The mortgage market continues to regain strength, with the number of available products climbing above 10,000 for the first time in five years.

The number of mortgage products rose to 10,262 last month, according to the Mortgage Advice Bureau (MAB) – the first time the figure has exceeded 10,000 since 2008.

The number has risen by a third since the Funding for Lending Scheme began last year, and has almost doubled since the summer of 2009.

The news tallies with new figures from the Council of Mortgage Lenders (CML) showing that mortgage lending in July reached its highest level since October 2008, at £16.6 billion.

Meanwhile, Halifax's recent Mortgage Affordability Review revealed that the cost of mortgages as a proportion of income had almost halved over the last six years.

Mortgage payments accounted for almost half of a new borrower’s income (48%) six years ago compared to just over a quarter now (27%), the review said, as mortgages reached their most affordable level for 14 years (read more).

Mortgage Market "Ripe for Picking"

Brian Murphy, the head of lending at the MAB, said that mortgage availability remained in the shadow of its peak in 2007.

"At one stage, there were around 60,000 products,” he said. "They fell off a cliff when the credit crunch really hit."

However, he maintains that conditions are ample for consumers to benefit.

"With over 10,000 products on offer for the first time since the financial crash, consumers were spoilt for choice in July," he said.

"Since the start of the Funding for Lending Scheme began rates have fallen by one percentage point across two, three and five year fixes.

"The market is certainly ripe for picking, with the best choice of products and deals for years. Investing time to weigh up the options can really pay off in the long term."

Keith McDonald
Which4U Editor

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Banks have been shutting branches in less affluent areas, a new report claims, leaving communities without easy access to their funds.

The University of Nottingham study found that banks and building societies closed over 40% of their branches between 1989 and 2012.

But inner city boroughs and manufacturing towns, especially areas of higher unemployment, saw much faster rates of closure, it said.

The British Bankers Association (BBA) defended the closures, saying that the migration of banking services to the internet meant that fewer branches were required.

It added that the rate of closures had fallen since the Millennium.

But several of Britain’s banks have earmarked further closures. The RBS Group is likely to add to the 60 branches it has closed this year, while the Co-operative Bank planned to axe 37 branches this year as part of a full merger with the Britannia brand which it acquired in 2009 (read more).

Santander has closed over 40 branches this year, though it plans to replace these by 2015. Three branches, in South Shields, Northallerton, and Saffron Walden, are scheduled to open within the next month.

The new current account switching system, which launches on 16th September, may influence how banks plan their branch-locating strategy in the medium term. (Find out more about the switching system here.)

Banks are closing branches and concentrating in wealthier areas, the University of Nottingham report claims. HSBC, RBS Group and Santander are among the banks to have closed branches this year.

Branches now "concentrated" in affluent areas

The study said that remaining branches had become concentrated in more affluent areas, including coastal, suburbs and small towns, while branch numbers relative to population in metropolitan areas had drastically reduced.

Dr Shaun French, co-author of the report, commented: "Although the closure of branches has slowed significantly, the alarming difference in the concentration of branches in certain areas appears to have grown.

"Branches in less affluent areas have continued to disappear at an alarming rate. This is causing a highly uneven geography of financial provision across the country and we are seeing less facilities in areas with high levels of unemployment."

Dr French warned that the lack of access to branches could force vulnerable people into the hands of payday lenders, which have been increasing their presence on the high street where banks have disappeared.

"This uneven spread of branches now needs to be addressed by the Government in order to prevent a further divide," he said.

Keith McDonald
Which4U Editor

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Savers who tucked their money away in a bonus-laden account before the consequences of the Funding for Lending Scheme struck now need to prepare their next move or see their nest eggs flounder.

The few institutions that offered 3% on their easy access accounts last year – notably ING Direct and Santander – supported these accounts with temporary 12-month bonus rates, which will soon (if they haven't already) revert to a ‘standard’ rate of 0.5% or lower.

And with the level of inflation currently at 2.8%, savers risk falling further behind the rising cost of living if the returns on their savings are allowed to fall to as little as £1 in every £1,000.

A 2012 table demonstrates how the rates on bonus accounts crumble. For more, see our guide on Savings and Bonus Rates.

Savings Vs. Inflation

Despite driving down mortgage costs to their cheapest level in 14 years, the Funding for Lending Scheme has been catastrophic for savers.

As banks now have access to cheap government funds, they no longer need to compete for retail deposits by offering competitive rates.

The average easy access account now offers less than 1%, making it extremely difficult for savers to keep pace with inflation.

Only Skipton Building Society’s seven-year fixed-rate bond, at 3.5% (2.8% net), and First Direct’s cash ISA, at 3% (min. £40,000), are currently able to match inflation. But both accounts have restrictive criteria, putting them outside the reach of the vast majority of ordinary savers.

Skipton BS is one institution currently matching inflation, but savers would not expect to see their funds until 2020.

Damage Limitation

Instead, it has become an exercise of damage limitation, with savers simply hoping to minimise the impact of inflation by seeking the best returns they can find.

And those with old and expiring bonus accounts could improve their returns by up to 18 times if they seek the best accounts on the market.

Mercifully, most of the best performing accounts are no longer dependent upon bonuses, so there will be no repeat of the collapse in a year's time.

Selected Leading Savings Accounts

*Reduced to 1.25% from September.

Current Account Alternatives?

The obvious alternative is current accounts. Nationwide's FlexDirect account, launched last year, offers a staggering 5% interest on balances up to £2,500.

The society's new packaged account, the FlexPlus, offers 3% on balances up to £2,500, while Santander's 123 current account also offers up to 3% (balances between £3,000 and £20,000) alongside cashback.

There is no restriction on access to funds. And the new £75 million bank account switching system, set to launch next month, will allow consumers to switch accounts effortlessly in just seven days (read more in our latest guide).

This could prove to be a haven for struggling savers, who may well regard current accounts as the next feasible destination for their nest eggs.

