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The financial crisis of 2008 affected us all in one way or another. Now, a decade later, we've taken a look back to see how or if the mortgage and savings markets have recovered.
"The financial crash sent shockwaves across the personal finance market, resulting in a tightening of lending criteria and an abundance of lenders pulling out of a market that was considered too risky," Rachel Springall, finance expert at Moneyfacts.co.uk, commented. "This caused chaos among borrowers looking to get onto the property ladder and created a pool of mortgage prisoners."
Those who bought a home at the peak of the housing market took a particularly sharp hit, watching their equity erode as house prices plummeted. Since then, house prices have mostly gone up again, while mortgage rates have thankfully decreased. As a result, the average two-year fixed mortgage rate now stands at 2.53%, down from 6.30% in September 2008.
This means that someone with a home loan at the average two-year fixed mortgage rate now is £5,000 per year better off compared to someone borrowing at the average rate a decade ago (based on a £200,000 mortgage over 25 years). Not only that, but our latest figures also show that product numbers have increased across the mortgage market.
Rachel pointed out that first-time buyers in particular have seen a welcome rise in the number of available products, as "there were only around 80 products available to borrowers with a 5% deposit 10 years ago, but there are now over 300." She explained that "Government lending initiatives and competition have fuelled the market for these borrowers, with support such as the Help to Buy scheme allowing borrowers to get onto the property ladder more quickly."
"However, the scars remain for those who had to give up their homes for something more affordable," Rachel said. The mortgage market is also a lot more cautious, with lenders required to apply much stricter criteria when determining whether or not to accept an application. So, while borrowers can now enjoy much lower rates and have a bigger selection to choose from, they'll want to make extra certain their credit rating is in order before applying for a top mortgage deal.
"Savers have had to bear the brunt of the financial crash, with interest rates plummeting in the fallout," Rachel said. "Consumers who relied on their savings income would have seen the average return on an easy access account fall from 3.77% 10 years ago to just 0.76% a year later."
Today, the average easy access rate stands even lower, at 0.59%, so clearly last month's base rate rise hasn't done quite what many savers had hoped, with most easy access accounts still below the current base rate level of 0.75%. Even the top rate available today – 1.40% from Coventry BS – is a big disappointment when compared to the rate of 6.51% that savers could have gotten in September 2008, or even the 3.30% they could have had a year later.
With the crash now many years behind us, it's not the economic crisis itself that is to blame for the low savings rates of today, but rather factors such as the Government lending initiatives that were initiated in response to the crash. As the influence of these lending initiatives is due to come to an end soon and the Bank of England hasn't ruled out more base rate increases, savers may finally see some increases again – though the Bank of England's Mark Carney has warned that another crash could be coming if Brexit isn't a success.
"Thankfully, there has been a shake-up thanks to new banks entering the market, and these challenger banks are keen on attracting savers," Rachel concluded. "Therefore, savers will need to consider more unfamiliar brands to discover the top savings deals going, especially if they are looking to fix over the shorter term."
When it comes to mortgages, borrowers will still want to do their due diligence, despite rates now being lower than they were a decade ago, as the averages have increased compared to last year. So, anyone remortgaging or looking to move may want to take a look at the top mortgage deals.
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