Simon Read: Who wins when rates stay still?

Click to follow
The Independent Online

It was a case of the dog that didn't bark again this week when the Bank of England held interest rates at 0.5 per cent for the 13th month in succession. Experts predict that an interest rate rise is still months ahead but with an election just four and a half weeks away, we've got to start factoring in the chance that a change in government could lead to our current low interest rate environment soon becoming a distant memory.

That would be bad news for borrowers, of course, but good news for savers. Returns on deposits have been paltry for some time while borrowers – particularly those on base-rate linked discount deals – have been quids in. The bigger question is whether those borrowers who have experienced a cut in their monthly mortgage payments have made the most of the advantage by making overpayments on their loans.

People often ask me what is the best way to make the most of their money. When I tell them to make overpayments on their mortgage they often lose interest as the gains aren't instant enough. But the facts are plain. With most mortgages, the sooner you pay them off, the less your home costs you.

Let me give you a simple example. If you borrowed £100,000 at 5 per cent interest-only for the traditional 25 years, you would pay £77,381 in interest. if you paid the mortgage off in 10 years, the interest bill would only total £29,504. In other words you'd get almost £50,000 off the cost of your home. The more you borrow, the greater the saving.

To be honest, to be able to afford to pay off that kind of deal in 10 years, you'd need to double your monthly mortgage repayments, which few people would be able to afford. But in the unusual position we've been in in the last year or so, many borrowers will have seen their monthly mortgage commitment cut by half or more. Restoring their mortgage payments to their previous level would have, effectively, meant saving thousands.

If you haven't made that move, it may be still worth doing so, but you'll need to keep an close eye on any overpayment restrictions on your mortgage deal. Some overpayments may even trigger early redemption penalties so it's wise to take a close look at the small print before acting. We'll be returning to the subject of overpaying your mortgage in a major feature next week.

In the meantime homeowners will have been hearted by the news this week that house prices have increased for the eighth time in the past nine months. Property prices climbed 1.1 per cent in March, according to the latest Halifax House Price Index. In fact the yearly increase was 5.2 per cent. The increase leaves the average house in the UK now valued at £168,521.

Mind you, if you believe Nick Hopkinson, the Halifax figures are meaningless. He's director of Property Portfolio Rescue, a company which buys properties on the cheap from distressed owners who need to sell fast. "Unfortunately, the monthly house price surveys from the major lending banks offer no useful guidance to individual homeowners on the actual price of their property," he says. "The very low monthly volumes of residential sales currently render these national surveys virtually meaningless when applied to any local market. A few high value transactions in prime locations distort the data and in no way reflect today's house price trends nationally."

He claims that most of the UK is currently experiencing house price stagnation at best and that large areas of the country are seeing prices fall. That may well be true. It's certainly true that many homeowners are still in negative equity and are struggling to meet their mortgage payments. Hopkinson goes on to say that when interest rates do go up, put together with public spending cuts, it will lead to higher unemployment and rising repossessions.

Hopkinson's rather gloomy outlook is driven by the fact that the more people approach the misery of repossession, the more they will resort to outfits like his. But his warnings are worth bearing in mind. Unless property prices do rise more, those currently in negative equity could yet lose their homes. For that reason further recovery in the housing market is welcomed.

However, any future property growth in the short-term is likely to be hit by the election. The traditional spring boom time will be deflated as potential buyers become wary of committing themselves against the background of political uncertainty.

Is the election really likely to have that much an effect on our personal finances? Sadly, yes. Tax is an obvious hot potato for politicians but pensions has become an equally major issue for them to deal with. You can get an idea of what the major parties have in store for our money in this week's lead feature (pages 56-57). Our feature shows that finance has become a major battlefield for the politicians to squabble over.

They’re after your car keys

Car thieves are becoming much bolder, AA Insurance warned this week. They are increasingly turning to burglary of homes to steal car keys before driving off. The trend is not new, but increasingly rapidly with 53 homes a day burgled in England and Wales simply for crooks to get their hands on car keys.

The crime is popular because villains don't even need to know which car belongs to which house. They simply have to click the key and head for the car whose headlights light up and then speed off in their instant getaway vehicle.

"Keys are the weakest link in the car security chain and you should treat them as cash," warns Simon Douglas, of AA Insurance."You wouldn't leave £10,000 or more in banknotes lying around – yet that's what many people seem to do with their car keys."

Some people fall victim to sneaky thieves who take advantage of people who pop out leaving their door unlocked or who accidentally leave their keys in the door. But others prey on folk who leave keys on tables near the front door. They can be relatively easy to reach through a letter box or open window fanlight by a crook with a steady hand and a long wire.

Pickpockets and handbag thieves are also focusing in on car keys which give the chance to steal a vehicle, many of which are taken out of the country, reports the AA.

s.read@independent.co.uk

Looking for credit card or current account deals? Search here

Comments