Keith McDonald
Which4U Editor

More like this:

• Nationwide to offer 5% on FlexDirect current account.
• Featuring Nationwide's new FlexPlus packaged current account.
• Santander 123 Current Account. Initial Review.
  

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Banks are hoping to tempt savers to commit to longer-term investments through improvements to their fixed-rate bonds. But is it enough?

Tesco Bank is one institution that has recently refreshed its fixed-rate bond range. An increase to its 3-year bond this week (up to 2.30%) is accompanied by new 1-year, 4-year and 5-year deals.

The 1-year bond, at 1.75%, remains some distance short of the best performers for this term, with Britannia (2.03%), the Post Office (1.99%) and Aldermore (1.85%) all offering more.

But the longer-term 4-year and 5-year deals have more impact, and enter as the most competitive rates for those terms in the market, at 2.65% and 2.95% respectively.

In the mid-term market, Aldermore has launched a new 3-year bond at 2.40%, which sits in the top five for its term, below ICICI (2.55%) and Vanquis (2.41%).

How the new offerings compare to the market leaders.

Tesco Bank offers market-leading bonds for long terms. But do they warrant locking funds away for up to five years?

Worth Locking Away Your Savings? Editor's Comment

It’s a constant nagging dilemma: how to squeeze every last drop out of your savings, as rates remain low and inflation remains stubbornly high. The fact remains that, after tax, even the returns from five-year bonds will struggle to keep pace with inflation if it remains comfortably above 2.5%.

So what are the alternatives? The top easy-access accounts are only offering 1.40% after tax – half the current rate of inflation – and many will question whether the extra few tenths on offer merit locking away access to their funds for a couple of years.

One obvious alternative is a tax-free ISA, at least 10 of which (easy access or short-notice) are currently offering 2.00% or above.

A fixed-rate bond would have to offer at least 2.50% to match this return after tax – and that means locking funds away for at least four years.

(For more on cash ISAs vs. fixed-rate bonds, see our savings guide here.)

If you want the extra security of a guaranteed rate, the two-year fixed-rate ISAs from Britannia and Halifax will return 2.25% and 2.10% respectively, and no tax will be deducted. As an added bonus, both of these also allow new customers to transfer in their existing ISAs. (Find out how to transfer your ISA here.)

If you’ve got a large volume of savings, you can’t really look much further than the First Direct cash ISA, which offers 3.00% tax-free on balances above £40,000.

The cash ISA from First Direct beats inflation - if you have £40,000 to transfer in.

The other alternative, as we reported yesterday, is current accounts.

Both Santander and Nationwide are offering interest-paying current accounts that surpass almost everything in the traditional savings account market.

Both Santander’s 123 current account and Nationwide’s FlexPlus account offer up to 3% interest, while Nationwide’s FlexDirect offers up to 5% for the first year on balances up to £2,500.

There’s the added convenience of not having to manage multiple accounts. And while switching bank accounts has always been seen as the biggest hindrance in personal finance, that should change altogether next month when a new seven-day switching system is launched (read more).

Bonds remain a solid (if not spectacular) option once an ISA allocation is used up, and they guarantee a fixed return while savings rates continue to disappoint.

But if you’re prepared to become more receptive to the idea of switching bank accounts more frequently, this could also benefit your savings for the foreseeable future.

James Booker and Keith McDonald

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Seven million credit card customers could receive compensation worth a total of £1.3 billion over mis-sold protection policies, the Financial Conduct Authority has announced.

CPP sold millions of credit card protection policies on behalf of banks, including the ‘Card Protection’ plan, which cost £30 per year, and the ‘Identity Protection’ plan, which cost £80 per year.

The firm was fined £10.5 million in November by the Financial Services Authority, who concluded that misleading information and scare tactics had been used to sell unnecessary policies to millions of customers.

The company was recently forced to arrange credit arrangements with some of the banks it represented (read more).

Now, it must begin sending out letters to these customers informing them of the compensation process.

13 banks and building societies, including Lloyds, Barclays, Santander, HSBC, and Nationwide, have all accepted responsibility for directing customers to CPP and will provide funds for compensation, which is expected to reach £1.3 billion in total.

Approval is required by the High Court before redress can proceed, which is likely to delay the first compensation payments until the Spring of 2014.

Tesco is among the 13 institutions that will issue compensations for referring credit card customers to CPP.

Facing Up to Responsibilities

Martin Wheatley, chief executive of the Financial Conduct Authority, said banks were demonstrating an ability to face up to their responsibilities.

"This kind of collaborative and responsible approach is a good example of how firms are taking more responsibility and helping - step by step - to rebuild trust," he said.

"We believe this will be a good outcome for customers who may have been mis-sold the card and identity protection policies. Subject to CPP's customers approving the scheme, these policy holders will be able to claim a full refund of premiums with interest.

"To try and ensure that as many people as possible hear about the arrangements and that nobody misses out on redress, CPP, the banks and the credit card issuers have agreed to pay for a series of adverts in the national newspapers."

Time for Banks to Trace Victims

The news will come as encouragement to consumers who have endured resistance from banks in their complaints about PPI mis-selling practices.

It was reported last month that Deloitte, one of the PPI complaint handlers for Lloyds Banking Group, had been caught dismissing customers’ complaints in an attempt to deter them from pursuing a claim.

The clamour has led a disgruntled public to demand that banks should be made to trace victims of PPI mis-selling, rather than waiting for them to make a claim.

(In our latest blog, claims expert Gary Verschuur offers advice on how to retrace old credit policies to see if you have been mis-sold insurance, and why you should feel confident about a claim.)

Keith McDonald
Which4U Editor

More like this:

• Credit card insurer CPP saved from collapse by banks.
• Banks facing further huge fines after CPP scandal.

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The younger generation will have to fend for themselves in the future, a new report suggests, as the elder generation becomes less concerned about passing on an inheritance to their offspring.

