Defying the credit crunch
It feels like the gloomiest economy ever, but savvy money managers stand to benefit in these tough times. As Brits face up to a bleak financial landscape, direct bank first direct has developed guidelines and tips designed to help them beat the credit crunch.1) Manage your money
With a bit of careful management, your money will start look after itself. Remember to keep track of interest rates - first direct research reveals that 17 million people have lost track of their rate of interest on savings, while 43 per cent of homeowners don't know what interest they are currently paying on their mortgage. Keeping a close eye on interest rates will allow you to manage your finances better and ensure you are getting the best deal.
2) Play the waiting game
Join the four million home-owners playing a waiting game, watching the fluctuating property market with an eagle eye so they can cash in on cheaper home-ownership before prices start to rise. You could invest in a bargain property at the just the right time.
first direct's research shows the emotional impact the waiting game is having on the nation - a quarter (25 per cent) feel lucky to be able to take advantage of a falling market and snap up houses while prices are low. Close to one in five (18 per cent) are thrilled at the prospect of nabbing a bargain.
first direct spokesman Jimmy Kelly, said: "There are many ways for canny money managers to benefit from the tough economic climate - all indications point to the fact that Brits are beginning to pay back their debts, which ultimately will be good news for the economy.
3) Switch to an offset
Home-owners with a pot of savings can reap rewards by switching to an offset mortgage. Offsetting could see a typical home-owner cut down the length of a £100,000 mortgage by close to three years (33 months), and save £18,322 in interest payments over the lifetime of a mortgage.
As well as helping borrowers repay mortgages faster, offsetting will also prevent savings languishing in under-performing taxable accounts. The average home-owner earns 4.6 per cent on savings held in an offset mortgage, compared to just 0.18 per cent return on a typical savings account.
first direct's market-leading Offset Lifetime Tracker offers a deal of 2.89 per cent over Bank of England base rate, at 75 per cent LTV.
4) Overpay your debt
The crash in interest rates from 5.5 per cent to 0.5 per cent over the past year could spell a windfall for home-owners - many borrowers now find themselves in the strong position of paying far less in interest payments.
In addition to paying off the loan quicker, you will also increase the amount of equity in your home, so when it comes to remortgaging, you will own a bigger stake and be able to get a better deal.
Overpayment tips include:
If your monthly payments have dropped, continue paying at your existing rate - it will reduce your debt quicker and you won't even notice the difference
If you can afford it, up your mortgage repayment levels
Use extra windfall payments to clear other debts such as credit cards
Switch to an offset mortgage and let your savings do the overpaying for you - the interest earned on savings in an offset mortgage is not taxable, freeing up extra funds to be paid against your debt. A typical household could save £56 a month on mortgage repayments with an offset mortgage
"We're chipping away at record amounts of mortgage debt, with savvy savers starting to take advantage of the benefits of offsetting - our research reveals that new offset lending rose16 per cent in the last three months of 2008. In fact, offset mortgage lending now accounts for £1 in every £10 being lent to UK mortgage holders. In the past three years, 400,000 new offset mortgages have been issued, taking the amount of UK home-owners with an offset mortgage to 1.1 million."