Your Money: Resolve to keep watch

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The Independent Online
IT SEEMS pretty pointless to sit down and make new year's resolutions about ordering your finances when they appear to be so buffeted by forces beyond your control - apart from the fact that few resolutions last beyond January.

Foresight is all when it comes to so many aspects of finance.

How many people saw the depth of the slump in property? All those trapped in their house or flat by the negative equity barrier certainly never imagined property prices would fall so far that the debt outstripped the value of their home.

Last year ended with the Government pulling out the stops to breathe some life into the housing market - stamp duty was suspended until August, and a mortgage rescue package was flung together to try to stem the frightening increase in repossessions.

But these sticking plasters were pretty ineffective in the face of howling recession. Interest rates are a much stronger, and blunter, instrument.

At last there are some signs of revival in the housing market - in terms of sales volume rather than price. But it is a beginning. Estate agents and mortgage brokers reported that December was their busiest month for years. Now could be a good time to take the property plunge.

Standard mortgage rates at the start of 1992 were 11.5 per cent, and five cuts later they are down to 8.55 per cent. This makes a homeowner with a pounds 70,000 mortgage richer by pounds 125 a month. Those who have been through the pain of rates as high as 15.4 per cent are right to be keen to lock into fixed-rate mortgages now - even if rates drop a little further, the cost will have been money well spent as an insurance against higher rates. The five-year deals look a better bet than the short-term fixes, which could end just as rates begin to rise again.

Confidence in endowments has wobbled, as unit-linked policies have struggled as shares jitter about, and with-profits policies have had their bonuses cut. But the warning about these policies failing to repay loans is probably vastly overblown. Existing endowment owners should stick with them. However, there is no good reason for new borrowers to take an endowment mortgage. They are sold so heavily because of the rewards for commission-hungry salesmen.

The other side of the falling interest rates coin is lower returns for savers, who are beginning to rate the stock market as a better bet - income nearly on a par with building society returns and the chance of capital gains.

The Government will also be needing even more of our cash in 1993. The launch of the First Option Bond aimed at basic-rate taxpayers put the wind up the building societies. It has been withdrawn temporarily. But watch out for its reappearance.

Perhaps you could allow yourself the single new year's resolution of keeping a watch on savings, investment returns and banking and credit terms, and vow to check at least three quotes before taking out any insurance.

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