Over 70% of retirees are not anticipating leaving an inheritance for their offspring, according to the 25UP report, while almost half expect their remaining money to go towards care bills in their last years.

This may be difficult news for the following generations, as around a fifth of young and middle-aged folk have been banking on a sizeable inheritance in the future.

Younger generations counting on an inheritance windfall may be in for a shock, a new report suggests.

The report commissioned by Sanlam Private Investments identifies changing attitudes to money over three life stages: mid-20s, middle age, and post-retirement.

Despite benefiting from the post-war property boom and final salary pension schemes that subsequent generations are unlikely to experience, many pensioners have felt the weight of the recent recession.

Indeed, retirees expressed the most concern about their day-to-day survival (38%), as government cuts, falling annuities, and the rising cost of living all continue to bite.

And around three in ten said that they were choosing to help their offspring now, when help has been most urgently needed, rather than building an inheritance to leave behind in later years.

But many are finding themselves short as a result, with just half (48%) believing that they have enough to fund their retirement.

For others, though, it is a slightly different story. 30% of retirees – more than the twenty-somethings – said that having fun with their money was a major priority. 36% of respondents in their 70s confessed that they would be using their money to enjoy themselves.

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Ian Porter, Head of Wealth Management at Sanlam, discusses the findings for Which4U.

The upshot of this is that, for one reason or another, fewer people can expect a large windfall in the future after the death of their parents.

And this is likely to come as a shock to quite a few who remain trapped by the fiendish market conditions of modern life.

Around a third of people in rented accommodation said last month that they thought they would need a substantial windfall to have any chance of getting on the housing ladder (read more).

In an exclusive video for Which4U, Ian Porter, Head of Wealth Management at Sanlam Private Investments, said that parents were assisting their offspring earlier and had become mindful of their own needs.

"They’re saying 'Well, ok, we’ve given you that money now. We’ve given you a start in life. From this point onwards, it’s about us and what our needs are, and therefore if there’s anything left, you’ll get it, but we’re not necessarily going to plan for that to be the case.'"

He added that it was important for the younger generation to readjust their expectations and take responsibility for their own financial prospects.

"The knock-on effect for the younger generation is that they will continue to aspire to the standard of living and retirement that their parents have, but without maybe comprehending that this has come about as a result of final salary pension schemes, as a result of significant house price inflation during the 1970s, which has contributed to that building up of wealth," he said.

"That’s just not being repeated in the current economic circumstances that we find ourselves in. So they have to be a little bit more realistic about fending for themselves in the future."

Keith McDonald
Which4U Editor

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People rejected for products by their banks could be paying over the odds for alternative sources of credit as many remain unaware of the options beyond payday loans.

Almost a quarter of Brits who have applied for credit cards, personal loans, and mortgages have been turned away by their banks, according to a survey from Amigo Loans.

Almost half believe that a poor credit rating influenced the bank’s decision, while around a quarter are worried about their current credit score.

The survey also highlighted the lack of knowledge about alternative sources of credit. Almost three quarters (72%) of rejected applicants said that they knew they could turn to payday lenders.

Despite nineteen lenders leaving the market in recent weeks, they are still populating the high street while banks continue to close branches in metropolitan boroughs (read more).

But 19% remain unaware of options such as social lending or peer-to-peer loans. Not-for-profit credit unions, which offer loans at more affordable rates, are also expanding their operations following investment from the Government.

James Benamor, the chief executive officer of Amigo Loans, said: "The majority of Brits are only aware of payday lenders who offer loans at ridiculous rates, and these are likely to lead consumers into even more financial difficulty.

"If you need access to credit and are turned down by your bank, it’s vital to remember that there are other options out there and struggling Brits shouldn’t find themselves being forced down the payday route.”

The 'Mind the Credit Gap' survey by Aqua showed that residents in the East Midlands were most likely to be declined for credit due to a poor history.

Tips for improving your credit rating.

• Obtain a copy of your credit report, and raise a dispute about any mistakes.
• Ensure you’re on the electoral roll.
• Pay bills on time.
• Only apply for credit when it is needed.
• Avoid applying for more than one product at a time, and for more than four forms of credit in a year.
• A poor credit history credit card or credit loan can be used and repaid, which helps to restore credit trustworthiness.

Find more tips on our blog post: Struggles with Credit Applications.

Keith McDonald
Which4U Editor

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Halifax customers will soon be able to earn cashback through their current accounts, ahead of a new fast-track switching system due to launch in September.

Halifax's new Cashback Extras scheme will allow current account customers to earn between 5% and 15% on selected items at 16 high street brands including Argos, O2, and Morrisons, by using their debit or credit cards.

The new feature will see the Halifax account compete against Santander’s 123 current account, which offers three tiers of cashback as well as interest on credit balances.

The new scheme also responds to the RBS Group (inc. NatWest), which recently announced its own 1% cashback deal with 11 retailers including Cineworld, BP, and Tesco (read more).

Halifax is to compete with Santander and the RBS Group by offering cashback on current accounts.

Participating Retailers With Halifax (listed alphabetically)

• Argos
• Domino’s
• Glasses Direct
• Hertz
• Homebase
• Marriott
• Morrisons
• New Look
• O2
• Oasis
• Ocado
• Play.com
• Pets at Home
• Q-Park
• The Body Shop
• Urban Outfitters

Cashback Comparison

There will be no cap on how much cashback can be earned, and Halifax believes that customers could easily rack up over £100 per year. But the mechanics for customers appear to be more complicated than those of rival banks.

Firstly, offers will be restricted to what Halifax deems relevant to the account holder, which makes the offer distinct but potentially more frustrating for customers if the goods or services of their choice are excluded.

Customers must then log on to their internet banking account and activate the deal ahead of their shopping. Some retailers will require the customer to reactivate the offer on each occasion.

