Savers and the 0.5% Base Rate

What should savers do now that Bank Base Rate has hit another all time low?

If I were cash rich I would be looking to make some buy to let investments. In my local area yields over 6% are possible again while currently the best savings rates are around 3.5%.

Obviously those with debts would be much better paying these off than saving. Similarly now would be a very good time to be making overpayments on your mortgage or depositing in your offset account.

With sensible negotiation a cash buyer should be able to purchase a property at a price towards the bottom of the market. This should also give a good opportunity for long term capital growth.

So those with significant chunks of capital should be celebrating and buying property and not whinging about low interest rates. As always during economic crisis there is good money to be made by those with liquid cash. So savers, stop moping and start making that money work hard for you.

It looks like some people have already realised this.

Over the weekend a couple of local estate agents have reported having sold 7 properties already this month.
I also spotted this just as I was about to click post.

However, the diminshing returns savers are experiencing may inadvertently help the property market as those with savings look for an alternative to cash in the bank. One of the options that is increasingly being explored, is purchasing property as a buy to let investment in order to generate an income.

From: Will interest rates reache zero percent?

Gordon Brown and Prudence

... Mr Brown said the Financial Services Authority would be considering controls on mortgages of more than 100% of a home's value, and so-called high multiple mortgages offering loans of up to six times an applicant's salary.

From: http://http//news.bbc.co.uk/1/hi/uk/7904621.stm

So 100% loans are bad

Chancellor Alistair Darling also suggested that some mortgages would be lent at up to 90% of the value of the property being bought.

From: http://news.bbc.co.uk/1/hi/business/7904748.stm

But 90% loans are good. It's all fairly straight forward isn't it? That 10% obviously makes all the difference.

Hang on, lets just think about this.

100% LTV in 2006. In the year 2006-2007 average property prices rose 17% so lets take the hypothetical £100,000 house...

2006: mortgage balance £100,000, property value £100,000
2007: mortgage balance £100,000, property value £117,000

Loan to value: 85.4% - According to Gordon Brown, this is not prudent

90% LTV in 2009. In the last year property prices have fallen 17% (http://news.bbc.co.uk/1/hi/business/7911735.stm) and Mr Darling is urging banks to lend to 90%.

2009: mortgage balance £90,000, property value £100,000
2010: mortgage balance £90,000, property value £83,000

Loan to value: 108.4% - Is this prudent?

Now I really hope we don't see another 17% fall in property prices over the next year, but I think this illustrates my point. For the Government to suggest that lending 100% in the good times was not prudent but lending 90% in the current climate is suggesting Gordon Brown is either:

1. Stupid and has very bad advisers
2. Only made these comments for spin

Personally I don't believe point one for a second.