Capitalise on

Jun 27 2009 by Iain Laing, The Journal

WITH the Bank of England base rate currently at 0.5%, the lowest rate since its inception over 300 years ago, it’s a frustrating time for savers but it could be a window of opportunity for borrowers if they seek professional advice on getting the most from their finances.

Those people with base rate or tracker mortgages will have seen a significant reduction in their monthly mortgage repayments since the Bank of England base rates fell from 5% to 0.5% since April 2008, so it’s an opportune time to look at making the most of those savings by investing in the stock markets, paying off those unwanted debts or protecting your loved ones.

Someone who was paying £500 interest on a mortgage last year could now be saving as much as £250 per month. And while it may be tempting to spend the extra cash on luxury items like holidays or socialising, there are other ways you could be utilising the funds which could have a positive impact on your finances in the long-term.

Pay off debts

Use the spare cash to pay off any high interest debts such as credit cards and loans with a high APR, typically ranging from 18-25%.

And while you’re tackling your credit card debt, why not shop around for 0% balance transfers?

Virgin, Abbey, MBNA and Barclaycard are amongst some of the credit card providers offering 0% balance transfers at the moment, however be aware that some of them require a transfer fee, typically 3% of the balance transferred.

Overpay your mortgage

Most mortgage lenders allow a monthly overpayment of up to 10% without any penalty, so why not continue paying a higher amount which could knock thousands of pounds from your balance in the long-term?

Protect you and your family

Less than 10% of people in the UK have income protection to cover their living expenses should they become unable to work due to an unexpected accident or sickness.

Ask yourself what would happen to you and your family should you suddenly be unable to contribute to daily living expenses such as your mortgage, household bills, food and petrol?

Why not put your mortgage savings to good use and take out an income protection policy? This will provide cover for at least 75% of your salary less state benefits. It pays out a tax free amount within a certain period from going on the sick, anything from day one cover to 52 weeks.

This is very important especially if you’re self-employed.

A good independent financial adviser can guide you towards your protection needs.

Look at savings and investments

This could be the right time to think about paying into a regular savings account such as a cash ISA, however with interest rates as low as 1%, you could get a better return by taking a risk and drip-feeding funds into the stock market.

Schemes such as equity ISAs can offer good long-term investment opportunities, however an independent financial adviser will look at the best options for your individual circumstances.

Remortgage your property

If you have equity available and are thinking about extending or upgrading the family home, the low interest rates mean it could be a good time to remortgage your property.

While the markets are down it’s also a great time to negotiate on purchases such as building works and white goods to benefit from the best possible deals.

Take your first step onto the property ladder

With the housing market slowly starting to pick up, mortgage rates are at an all time low and the stamp duty threshold frozen at £175,000 until the end of 2009, this could be an opportune time for first-time buyers to venture into the property market while there are some excellent deals available.

Parents and grandparents can help young relatives secure a good deal on a mortgage by acting as guarantors. Offering a mortgage guarantor is an incentive for lenders as it provides added security that repayments will be met. Always seek legal advice when entering into such an arrangement.

Rent a room and double your savings

While you’re saving money on your mortgage, why not double your savings by capitalising on the government’s Rent a Room scheme.

Anyone who owns a property, which is their principal residence, can rent out a room, charging up to £4,250 per year totally tax free.

Again, these funds could be used for further investment, to pay off high-interest debts, to reduce your mortgage, or towards protecting you and your family.

As I’ve demonstrated, there are many ways to take advantage of the current low interest rates, so there’s no excuse not to strike while the iron is hot and put your savings to good use.

The stock markets will inevitably start going up again soon and you may regret not taking decisive action now.

With so many opportunities available it might be confusing to know which are the best options for you, however by undertaking a full financial review from an independent financial adviser you can rest assured that you will be getting the best advice for your individual circumstances.

For further information on how Alok Dhanda can help advise on managing your finances contact Dhanda Financial on (0191) 255-8960, email: info@dhandafinancial.com or visit the website www.dhandafinancial.com

An independent financial adviser will look at the best options for your individual circumstances