But the cashback percentage (5%-15%) is substantial, especially compared to the 1% being offered by RBS and NatWest. For the organised and technologically savvy, this offer, alongside the £100 switching incentive, could entice customers that are dissatisfied with their bank to switch once the seven-day switching system launches next month.

Find out more about the new fast-track switching system for current accounts.

Santander’s cashback offering, though lower than Halifax’s proposed offer (between 1% and 3%), covers most areas of essential spending, such as household bills, council tax, and grocery spending at supermarkets.

This means that customers are always likely to benefit in some way from the cashback offer, even during periods when customers are not indulging in non-essential spending. See a full review of the Santander account here.

It will be for consumers to decide which kind of account would suit them best, if cashback is an appealling feature.

But the emergence of more deals is further evidence that the new switching system is boosting competition in the current account market, and these new offers could yet improve if more retailers are prepared to join the new cashback frenzy.

Keith McDonald
Which4U Editor

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Barclays has pledged to help five million pensioners become internet savvy and save money on their household bills.

While over a third of over-65s now access the internet on a daily basis, an estimated 5.1 million are still missing out on exclusive online deals and the ability to compare between suppliers for similar products and services.

Research by Barclays found that 93% of regular internet users over 55 had saved money by doing their shopping online. 84% had found better financial products online, and almost two-thirds (62%) had found better rates on their savings accounts.

It suggested that older users could save £742 per year through the use of comparison websites, which is made more important by the revelation that retirees are particularly concerned about meeting the costs of day-to-day survival (read more).

'Digital Eagles'

In partnership with leading charity Age UK, Barclays will host five pilot workshops as it launches its ‘Digital Eagles’ programme. 3,500 branch staff across the country have been trained to support older customers in getting to grips with the internet.

The first workshop will take place this Friday in South Shields, Tyne & Wear, with more to follow in September.

Barclays 'Pingit' app, which the new 'Digital Eagles' programme will promote, features in our top 3 personal finance apps of 2012.

Programme director, Steven Roberts, said: "Given that the average pensioner's income is just £18,000, internet access can make a substantial contribution to the household budget.

"However, many older customers have told us they are nervous about using new technology.

"We want everyone, regardless of age, to reap some of the benefits of being online."

Michelle Mitchell, Director General at Age UK, said it was important to find ways to bring technology to the elder generation.

"There are still millions of older people, particularly aged 75 and over, who have never used the internet," she said.

"It is important that on-going training and support are available for the five million people aged 65 and over who have never been online, as well as for those who are online but who may need additional help to undertake certain activities."

Pilot Workshops: Locations & Dates

Keith McDonald
Which4U Editor

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The market for mortgages can seem daunting to the first-time buyer. Improvements in the availability and affordability of mortgages over the past year have added far more choice to the table. So, what are the important things to consider when you are looking for your first mortgage?

• How Much Do I Need? LTV & Deposits.
• How Much Will it Cost? Interest & Fees.
• Which Mortgage Type Suits Me Best?
• What Help is Available?

How Much Do I Need? LTV & Deposits

The days of easily-achievable 100% mortgages may be behind us for now, but there’s no harm in a system that ensures you can afford the loan you are applying for. (See our calculator: how much can I borrow?) To establish which mortgage product you may be looking for, a useful first step is calculating the loan-to-value (LTV) that you are eligible for.

LTV

LTV represents the size of the loan relative to the value of the property. So, if you have a deposit of £20,000 on a property worth £200,000 (10%), you will need to borrow the remaining £180,000, which constitutes a minimum LTV of 90%. It's likely that you'll need to factor in stamp duty as well.

You can find a list of the best 90% and 95% LTV mortgages on our dedicated pages, along with tables that help you to determine how much you will need to borrow for different property values.

How Much Will It Cost? Interest & Fees

Typically, first-time buyers will require a high loan-to-value mortgage when they enter the market for the first time. It’s been well documented how high private sector rental costs have made it difficult for prospective buyers to accumulate a deposit. In August 2013, the Council of Mortgage Lenders revealed that the typical first-time buyer in London needs a deposit of over £64,000.

Unfortunately, higher loan-to-value mortgages tend to be more expensive because of the greater risk for the lender. And lenders are proving stricter about the income you need to service this loan each month. But several are willing to help out in other ways for new buyers, such as offering free valuations and arrangement fees.

The larger the deposit you are able to build as a percentage of the property value, the greater choice of mortgages you will find. The greater competition for lower risk loans inevitably means better rates for customers.

It is also worth taking into account the standard variable rate (SVR), to which mortgage products revert once the introductory period (typically two to five years) has elapsed.

This can go down as well as up. After five years of payments, you pose less risk to a lender, which gives them an incentive to retain your custom. The SVR becomes significant if you are not planning to remortgage the property and switch lender after the intro period has passed.

Fees

The majority of lenders charge a mortgage ‘arrangement’ or ‘administration’ fee, which can reach thousands of pounds.

Mercifully, fees tend to be much lower for first-time buyers, and are sometimes waived altogether. Some lenders may offer concessions for mortgage customers that have a current account with them.

Fees are important because they can turn an attractive interest rate into a less competitive deal depending on the amount that you are borrowing (see our guide to mortgage arrangement fees for more details).

It’s also a good idea to check for an early redemption fee. If you decide to cancel a fixed-rate mortgage before the end of the term, there could be a hefty penalty charge.

Plenty to think about when planning your first mortgage. Image: Tesco Bank.

Which Mortgage Type Suits Me Best?

There are several types of mortgage available to first-time buyers. A fixed-rate mortgage typically fixes the interest rate for a period of between two and five years before adjusting to the standard variable rate.

The rate on a tracker mortgage is normally linked to the Bank of England base rate. The Bank does not expect this rate to change until at least 2016. However, since first-time buyers already pay higher interest rates on their loans, it is important to determine whether or not you could afford an increase if the base rate were to rise.

There are also a number of offset mortgages available for first-time buyers. If you’re able to build up your savings from disposable income, an offset mortgage will allow you to use these savings to reduce the proportion of the loan on which you pay interest.

