Money Insider: Short-sighted plans from Liberal Democrats to scrap child trust funds
Saturday 01 May 2010
Whilst the most pressing issue for the Government in power come 7 May will be to set about reducing the budget deficit, at the same time, it should not lose sight of the importance of encouraging the savings habit in the UK.
The three main political parties each have a different view on child trust funds (CTFs), with Labour looking to carry on with the scheme as is, the Liberal Democrats wielding the axe and the Conservatives maintaining the funding for the poorest third of families and those with disabled children only.
The scheme designed to kick-start the savings habit in this country was introduced five years ago, and it is anticipated that five million children will have benefited from the CTF by the time we reach the middle of this year.
Whilst there is an upfront cost to the Government of £250 (up to £500 for low-income families) at birth and a further £250 on the child's seventh birthday, recent statistics reveal that additional contributions of £14.4m are being made on over 640,000 CTF accounts every month (average £22.50 per month).
By saving just £22.50 per month on top of the two £250 payments from the state, a CTF with growth at a modest 4 per cent would be worth £7,964.70 by the time a child reaches 18 years of age.
Just imagine if the CTF had been introduced in 1992, those with a CTF maturing this year would be able to use their lump sum to offset the rising cost of higher education or even put it towards that now seemingly impossible deposit required for their first home.
So whilst the CTF scheme may still be in its infancy the political parties shouldn't lose sight of the fact that from 1 September 2020, when the first CTFs mature, there will be a constant stream of 18-year-olds entering adult life on a much sounder financial footing than previous generations – does it really make economic sense to wipe that out?
I'm concerned that the Liberal Democrat plans are shortsighted and will remove the incentive to save, and even if they give the money back to the electorate via different measures, the funds are far less likely to end up in a child's savings account.
More flexibility for borrowers with new split loan mortgage from HSBC
the council of Mortgage Lenders reported that mortgage lending jumped to £11.5bn in March, although the total lending for the first quarter of this year is still well down on the last three months of 2009.
With experts divided on when and how quickly interest rates may eventually start to rise, HSBC has thrown a new option into the ring for mortgage borrowers to consider, courtesy of a new split loan mortgage which was launched on Monday
This two-year split mortgage offers three options in the way you divide up your mortgage borrowing: you can opt for half at tracker rate and half at fixed rate, 75% tracker and 25% fixed, or 25% tracker and 75% fixed.
The rates on offer are very competitive, but the higher the fixed portion, the higher the overall rate becomes, and this is not surprising as it mirrors current pricing patterns in the mortgage market as a whole.
A 75% fixed/25% tracker deal is priced at 2.99% for 70% LTV and 3.89% to 80% LTV, with rates as low as 2.49% for the 25% fixed/75% tracker 70% option. All deals come with a £999 booking fee and the split loan mortgage is available to a maximum of £500,000.
This product also gives borrowers the option to pay their booking fee now and delay drawing down the mortgage for up to six months, therefore customers with existing deals due to finish before the end of October this year have the option to lock in now.
The flexibility of this offer may also manage to tempt some of those consumers still sitting on the SVR fence who have not been sure which way to jump.
The beauty of this combined mortgage product is that you have the ability to fix the majority of your borrowing but at the same time can overpay without limitation on the variable rate element of your loan, and this flexibility will certainly appeal to people who receive regular bonus payments or are looking to pay down their mortgage quickly.
Mortgage lending remains subdued and with the current levels of economic and political uncertainty things are unlikely to pick up markedly in the short term, however this innovative move from HSBC which gives borrowers more choices is a positive step and should be applauded.
Andrew Hagger is a money analyst at Moneynet.co.uk
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