Where will it all end?

There is a lot going on in economic terms at the moment. Inflation data out today shows CPI down to 3.1%, which I guess is no surprise really - fuel prices have cooled off and it felt as though everything was discounted this Christmas.

The government has announced a whole new series of measures including asset protection schemes, an extension of the credit guarantee scheme, a Bank of England asset purchase scheme or "Toxic Bank" - where will it all end? What I do know is that at some time in the future it will all have to be paid for. Interest rates will have to go up and so will income tax.

So to Saffron's response to the latest base rate cut. Base rate has hit an unprecedented low, and partly for that reason, Saffron are not moving standard variable rate this time. The cost of borrowing has come down dramatically in recent months and we feel the current rate reflects appropriate pricing for risk, funding costs and our size as a relatively small lender. Our tracker loans on the whole will reduce, but I have concerns about the long-term effect of artificially cheap mortgage payments on the UK consumer.

Cynically one could argue that low rates in the US are what started the whole "credit crunch" in the first place. Back in 2004 US rates were at 1% and borrowers took out very cheap mortgages (including sub-prime) and by late 2006 with rates back up to 5.25% many could not afford to pay and the process of "jingle mail" (voluntary repossessions) started. The rest is well documented history.

I worry that the UK borrower could experience the same repayment shock when rates go back up to 5% or more - and they will; it is only a matter of time.

To prevent borrowers from being hit by unexpected high rates, Saffron have decided to offer some of our borrowers the brief opportunity to switch and fix at competitive rates. This gives real long term value for money and protection, as well as putting our members in control of their mortgage payments. Saffron are offering the product transfer with no fees, exit charges or other strings attached – making it easy is all part of doing right by our members, after all.

On our savings range, we have passed on no reduction to our 55 plus accounts and our Children's Ladybird account to do what we can to look after accounts which are more sensitive to interest. Saffron are also developing some new products for our loyal branch customers - watch this space....