This may be of interest to a first-time buyer because the amount of interest repayable on the mortgage is likely to far exceed the amount that could be generated through standard savings accounts. So, by offsetting these savings against the mortgage repayment, you could be making them work much harder for you.

What Help is Available?

From the Government?

The Government’s new Help to Buy Scheme aims to help first-time buyers by providing an equity loan worth 20% of the property value, thus reducing the risk for a lender. The loan is also interest free for five years.

My family wish to help.

There are a number of creatively designed mortgages – often known as intergenerational mortgages – that allow family to boost a new buyer’s equity stake without losing out themselves.

One example is Barclays’ ‘Springboard’ mortgage. Once the buyer has placed down a 5% deposit, the family then places 10% of the property value into a linked account, and receives 2% interest on that equity stake after a three-year term (see our review here).

Summary: The Essential First Steps to a First-Time Buyer Mortgage

• Calculate the loan-to-value you will need.
• Determine which mortgage type you think is best for your needs.
• Compare and contrast the mortgages available for those criteria.
• Factor in fees and other variables to help develop your shortlist.

Keith McDonald
Which4U Editor

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Mortgage lending by mutuals has reached its highest level in nearly four years, according to new data from the Building Societies' Association (BSA).

Building societies approved over £4 billion in mortgage loans in July, which represents a significant increase on the £2.8 billion approved in July last year.

And this bumper performance in July takes lending for the opening seven months of 2013 beyond £22 billion, almost a third higher than the £17 billion achieved in the equivalent seven month period in 2012.

Mortgage brokers have maintained that many of the best deals on the market have been offered by mutuals.

Our recent examination of mortgage arrangement fees found that the Yorkshire Building Society and Norwich & Peterborough Building Society had managed to undercut the lower interest rates from HSBC for all but the largest value home loans.

But HSBC is determined not to be outdone, and has pledged to reduce arrangement fees for those who hold a current account with the bank.

The timely offer coincides with the new bank account switching system, which is set to launch in a fortnight. The £750 million system will allow customers to switch between banks within seven days, with compensation guaranteed if anything goes wrong.

(Find out more in our guide: switching your current account from September 2013.)

Brian Morris, the head of savings policy at the BSA, said mutuals are still fighting their corner when it comes to mortgages.

"Mutuals are increasing their lending to the real economy, helping to boost economic activity in the UK," he said.

"First-time buyers, and in particular those with smaller deposits are being actively supported by mutuals.

"In the first seven months of the year over a quarter of lending by mutuals to first time buyers was to those with a deposit of ten per cent or less," he added.

"Mutuals continue to offer a range of competitive products, and currently around a third of products in the best buy tables are offered by mutuals."

James Booker
Which4U

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Savers looking for better rates on their deposits face a stiff challenge to achieve anywhere close to the rates they would have received a year ago.

Many who placed their cash into a bonus-laden account before the consequences of the Funding for Lending Scheme struck must now find a new home for their savings if they don’t want their nest eggs to flounder.

But that’s far easier said than done. New figures from the Bank of England have confirmed that average returns on certain types of savings accounts have fallen by at least half over the past year.

Last August, the average bonus-supported easy-access savings account offered 1.53%, as institutions such as ING Direct and Santander offered 3%. Today, the average easy-access account will offer just 0.76%.

Tax-free cash ISAs, which constitute one of the most efficient forms of saving, have taken an even more severe hammering. The average ISA offers just 0.61% today compared to 1.41% a year ago – a fall of 57% in twelve months.

The catastrophic effect on savings rates by the Funding for Lending Scheme (select image for full view).

A small insurgence in fixed-rate bonds over the last month has done little to halt the decline in savings. The average return on one-year and two-year bonds has still fallen by more than a third over the last twelve months.

Only Skipton Building Society’s seven-year fixed-rate bond, at 3.5% (2.8% net), and the cash ISA from First Direct, at 3% (min. £40,000), are able to match inflation (read more).

But restrictive criteria exclude the majority of savers from these products, and First Direct has finally decided to chop the top rate on its ISA from November.

With the Bank of England Governor Mark Carney determined to maintain low interest rates until the unemployment rate falls, signs look pretty desperate for savers for the foreseeable future.

Aldermore’s 30-Day Notice Accounts currently offer 1.75%, more than one full percentage point above the average returns in these product types. For more on these and other savings accounts, check out our dedicated page today.

Keith McDonald
Which4U Editor

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Offset mortgages are a useful option for people with savings or healthy current account balances. These mortgages allow you to 'offset' your balances against the value of your mortgage to reduce the portion of the loan on which interest is paid.

How Does an Offset Mortgage Work?

Example: you have a £150,000 mortgage and £15,000 in a linked savings account. The value of the savings reduces the portion of the loan on which interest is paid down to £135,000, rather than the full amount.

This means that more of your monthly repayments go towards paying off the loan rather than the interest charges. Consequently, with an offset mortgage you could save thousands of pounds over the course of the loan and repay it in full much earlier than a standard mortgage.

Similar Mortgage Types

Some offset mortgages allow you to link both a current account and a savings account. Therefore, offset mortgages can often be compared to current account mortgages, where the mortgage loan becomes akin to a giant overdraft. The key difference with offset mortgages is that they keep all accounts separate, allowing you to reap the full benefits of linked accounts.

There are also similar kinds of mortgages available for first-time buyers, where savings (often belonging to family) can be used as a form of bond to reduce the loan-to-value requirement.

Advantages of an Offset Mortgage

• Making Savings Work Harder

In taking out an offset mortgage, you sacrifice the interest that you would have gained from your savings to pay off your loan faster. But, because the interest charged on your mortgage loan will almost invariably be higher than the interest you would have gained from those savings, you’re making them work harder.

