Money Insider: Darling's ISA tax break gives you just 76p
Saturday 27 March 2010
There was little room for manoeuvre in the Chancellor's final Budget before the election, with cutting the £178bn deficit understandably his top priority. Savers may have been clinging to the hope he would look kindly on them as they struggle to find a half-decent return on bank or building society deposits.
While there was no pre-election giveaway, Mr Darling did introduce index-linking for tax-free savings, so from April 2011, the annual ISA allowance will increase in line with inflation.
But savers shouldn't get too excited by this move. Let's say, for example, that inflation settles at 2.5 per cent and the cash element of the ISA allowance increases from £5,100 to £5,227. There will be even more confusion as to exactly what the ISA limit is and, when it comes down to what you will actually receive, it is not exactly a life-changing sum.
If you were to put your additional £127.50 allowance into an ISA paying 3 per cent, you would earn an extra £3.83 in interest; in a normal savings account paying 3 per cent, you would receive a net return of £3.06. So the tax-free benefit for a full year would amount to 76p – hardly a vote-winner.
A way of giving savers a real break would have been to allow the full £10,200 limit to be used in a cash ISA, even if it was just an interim measure for a year or two until traditional savings returns begin to recover from their record lows.
Mortgage round-up: Competitive rates available for homebuyers with deposits
The doubling of the lower stamp duty threshold to £250,000 is a boost to the housing market, but you have to question why it wasn't introduced at the turn of the year when the temporary increase to £175,000 ended.
Not having to fork out a one-off tax payment of up to £2,500 will help those struggling to meet lenders' stringent deposit requirements. But in the scheme of things, it still will not be enough to help many would-be homebuyers when they are trying to amass between £20,000 and £35,000.
If you're fortunate enough to be able to raise the necessary deposit, or are looking to move home, the competitive mortgage market continues to throw up some attractive new deals. For those with a 15 per cent stake, Yorkshire Building Society this week cut its two-year fixed-rate mortgage by 0.7 per cent to 4.49 per cent, with a respectable fee of £495 and free valuation and legal fees.
The Post Office sliced a full 1 per cent off the price of its five-year, fixed-rate mortgage and is now a tough act to beat at 4.89 per cent, with a £999 fee available up to a generous 80 per cent loan to value.
If you have at least a 40 per cent deposit to put down, then ING Direct is offering a lifetime tracker mortgage priced at just 2.49 per cent (base plus 1.99 per cent) with a fee of £945. It also comes with the sweetener of free valuation and conveyancing service for remortgage customers.
Borrowers' struggles to find the required level of deposit have been one of the key factors holding the housing market back, and while the stamp duty extension is not going to open the floodgates, much like the wider economic recovery, it is another small step in the right direction.
Savers suffer from dip in price inflation
Aside from the Budget, there was little in the way of good news for savers this week, although a sharp dip in Consumer Price Index inflation, from 3.5 per cent to 3 per cent, means basic-rate taxpayers now have to find lower pre-tax savings rates of 3.75 per cent to protect the spending power of their cash.
This is still a struggle unless you opt for a fixed-rate bond or fixed-rate ISA. Let's hope the analysts have got their sums right and inflation soon returns to within its 2 per cent target.
On the products front, there was very little activity in the way of new accounts. It was, however, disappointing to see so many good deals being pulled during the last seven days.
We saw Saga withdraw its best buy – a five-year fixed-rate bond at 5.1 per cent; the hugely popular High 5 account from Investec was closed to new customers; the 4 per cent, two-year fixed bond from Coventry Building Society was also pulled; and Aldermore removed its competitive one-, two- and three-year fixed-rate ISAs from sale.
Andrew Hagger is a money analyst at Moneynet.co.uk
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
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