Time to road test finances
AS the UK faces its deepest recession in history, everybody needs to give their personal finances an MOT to prepare for the difficult times that lie ahead.
While the Government furlough scheme has helped maintain incomes during the pandemic, life could get bumpy after the bailout draws to a close in October.
Experts warn that we may be living in a phoney recession, but the real thing could soon be upon us.
Damien Fahy, founder of personal finance website MoneyToTheMasses. com, said now is a good time to check whether your finances are roadworthy: “Too many people do not check their spending regularly enough, and throw money away.”
The site has just launched a free online MOT, allowing people to check outgoings and switch if necessary.
Its research shows that one in four have failed to review their gas and electricity bills, while one in three have not reviewed their phone, broadband, digital TV contract and home insurance, and half have not reviewed their credit card.
Neil Penny, 37, a learning and development consultant who lives in London, banked an instant saving of £150 by reviewing his home contents insurance: “We had been with the same insurer for four years, and had also overestimated the value of our possessions.”
He is keen to save much bigger sums and is now reviewing the rest of his bills.
Almost half have not reviewed their mortgage despite some great deals being on offer, particularly for homeowners with spare equity.
Miles Robinson, head of mortgages at online broker Trussle, said millions overpay on their lender’s standard variable rate (SVR): “The difference between a market-leading deal and the average SVR can cost the average homeowner around £4,500 a year.”
Santander’s SVR for mortgage deals taken before January 23, 2018, is 4.34 per cent, against the Bank of England base rate of just 0.1 per cent.
This would cost somebody with a £150,000 mortgage over a standard 25-year term £820 a month in capital and interest. If they remortgaged to a two-year fix from Lloyds Bank charging 1.32 per cent, that would drop to £587, saving £233 a month.
The saving would be £4,593 over the two-year term, even after taking off Lloyds’ initial product fee of £999.
Another way to recession-proof your finances is to build a pot of rainy day cash.A quarter of us do not have enough savings to last a month if we suddenly lost our income, according to research from Standard Life.
Head of customer communications Laura Laidlaw said to prioritise debt repayments and make sure they are paid on time: “Pay down the most expensive if you can, such as credit cards.”
Then draw up a monthly spending plan: “Budget for how much you need to live on, and where you might cut.”
Set up a direct debit to squirrel any surplus money away into a savings account or tax-free Isa, Laidlaw said.
You can get free advice from Citizens Advice, debt charity StepChange or online resources such as The Money Advice Service.