Your finances in the recession

Savings don´t just apply to people who are already enjoying low mortgages, but also for car buyers or people thinking about buying their first home with a tracker mortgage.

Cheaper mortgages

If you are buying a home with a tracker mortgage, where the interest rate is linked to the Bank of England bank rate, you can currently save thousands of pounds a year. The Council of Mortgage Lenders has estimated that from a total of 1.5 million trackers sold since April, 2005, over 930,000 are still in force, which will save lenders hundreds of pounds a month. The bank rate has been at the historically low level of 0.5% this year, which compares much more favourably to 2007, when the bank rate hit 5.75%.

If a borrower´s tracker deal has been pegged at 1% above bank rate, which would now be 1.5% overall, they will be paying much less than they were two years ago in capital and interest payments.

The view increasingly is that interest rates will stay low for longer, so people on trackers will continue to benefit. Most tracker deals come to an end after a few years, typically two, three or five, and then revert to the lender´s standard variable rate as the default option. With the Standard Variable Rate standing at just under 4%, borrowers may see a jump when their tracker rate expires, although some of the bigger lenders have offered loans where the follow-on rate is capped at no more than 2 or 3% above the prevailing bank rate.

Super savings rates

It is a general misconception that when mortgage borrowers benefit, savers suffer, but facts show that this is not true, particularly where savers have moved their money to accounts with the highest rates.

The key has been the gap between the rate on offer, and the current rate of inflation as measured by the retail prices index (RPI). In September last year when RPI was 5%, the average savings account, where notice was required before a withdrawal, offered just 3.6%, according to financial information services.
The savings situation is much better for those savers who have kept an eye on the savings accounts available, and who have moved their money to the highest paying accounts which don´t require any notice for withdrawals.

Although the best headline rates for high interest accounts have generally fallen to 3.3%, the plunge in the inflation rate means that savers are now getting a much better real return of 4.53% after inflation and tax.

Savings rates offered by banks have gone up to get more funding than ever for savers, and the market has become competitive and rates have become attractive as banks try to replace funds they can no longer borrow from wholesale financial markets. To achieve the best rates however, savers need to constantly move their money around and be aware of new accounts being offered from banks and building societies. If you want to make the most from your savings, check regularly with high street lenders what they can offer you – staying with the same bank for no other reason than you have been with them for years, can in effect lose you money in the long term.

Government help for car buyers

Car buyers have been directly subsidised by the Government, when, desperate to make it easier for the public to buy new cars, they introduced the ´scrappage scheme.´ This gave people with a car older than 10 years, a guaranteed trade-in value of at least £2,000, which was half funded by the car manufacturers and half funded by the Government.

Over 250,000 cars have been sold under the scheme, and the Government has added another £100 million for more people to take advantage of it. Most people who have used the scheme are aged between 40 and 60 and already have cash in the bank, and the biggest selling cars have been the small cars such as the Ford Fiesta.

The price of used cars has been pushed up as a result, however, and motorists looking for cheap run-arounds have been shocked at the price increases.

The scheme has proved perfect for people who hate haggling, and have felt much more comfortable walking into a dealership, knowing they will get a £2,000 discount off a new car.
The ´scrappage scheme´ cannot go on forever, but it is hoped that loans will be more accessible and that manufacturers and dealerships will come up with some deals of their own to keep people interested in new vehicles. whiplash injury claims

Salary deals

Talk of high finance, savings rates and new cars may seem quite insensitive to those people who have lost their jobs through redundancy or had their wages frozen or cut due to the recession.
However the recent slowdown in the rise in unemployment is expected to continue, which is partly because many employers saved money by freezing pay. Only a third of private sector firms had pay freezes and two-thirds have still had pay rises. There are only very few examples of companies actually cutting basic pay rates.
In extreme examples, where earnings have been cut, it has been mainly due to short-time working, with cuts in overtime. It is widely thought that if the UK is coming out of recession then pay rises should resume for workers. It is very unusual for workers to have two years of a pay freeze.