The detrimental effect that the Funding for Lending Scheme has had on savings accounts shows no signs of abating. By using savings to overpay on your mortgage, you could save far more in repayments than you would have gained in interest through standard savings accounts. And if you are keen to retain full access to your savings, an offset mortgage might prove the ideal solution.

• Tax Efficient

Offset mortgages can be a tax-efficient option. Since your savings are working to reduce the cost of your mortgage rather than earning interest in their own right, you will not have to hand anything over to the taxman.

• Flexibility

Offset mortgages are designed to be flexible to your needs. So, if you increase the value of your savings, the amount of the loan on which you pay interest will fall. But if you need access to your savings – in an emergency, for example – all that will happen is that the loan amount on which interest is paid will increase to reflect what is left in your account.

Your monthly payments themselves should not fluctuate; it is likely that they will be reviewed every year to reflect the higher equity stake you hold in your property and any major changes in the average value of your linked savings.

• Repayment Options

Offset mortgages tend to allow you to repay a lump sum off your balance without incurring a penalty charge (a standard mortgage might allow overpayment by 10% before charges apply). You might also get the option of a payment holiday if you are deemed to have overpaid over a set period.

Disadvantages of an Offset Mortgage

• More Costly

On account of the flexibility on offer – notably, your ability to shrink the interest component of your loan and repay it years earlier with few restrictions – offset mortgages tend to be more expensive.

Nevertheless, if you're able to maintain a healthy volume of savings, you’ll need a very competitive standard mortgage rate to match the effective rate you could achieve through the right offset mortgage.

• Minimum Balance

Some lenders set a recommended minimum average savings balance because of the higher average cost of an offset mortgage over standard mortgages. It's not such a bad target, however, as it improves the loan conditions for the borrower as well as reducing the risk for the lender.

Summary

Great for Savers:

For diligent savers and those with healthy current account balances, an offset mortgage could prove to be a very cost-effective option.

Efficient Use of Savings:

Offset mortgages are an efficient use of savings in the current climate. If homeowners are willing to sacrifice the poor returns available through savings accounts, in return, they will bypass the taxman, derive a higher effective rate by using their savings to reduce their mortgage costs and retain full access to their cash.

Expensive in the Short-Term. Worthwhile in the Long-Term?

Because of the flexibilities these mortgages offer, they tend to be more expensive. Homeowners must investigate whether their current balance and anticipated level of saving in the future will make this a viable option in the long term.

Keith McDonald
Which4U Editor

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The Leeds Building Society has offered savers a beacon of hope by launching a new inflation-busting cash ISA.

The society’s new five year fixed-rate bond and five year cash ISA products both offer 3%. What’s the difference? See our guide on fixed-rate bonds vs. cash ISAs.

ISAs are among the products that have suffered the most since the launch of the Funding for Lending Scheme a year ago, according to recent Bank of England figures.

The average ISA (without an introductory bonus) currently offers just 0.61%, which represents a huge 57% fall from the average rate twelve months ago (read more).

Leeds’ new 3% ISA enters the market far above the previous table-topping products in this sector. The five-year product also allows the inbound transfer of existing ISA funds, which is a bonus for savers who are looking for a suitable home for their nest-egg that is capable of keeping up with the rising cost of living.

Leeds Building Society has launched new five-year market-leading accounts offering 3%.

The launch follows the announcement by First Direct that the top rate on its cash ISA – the sole tax-free inflation-beating option in recent months – would be cut by a whole percentage point in November.

And with the Bank of England suggesting that interest rates are unlikely to rise for another three years, there appears to be less for savers to lose by locking their old ISA funds into the Leeds account, despite frequent warnings by experts not to fix for long periods.

In fact, Leeds has addressed these concerns by offering savers some flexibility for just a small sacrifice in interest.

A separate version of the two products, each returning 2.75%, allows a customer to withdraw up to a quarter of their funds at any time during the product lifespan.

Another plus is that the ISA allows inbound transfers without limit. The downside, however, is that it does not allow additions in subsequent years.

Nevertheless, simply owning this ISA does not stop savers investing into a different ISA in forthcoming tax years. (See our guide to Transferring Cash ISAs for more details.)

Kim Rebecchi, the sales and marketing director at Leeds Building Society, said the launch had been timed to coincide with the large volume of deposits in fixed-rate products that were due to mature this autumn.

"Whilst the traditional ISA season is in March and April each year, around the tax-year end, our research showed us that circa £7.4 billion of fixed rate ISA balances mature in Q4 2013," she said.

"It also highlighted that a further £26.7 billion of non-ISA bonds are maturing during the same period, which means that many savers will now be looking to maximise their returns.

"That is why we have launched these market leading products paying 3%, and 2.75% for those who require the peace of mind of access to some of their funds without notice or penalty."

Keith McDonald
Which4U Editor

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The number of first-time buyers making their first step onto the housing ladder has soared to a six-year high, according to a recent report.

The First-Time Buyer Monitor from LSL Property Services found that 26,100 homes were sold to new buyers in July – an increase of 45% on last year, and the highest level since the autumn of 2007.

The number of valuations carried out for first-time buyers has also rocketed this summer, according to Connells.

The firm’s valuation survey reported a 40% increase in the number of valuations in August from the same month last year and said that the monthly increase in activity 2013 was breaking the mould of the past five years.

The news provides further evidence that the government lending schemes designed to spur the housing market have had the desired effect.

Mortgages have fallen to their most affordable level in a generation, and now account for just a quarter of a new borrower’s income, according to the Halifax Building Society (read more).

This improvement in affordability has opened the door to thousands of potential buyers who had previously found themselves shut out of the market, according to LSL Director, David Newnes.

"Economic confidence is returning, nudging many more buyers in the direction of property, and nudging lenders to offer more loans to buyers with smaller deposits," he said.

First-time buyer activity has shot upwards thanks to cheaper mortgages, says LSL Property Services.

Prices Rising

The upshot of rising demand, however, is a worrying rate of house price inflation. The LSL Monitor found that the average price for a first-time buyer property had risen to £146,726, which is 6% higher than the average price in 2013, and 8% higher than July last year.

