Savers come in from the cold
HOW TO SAVE IT, HOW TO SPEND IT, HOW TO MAKE IT GROW; 1996. A good year for mortgage borrowers and windfalls. 1997? A different story, says Steve Lodge
Sunday 29 December 1996
So what should you have been doing financially in 1996? And what's the outlook for 1997?
With hindsight, early 1996 is likely to have been good time to clamber onto the property ownership ladder, particularly in London or the south- east. Buying then would have allowed you to get in before prices started motoring. Prices of many properties have since risen 10 per cent or more and gazumping - that buyers' blight - is back with a vengeance in London.
Furthermore, as well as being the year that the housing market turned, 1996 also saw super-cheap mortgage deals. Borrowers generally felt a lightening of the debt burden as headline mortgage rates fell to 6.99 per cent - even lower from some lenders. But lenders concentrated their fire on offering big discounts to new buyers, people moving and even those staying put but switching mortgages.
Don't expect life to be so sweet in 1997. Mortgage rates are already rising (typically to 7.25 per cent) to reflect the recent increase in base rates, and are expected to rise further. Many major lenders predict that headline mortgage rates will rise to 8 per cent or more during 1997, adding perhaps pounds 50 a month to many mortgage payments, according to a poll conducted for January's Your Mortgage magazine. And discounts, too, are likely to dwindle as the housing market continues to recover.
Some mortgage brokers are recommending fixed-rate loans as a way of avoiding being caught out by rising mortgage rates this year. Our table of Best Borrowing Rates on page 13 carries some of the more attractive deals.
The flipside of cheap mortgages in 1996 has been generally dire interest rates for depositors. If you had a tax-free Tessa account that matured early in the year banks and building societies were falling over themsleves with follow-on offers of 7 per cent or more tax-free. Tax-free Tessas remain good deals. But elsewhere you could easily have ended up with as little as 2 or 3 per cent before tax on your savings.
Savings rates should start to rise now, in part because of the general rise in interest rates and in part to attract and retain money released from those societies paying windfalls.
The five societies due to dole out windfalls worth hundreds of pounds to their savers (and borrowers) this year are the Halifax (in June), Alliance & Leicester (April), Woolwich (autumn), Bristol & West (summer) and Northern Rock (autumn).
New building society windfalls are also expected to be announced over coming months, with Birmingham Midshires and Skipton the favourites to go next.
Elsewhere, anyone with a spare lump sum at the beginning of 1996 - the interest earned on a maturing Tessa account, for example - might have done well putting it into the stockmarket, specifically through a good value PEP that aims to track the performance of the stockmarket. The stockmarket is up more than 10 per cent on the year.
But looking out over the next year there is less reason for investors to be cheerful. Worries about the US stockmarket - Wall Street - rising interest rates and the prospect of a Labour government will not help shares' progress, and there is a possibility of a "setback" - another word for a little crash. If you're thinking of taking out a PEP before the end- of tax-year deadline - PEPs are ideal for long-term saving - better to wait awhile.
In the meantime insurers themselves are following building societies in announcing windfalls. Both Norwich Union and Colonial Mutual are due to dole out free shares in 1997. Friends Provident and Scottish Provident have been tipped as the next to announce handouts. Beware, however, of taking out policies simply in search of windfalls - you may be committing a lot of money for a relatively small windfall.
Shopping around is always good advice in the world of finance, but two markets particularly due for shake-ups in the coming year are travel insurance and pension plans.
Travel insurance from travel agents is rarely a good deal and the current practice of linking holiday discounts to a particular polciy may be banned. If your travelling justifies the cost of an annual policy then buy one and fight your corner for any discount.
By contrast personal pension plans are boring but important. The recent launch of a plan by Richard Branson's Virgin Direct may prompt cheaper and more straightforward pension policies from other companies. Next year Mr Branson is also threatening to take on another set of financial bogeymen - the banks.
Coming and going
Interest rates to rise - headline
rates of 8 per cent or more
may be back. Windfalls - most
for pounds 500-plus - from Halifax,
Woolwich, Alliance & Leicester,
Bristol & West and Northern
Rock building societies.
Mortgage rates rising - headline rates predicted to be 8 per cent or more by end of year. Less need for discounts as housing market continues to improve.
Returns likely to be lower; possibility of a "setback'.
Further windfalls to come from mutual insurers. Cheaper pension plans? 1996 Savers Rates fell to lowest in a generation. Savers tied in by prospect of windfalls. Borrowers Property prices improved. Mortgage rates at lowest since 1960s. Big discounts for new borrowers and remortgagers. Cheaper credit cards for users who don't clear bills at end of month.
Investors Stock market hit all-time highs. Railtrack and British Energy privatisations were star turns.
Policyholders Free share windfalls announced for Norwich Union and Colonial Mutual policyholders. More competition - Virgin in life insurance and pensions.
- 1 What happens to your body when you give up sugar?
- 2 Drugs Live cannabis trial: Hash is less harmful than any other drug, expert claims
- 3 Turkish Airlines flight TK 726 crash-lands on Nepal runway amid dense fog
- 4 Penis size: Study revealing 'what's normal' sends international media into meltdown
- 5 Have sex with your iPad thanks to the new sex toy no-one asked for
Turkish Airlines flight TK 726 crash-lands on Nepal runway amid dense fog
Ayesha Ali death: Mother and her girlfriend found guilty of manslaughter of eight-year-old
George Clooney and Amal fail to get special treatment at New York restaurant
Cindy Crawford 'un-PhotoShopped' viral Marie Claire image was doctored, claims photographer
'A girl is more responsible for rape than a boy': The statement that shocked the world... except India
Durham Free School: 'Creationism taught at' free school facing closure
Nearly 100,000 of Britain's poorest children go hungry after parents' benefits are cut
Ukip would cut billions from Scottish budget to fund English tax cuts
End of the licence fee: BBC to back radical overhaul of how it is funded
Ukraine crisis: Top Chinese diplomat backs Putin and says West should 'abandon zero-sum mentality'
Boris Nemtsov shot dead: Outspoken Putin critic who had expressed fears for his life is killed near the Kremlin
iJobs Money & Business
£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...
Voluntary post, reasonable expenses reimbursed: Reach Volunteering: Would you ...
£36,000 - £40,000: Christine McCleave: Are you looking for a new opportunity a...
£15000 - £18000 per annum: Recruitment Genius: This is a great opportunity for...