Rate cut 'a blow for older savers'
PENSIONERS who have paid their mortgages off and built up savings over their lifetime will suffer from the falling interest rates, it has been warned.
Householders may have heaved a sigh of relief as the 'Big Four' local banks pledged to pass on the Bank of England's one per cent cut, but it is the savers who are suffering once again after what one local economist described as "a reward for the feckless".
The cut brings interest rates to their lowest since 1951, and has been followed by predictions that it may have to fall further still – perhaps to zero per cent – in order to bring the economy around.
And whilst that is good news for borrowers, many of the Province's elderly people who are living off their nest eggs will be hardest hit.
Ulster Unionist councillor and advocate for older people's rights Bob Stoker last night made calls for all pensioners affected by the slash in interest rates to be sure to avail of all the benefits they were legally entitled to.
"Most pensioners have got their mortgages paid off and are actually at a disadvantage because they are not getting as much return on their money," he said.
"The difficulty is that a lot of them have put money aside for years to do them in their old age, such as those who wouldn't have had a pension.
"Now their savings are going to be drastically affected.
"I would call on people to make sure that pensioners take up all the benefits that are available to them.
"This is not charity – it's what they are entitled to."
He revealed that one of the advice centres in his constituency had been "snowed under" in terms of helping local elderly people make their claims, but stressed that there were "bound to be a lot more" such individuals who needed to come forward.
"The unfortunate thing is that a lot of people do see this as charity," he said.
The slash in interest rates means that households with a typical 150,000 mortgage will see their monthly repayments reduced by 85, while those with a 250,000 home loan could find themselves 142-a-month better off.
"As always there are winners and losers in any policy change and, as interest rates are driven down, it is helping those who have incurred enormous debts and indeed have perhaps been feckless," said Gordon Welsh of Belfast-based economic consultancy EPEC.
"The losers are those who have put money away for the rainy day and now find that, as interest rates dwindle, so does their income," he said, pointing out that a short-term loss might be worth enduring.
"It is something of a reward for the feckless but the big issue here is that it is, in fact, the savers who have money in the banks who do have most to gain from the preservation of the financial system."
However Angela McGowan, chief economist with Northern Bank, pointed out: "It should be noted that once inflation is taken into account the returns on savings will not be as negatively affected as might appear from this recent change. In other words, part of what is usually included in interest rates is a compensation for expected inflation.
Inflation is rapidly disappearing as a consideration.
"It should be remembered that the current significant cuts in interest rates are in response to a sudden increase in precautionary saving by households.
"The cut in interest rates are designed to encourage both households and investors to moderate precautionary savings and to increase expenditure."
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Weather for Belfast
Monday 28 May 2012
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