This is supported by the Halifax’s latest house price survey, which found that house prices had risen by 5.4% in the August quarter compared to the same period last year.

Mr Newnes warned that there was a “desperate need” for more affordable housing to match the rise in demand created by cheaper mortgages.

"If supply fails to keep pace with demand the housing market will become increasingly unsustainable," he said.

"Prices will rise sharply, and future first-time buyers will be left in the lurch."

Are you a first time buyer? Check out our new guide, 'First Time Buyers: Where to Begin', and our latest blog article, 'Ways to Improve Your Chances of Getting a Mortgage'.

Keith McDonald
Which4U Editor

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As the last decade has shown, the market for mortgages can change quite radically. So, the ability to arrange a new deal on your existing property has become increasingly important for current homeowners.

• Why remortgage your home?
• What to watch out for.
• How to get started.

Why might you remortgage your home?

• To find a better deal.

There are two major issues to consider here. Firstly, you should find that deals become cheaper as your loan-to-value requirement goes down, as you pose less risk to a lender. So, if your current mortgage was agreed at 90% LTV five years ago, for example, you might now be in a position to remortgage to a 75% LTV loan.

Secondly, mortgage rates are currently at their most affordable levels since the turn of the millenium. Rarely has there been a better time for homeowners to switch to a better deal.

• To free up cash.

If you wish to make improvements to your home rather than move, remortgaging your property could be a useful solution to free up the cash you need.

Arranging a new deal that moves you from a standard variable rate of 4.5%-5% to a new initial rate of 2.5% could free up hundreds of pounds every month.

• To consolidate debts.

People have occasionally used remortgaging as a means of consolidating all of their debts into one place. If you are able to secure a remortgage deal below the rate of an unsecured loan, it could in theory prove a cost-efficient option.

But you might also wish to consider a 0% balance transfer card for existing credit card debts. The best cards on the market will now give you upwards of two years to make inroads into your debts without interest.

• To change mortgage type.

Perhaps you've decided to change your mortgage type – from a tracker mortgage to a fixed-rate deal, for example?

The Bank of England’s recent announcement that the base rate is unlikely to change until 2016 should make conditions much smoother for variable rate mortgage customers in the years ahead.

But many homeowners are keen to take advantage of the low fixed-rate offers by signing up for a number of years, which takes away all uncertainty for that period.

There's rarely been a better time to secure a new deal on your mortgage.

What to watch out for.

• Arrangement fees.

The right remortgage deal could save you hundreds of pounds per month on your mortgage repayments. But it’s vital to consider the arrangement fee, which could run into thousands of pounds. Alongside legal fees and completion fees, this could turn an enticing rate into an uncompetitive one.

Striking the balance between the mortgage rate and arrangement fee to achieve the best deal all depends on the size of your loan. See our guide to mortgage arrangement fees for an example.

• Meeting the lender’s criteria.

You will remain restricted to products that reflect your current loan-to-value at the point of application.

Some offers may also require you to become a full banking customer with the lender (though some may offer additional discount or cashback in return).

With the new fast-track switching system set to launch in September 2013, might you consider this option for a better mortgage rate?

• Are there any penalties?

If you are currently stuck in a mortgage with a large redemption (or exit) penalty, it may not be worth pursuing a remortgage deal until this has expired.

Equally, be wary of terms such as these when examining potential new remortgage options.

• Not a debt solution.

Be wary of considering a remortgage deal if you are in trouble with managing your debts. Heaping more pressure onto your home loan might only increase the chances of you losing your home if you are struggling to meet your repayments.

How to get started:

1. Find out from your current lender the value of your outstanding balance and any exit fees that you might be viable for. You might even be able to negotiate better terms with your current lender. As your loan-to-value reduces, you become a lower-risk prospect, and your bank might be keen to retain your custom.

 

2. Find the best new remortgage deals for your needs. Once you know your new loan-to-value requirement, you can begin searching remortgage comparison tables. Using the remaining value of your loan, you can weigh up the rate and arrangement fees to find the most cost-efficient option for your requirements.

 

3. When you’re settled on the right product, get applying online!

Following an application, the usual checks will take place. A new lender will need to receive your credentials and the necessary documentation from the current lender. The remortgage transfer should reach completion within around four weeks of your application.

Keith McDonald
Which4U Editor

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TSB bank has reappeared on the high street today, after a third of Lloyds branches were rebranded over the weekend.

The bank, which merged with Lloyds in the 1990s, has been relaunched as a standalone entity following a decree by the European Commission that required Lloyds to sell off branches following its Government bailout.

Around a third of the branches owned by Lloyds Banking Group, including all Cheltenham and Gloucester and Lloyds TSB Scotland branches, have now been switched to the new standalone brand, along with 4.5 million customers.

Lloyds boss Antonio Horta-Osorio has promised customers a 'seamless' transition between the two banks. Account numbers and sort codes will remain the same, while existing Lloyds bank cards will remain active while they are replaced by new TSB-branded cards.

TSB bank has its own registration with the Financial Services Compensation Scheme, which means that deposits up to the value of £85,000 per person are insured. (Find out more about the FSCS).

TSB Bank relaunched on the high street today as the eighth largest high-street bank.

Competition

Its 631 branches and 8,000 staff will see TSB reappear as the eighth largest bank on the UK high street. It remains part of Lloyds Group for now, but will be sold off next year as part of Project Verde.

A deal with the Co-operative Bank to sell the branches fell through in April, before concerns were raised about the Co-op’s capital position.

Lloyds was ordered to sell off the branches to improve competition in the banking sector. The five largest UK banks control five in every six current accounts, which emphasises their dominance over smaller challengers.

631 branches now form the standalone TSB bank after Lloyds were unable to sell off the branches in time.

Critics have suggested that the new TSB bank will add little competition to the market because its products are likely to be very similar or identical to Lloyds’ existing portfolio.

