Bank failures are extremely rare, savers might want to bear in mind that the Government will only underwrite the first £35,000 of your savings in any

Halifax said house prices had fallen by more than 6 per cent during the last year, having fallen 2 per cent in the last month. The average property now costs around £180,000. Mortgage rates have already hit their highest level for eight years, according to the Bank of England. The average rate on a two-year fixed rate mortgage has risen from 6.26 per cent to 6.63 per cent.
The pain is set to continue as lenders tighten their lending criteria. For example, Alliance & Leicester still allows homeowners to opt for a term of 40 years on their mortgages but affordability will be calculated as if you were paying it back over 25 years. Ray Boulger of mortgage brokers John Charcol, said: "Today's Monetary Policy Committee (M per cent ) decision to keep the bank rate unchanged at 5 per cent was widely expected. With increasingly bad economic news almost daily from most sectors of the UK economy a rate cut is badly needed to help restore some confidence but the expectation of further increases the inflation is a major constraint on the MPC.
"However, the dire economic news probably means that the MPC is no longer seriously considering increasing bank rate and so the main question is how long will we have to wait for the next cut. The MPC will be watching the price of oil and other commodities very closely." Jonathan Cornell, of mortgage brokers Hamptons Mortgages, said the Bank of England had been under tremendous pressure from two sides. "On one side inflation at 3.3 per cent is significantly above the bank's 2 per cent target and the Governor had to write an explanation letter to the Chancellor on June 16," he said."On the other side, a chronic lack of mortgage funding has led to house prices falling month on month. The majority of the inflationary pressure is linked to the rising price of oil, the price of other energy and food." Richard Cotton, senior partner at estate agents Cluttons, said: "The bank's decision to maintain rates suggests that it is continuing its laissez-faire attitude of the last two months, and failing to take positive action to deal with the current downturn in the property market and the wider economy. "The property industry needs to hear a positive message from the bank, that it understands the difficulties in the industry and is doing something about it. "Maintaining rates at 5 per cent will not give consumers any confidence in the bank's ability to manage this crisis, which will result in a worsening of current conditions in the property market and wider economy." But savers should be able to benefit with rates at a seven-year high as high street banks which are struggling to raise funds on the money markets try to attract large inflows of cash. As a rule, the highest paying accounts are run online as banks without high street branches have fewer overheads. Those customers who can afford to lock up their money for the minimum of a year will also receive preferential rates. Savers should be aware however that while bank failures are extremely rare, savers might want to bear in mind that the Government will only underwrite the first £35,000 of your savings in any one bank. This limit often applies to all the different brands operated by one bank.