Bank bail-out: How it affects you

The government’s £37bn bank bail-out was completed today and, coupled with a recent interest rate drop by the Bank of England to 4.5%, both borrowers and savers are likely to see some changes which may affect their borrowing circumstances and their savings.

The bail-out is designed to protect banks from collapse whilst, at the same time, inject some life back into the financial markets after a difficult year so far.

But what does it mean for consumers across Britain, many of whom may be struggling with spiralling costs and increased debts? We give you a rough guide as to how the cash injection affects your circumstances.

I’m looking for a mortgage – does this help me?

As part of the conditions of bail-out, the banks are obliged to open up their lending, with the government asking mortgage lending to return to “2007 levels”. Whether that will go ahead, given that such lending practices arguably created many of the current problems, is questionable.

However, the drop in interest rates, surprisingly announced by the Bank of England on Wednesday, is likely to be passed down the borrowers which should mean cheaper loans for around 36% of borrowers.

Will mortgages be easier to get hold of?

Not necessarily. Inter-bank lending and consumer confidence in the financial markets is still low, meaning that many lenders are still wary about who they lend to and how much they lend. Many of the deals that were pulled earlier in the year, particularly those aimed at first-time or those with small deposits, buyers are unlikely to suddenly reappear on the back of this bail-out.

Will my other loans get cheaper thanks to the rate cut?

Most other debts, particularly personal loans, will be based on a fixed rate. These remain unaffected by the rate cut and your loan repayments will remain at the agreed rate.

What about savings? Does the rate cut mean a drop in my interest rate?

Ordinarily, a rate cut would be bad news for savers but it’s widely believed that, in the current climate, savers may not actually lose out.

With banks eager to attract new investment and savers, attractive deals are likely to remain – at least, for new customers anyway. Existing savers would be best advised to keep an eye on their rate to ensure that they are getting a good deal.