But a new £750 million system due to launch next week will make it much easier to switch bank accounts, which is expected to spark competition in the market. (See our guide on the new Switching System.)

Already, banks including Halifax and the RBS Group have begun promoting cashback current accounts in a bid to attract new customers.

And a number of existing Lloyds customers have embraced the idea of a clean slate, with around 1,000 having already applied to be transferred across to the new TSB.

Keith McDonald
Which4U Editor

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Around a third of Lloyds' branches were rebranded to TSB over the weekend, with 4.5 million customers transferred to the new bank. Why did the change occur, and what can customers expect?

Why has this happened?

Lloyds has been forced to offload 631 branches as part of a directive by the European Commission. A deal with the Co-operative Bank to buy the branches collapsed earlier this year, so TSB has been launched as a standalone bank while the search for a new buyer continues.

The new bank includes all customers of Cheltenham & Gloucester and Lloyds Scotland. Around 3.5 million customers in England and Wales were informed some months ago that their accounts would be changing.

While some customers have expressed their disappointment at being transferred, others have embraced the clean slate and have already enquired about a transfer to the new TSB.

Fundamental changes: None

Though Lloyds boss Antonio Horta-Osorio promised a ‘seamless’ transition, the bank did not get off to the perfect start. Internet banking troubles on the first morning have left customers concerned that there could be teething problems with the advent of the new bank.

But customers will see little fundamental change in their banking activity. The change for customers is effectively a rebrand rather than anything more structural.

Bank account numbers and sort codes will remain the same. Existing bank cards, mortgages, overdrafts, and credit facilities will continue as normal.

The biggest change for customers on the surface is that they will receive new cards featuring the TSB brand. Online banking will be carried out through the new TSB site, and a new mobile app is due for release in the coming days.

TSB: More a rebrand than fundamental changes. Customers' details will remain the same.

Future changes: Possible

Critics are sceptical about the fashioning of TSB as a ‘new bank’, arguing that it will simply mirror Lloyds and offer little to the market in terms of competition.

It seems likely that rates will remain synchronised with Lloyds, at least during the bank’s infancy, to avoid provoking unrest from customers.

But the future is more difficult to predict. TSB must still be sold on, and the new bank may be given more autonomy to compete if Lloyds wants an extension from the Commission that will allow it to float TSB on the stock market next year.

TSB: Same or Different?

The Lloyds boss, Antonio Horta-Osorio, has promised a ‘clean’ bank in TSB.

Lloyds has been embroiled in scandal over recent years, including a high volume of PPI-related complaints and revelations about the bank’s controversial ‘salespoint’ system.

And critics are already refuting Lloyds’ claims of 'cleanliness', accusing the bank of mistreating customers by transferring them to a new bank without their consent.

New TSB customers who wish to remain with Lloyds will now have to transfer their current account (though from next week, this becomes a much easier process).

Equally, though, there are many who seem unperturbed by the switch and attracted to the clean slate. Around 1,000 customers have enquired about switching to the new bank.

The acid test is how long this great cleanliness lasts. But the switch certainly shouldn’t sully things any further.

Keith McDonald
Which4U Editor

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The City regulator is to investigate the culture of 'bonus rates' on savings accounts as it continues its review into consumer finance products.

The Financial Conduct Authority (FCA) said it was planning to investigate the market for savings accounts and would take particular interest in the effects of introductory bonus rates.

Banks and building societies often use headline ‘bonus’ rates to entice customers towards their savings accounts.

These typically last for just twelve months before falling overnight. Customers are left to transfer their savings to avoid poor returns – if they are even aware of the fall in rates.

Which4U's 2012 chart highlighting the effect of bonus rates on interest returns. See our guide for more details.

The FCA said it was planning to correlate the culture of bonus rates with how often savers change accounts to determine whether the current system could provide a good deal for consumers.

"We will be undertaking a programme of work and research that will enable us to have a better understanding of how the markets are working and the dynamics that drive both them and the decisions that consumers make," chief executive Martin Wheatley explained.

"In looking at cash savings, we will examine an area that affects most people and see if there is action we need to take."

The regulator threatened to investigate the sector back in April, when Mr Wheatley accused banks of taking advantage of ‘customer inertia’ (read more).

"This is exactly the sort of area I want the FCA to be operating in," he continued.

"We know that switching rates are low for financial services products and savings accounts are no exception.

"Even when people do switch their accounts, they are twice as likely to go with their existing provider as move to the offering of a competitor."

Recent moves in the savings market include a new 3% ISA from Leeds Building Society, which is one of very few inflation-topping accounts on the market.

However, around 300,000 savers with National Savings & Investments are to receive a blow this week, when Direct ISA rates fall from 2.25% to 1.75% on Thursday.

Keith McDonald
Which4U Editor

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Landlords are taking advantage of low mortgage rates to expand their portfolios and are reaping the rewards, according to new figures.

Lending to landlords has surged again, according to the Bank of England, as overall mortgage lending grew by 23% in the second quarter – the fastest rate since the Bank’s index began in 2007.

And rental accommodation continues to be a potential goldmine for property investors, with average monthly rents continuing to rise.

The average rent rose to its highest level in two years during August – £867 per month – according to Countrywide’s Monthly Lettings Index.

Landlords achieved yields above 6% in the North of England, in the Midlands, and in Wales, the index showed.

Demand Exceeding Supply

The Government’s intervention to support the housing market has raised concerns that demand is exceeding supply, which is pushing house prices upwards.

The latest surge in buy-to-let lending is raising concerns that equivalent conditions will tighten the private rental market in prime areas.

With demand continuing to outstrip supply for family properties, tenants are under pressure to land the right property, said Nick Dunning, director at Countrywide.

"Currently there is a particular lack of family-sized properties available to rent, especially in the South of England," he said.

"With 4-5 tenants vying for every property, tenants need to act quickly."

James Booker
Which4U

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