This article is taken from Merryn Somerset Webb’s free weekly personal finance email, Money Sense. Click here to sign up now: Money Sense
A normally busy restaurant near me was half empty on Saturday evening. The same was true of a usually vibrant bar around the corner. What’s going on?
The answer is unfortunately simple – household budgets are now tight for most of us. The latest GfK NOP index of consumer confidence published this week read minus 19, which, to translate, means we have not felt worse about our personal financial prospects since February 1993. And no, I didn’t get the decade wrong – we really haven’t been this depressed for fifteen years. No wonder my local bar is struggling.
The causes? A tumbling housing market, where prices have fallen for five consecutive months according to Nationwide building society, plus rising mortgage rates, household bills and food prices. Added to these headaches it now seems that our jobs are under threat – the CBI confirmed this week that up to 11,000 could be lost in financial services alone whilst chief economic adviser, Ian McCafferty, opined that the credit crunch, “would remain serious for quite some time”.
So, what to do? Assuming I have not sent you running for a stiff drink already (don’t let me stop you mind), here is a selection of money-saving tips that won’t guarantee financial survival but should help you to save a few pounds. They are all straightforward so only apathy stands in the way of trimming back the cost of four essentials – your mortgage, your energy bills, your food and your car.
Keeping remortgage costs down
According to our regulator, the FSA, around 1.4m homeowners are due to remortgage this year, having struck a competitive deal on their interest rate anywhere between two and five years ago. The problem is that although the Bank of England are tipped to cut the base rate this year, and perhaps as soon as April, the rates at which cash-strapped banks and building societies are prepared to lend to us seem to be heading in the opposite direction.
Only last week for example, the Nationwide commented that things are getting difficult for mortgagees and then, rather unhelpfully, pulled its cheapest mortgage deal, as did the Cheltenham and Gloucester. Standard variable rates are now well over 7% – scary if you are used to paying more like 4.5% on a fixed rate deal.
So, if you are due to remortgage soon, it’s vital to shop around for competitive rates and get organised so you don’t delay the process and end up on your lender’s SVR by default. You can compare deals on sites such as moneyfacts.co.uk and moneysupermarket.com. First Direct, for example, offers a two year fixed offset deal at an attractive 4.95% but with an arrangement fee of £1,498, whilst the Co-op has a two year tracker pegged to the based rate plus 0.09% and a more modest fee of £999.
To ensure the application process runs as smoothly as possible, moneysupermarket.com offers some sensible advice; check you have a clean credit file using an agency such as Equifax or checkmyfile.co.uk, make sure mortgage payments arrive on time, be realistic about how much your house is worth and get an “agreement in principle” from your lender before applying.
One final thought – don’t simply sign up for the life assurance cover offered by your mortgage provider. As moneyfacts.co.uk points out, shopping around can reduce the premium by up to 30%. We chuck away £310m a year by not doing so.
Stepping beyond mortgages, consider double-checking the council-tax banding for your home. If your property’s banding has not been confirmed by an inspector recently you could well be overpaying. This is particularly relevant if the previous owner extended the home – The Times reports that adding an extension automatically pushes your home up a council tax band, “even if the extra space does not warrant” it. You can check your banding against your neighbours at voa.gov.uk (saa.gov.uk for Scotland). Do be aware that if you are reassessed for council tax, there is the chance that you could be pushed up to a higher banding.
Cutting household bills
Electricity and gas prices are a sizeable chunk of the average £230 added to a typical annual household bill this year according to the Telegraph’s Patrick Sawer. So, it’s more important than ever to do what you can to keep energy costs down. You can compare what you pay against other suppliers at uswitch.com although bear in mind that changing your supplier if the saving is only small does involve some legwork and may backfire if they subsequently hike their prices. You can also usually extract discounts by choosing the same company for both gas and electricity and also paying by direct debit.
Don’t forget that other money-saving energy trick by the way – turning stuff off when you don’t need it!
Reducing the food bill
If you’ve filled a shopping basket recently you’ll have been cursing food price inflation, which, according to the Scotsman, is now running as high as 11% if you live north of the border. If like me, you buy pretty much the same staples from one of the big supermarkets week in, week out, try comparing what you might pay at another supermarket using mySupermarket and consider switching.
If you already help the environment by using online delivery rather than hopping in the car, here are three simple tips; book ahead to reduce the delivery charge, always scroll down each product page to find the cheaper “own brand” items, and take up any offers (such as “two for one”) on stuff that won’t perish.
Cutting car costs
The typical family car owner spends around 50% more than a decade ago on running costs according to the AA. Obviously the smaller the car the better and not buying new ones saves a fortune in depreciation. But do you need one at all? Whilst I am not suggesting we can all easily hop on a bus, city dwellers in particular could ditch their money munching motors altogether and join a car club instead.
For example, the AA reckons the average cost of owning a car driven twice a week is £2,749 per year whereas Streetcar claim it can be done for £707 with them. You simply join, book a car, turn up and drive it and then get a bill based on the time of day chosen and miles driven. Try Car Clubs for your local club. Finally petrolprices.com can save you 7p or more per litre of fuel by identifying the cheapest garage within three miles of your postcode.
Happy bargain hunting!