savers, then they'll pay them less and rates have indeed fallen by around a third since Funding For Lending began in August. I asked the Treasury Minister Greg Clark, if the scheme had indeed boosted lending.

Greg Clark: The evidence suggests that it is. If you take mortgages, for example, what we've seen since Funding For Lending came into effect, is that we've had for some types of loans, reduction of about a percent in the fixed rate. And that's about a £200 a year difference, if someone has a mortgage of £200,000. So that is making a difference.

PL: But the total of Funding For Lending mortgages in the first quarter was less than £500 million. It's not a lot of money really, is it, in the context of the UK housing market.

GC: Well the Bank of England said right from the outset that they would expect the take up of Funding For Lending to mount over time. It's not a quick fix. But the second thing is it is important to bear in mind this was their response to conditions in which banks were finding it difficult to get funds at competitive rates in the market, the rates were rising on mortgages and indeed business loans. And so the purpose was to keep those rates more competitive and to have more availability than would, otherwise, be the case.

PL: One thing Funding For Lending is clearly succeeding at, is in bringing down the rates for savers, isn't it? As soon as it began in August, the rates for savers began to fall, and they have plummeted by more than 30%.

GC: Well, I don't think... We'll there is the direct connection. We have the...

PL: But it happened on the 1st of August. If you look at the graph, it started falling on the 1st of August. Everyone we've talked to in the savings industry has told us, this is the reason; they can borrow the money at a maximum of 2%, so they're not gonna pay savers any more.

GC: This was not something that was about savers, but I'll be the first to agree that the rates that savers are getting these days makes it tough for them. That's why we have taken action in other areas to help people. We know that, for example, pensioners rely on savings more than other sections of society. So, one of the things that we've done in terms of protecting the basics say, pension, having the biggest increase in that, does provide some respite there.

PL: Even though the scheme itself lasts 18 months till 2014, the banks have longer than that to repay it, right up to 2018. So we could see these low savings rate persist for the next five years.

GC: I think it is impossible to make that kind of assessment. One of the things on people's minds has been, how can small businesses have access to funds? How can first time buyers be able to get a foot on the property ladder. This is a scheme that has had an impact. I think it's the right policy to introduce at this time.

PL: Treasury Minister Greg Clark. So what would labour do, Shadow Treasury Minister Chris Leslie?

Chris Leslie: For now, I do think we need to keep tweaking Funding For Lending. For my part particularly, I want to look at encouraging credit for small businesses, but I think we shouldn't neglect the impact that some of these things are having on savers. We have to do what we can also for pensioners and prospective pensioners in particular, because it's their long term savings that we really need to care about in particular.

PL: Leave us Chris Leslie. Now with me is Sylvia Waycot from Moneyfacts, who keeps track of savings rates. Sylvia, just tell us just how much rates have fallen.

Sylvia Waycot: Oh, it would be funny if it wasn't so tragic. The products have fallen and the rates have fallen. I mean, in August we had 1,124 products to choose from in the savings market. And today we've only got 891. So they've just dropped, and as you mentioned in your interview, the rates on average have dropped about 30% since it all started. And it did start when Funding for Lending opened.

PL: Yes, I mean looking at the graph it was about 3.2% the average of the top few, wasn't it?

SW: Yeah.

PL: And now it's about 2%. So I mean, that is a fall in the income you're getting of...

CL: Yeah.

PL: Of more than a third, more than 30%-35%. Do you think that this really is Funding for Lending. I know we can look at the graph, we can say it all happened at the same time. The minister seems to be thinking well it may have some other cause.

SW: But you know, that's just convenient. It is absolutely, definitely, Funding for Lending. As soon as that was introduced, what happened was the complete opposite to our normal daily lives at Moneyfacts. What normally happens is providers come through and they want to be in the top of the charts. And they'll say: "We are bringing this product out. If we bring it out this way, are we going to be the top?" And now that's completely changed. They don't want to be in the charts. And so rates just fell, fell, fell, fell. And then, they got fed up with constantly trying to be at the bottom of the chart, that they just pulled the products altogether. The knock-on effect is that the building societies who rely on savers' money to fund their lending, because they're probably not gone into the Funding For Lending scheme because they're too small, they've actually found that they've got almost every saver in the nation ploughing in to them to try and get their really good rates. And they've had to say: "No." And they've closed the doors, and they've reverted back to the '90s where they've gone back to locals only.

PL: And one thing we normally see at this time of the year is, the ISA season. They will try to get us to put money in to tax-free ISAs before the end of the tax year if we haven't already. That doesn't seem to be happening this year.

SW: No that's not happening either, because when you think about it, an ISA account is just, from a provider's point of view, a savings account. From the customer's point of view, it's great because you don't share your tax with the tax man. But if the provider doesn't want your savings just because it's a ISA with tax advantages, they still don't want it. So, no. Whereas we would normally be expecting all sorts of razzmatazz to try and get our money from us, it's silence out there.

PL: Silence out there. Sylvia Waycot from Moneyfacts. Thank you very much indeed for that useful summary.

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