New figures reveal how the Government's Funding for Lending Scheme (FLS) has condemned savers by redistributing the returns into low-risk mortgage and re-mortgage products.
Launched a year ago to boost lending to households and businesses, the £80 billion scheme has precipitated a slump in savings accounts and the returns they offer, with banks and building societies no longer needing to compete for retail deposits.
Moneyfacts Group has revealed that the number of easy access savings accounts has fallen from 470 a year ago to just 364 today, while the average return on these accounts has tumbled from 1.08% to just 0.67% – over two full percentage points below the rate of inflation.
The low-cost funds that have been made available to banks under the Funding for Lending Scheme have prompted an increase in the number of mortgage products available.
But lower equity low-risk options have been given much the greater priority, while a leap in 'booking' or 'arrangement' fees has allowed institutions to cream off additional margins from those looking to re-mortgage at lower rates.
According to Moneyfacts, the number of 60% loan-to-value deals available on the market has increased by almost 30%, from 472 to 606, over the scheme's twelve-month lifespan.
Customers with deposits of at least 10%, on the other hand, still have only around half this number of deals available, despite a rise in products from 259 to 370 over the same period.
But Adrian Anderson, of mortgage broker Anderson Harris, said that a shift in bias had started to help first-time buyers.
"At the beginning from what we could see most of the FLS money was quite concentrated on mortgages at lower loan-to-values, but the people who are benefiting now are first-time buyers and others who are borrowing at a high LTV," he said.
Economists believe that the scheme has aided a recovery in the housing market, though not to businesses, while there is also concern at how the market reconciles when the scheme ends in 2015.
Howard Archer, chief UK economist at IHS Global Insight, said the scheme had been "a significant factor in improved housing market activity."
"It has helped to bring down bank funding costs, thereby underpinning a drop in some mortgage rates and lending rates to households and some businesses," he added.
Keith McDonald
Which4U Editor
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