With gyms shut, taps turned off in pubs and the prospect of a holiday a distant dream, many people are finding their outgoings have dropped since lockdown. But the shadow of a looming recession and concern about whether jobs will even exist when offices reopen, means many are looking at their finances even more closely.
So what are the best ways to improve them amid extraordinary times and an uncertain future?
Not travelling to the office brings some savings, but it is not all good news. Working at home could be pushing energy bills up 16.5% a month according to price comparison and switching service uSwitch.
Wholesale energy prices are decreasing, however, and this is being passed on to the consumer by some of the smaller providers. So it is worth shopping around.
“There’s a huge gap of £404 between the cheapest deal on the market and the price cap on the standard variable tariff,” says uSwitch. “The gap hasn’t been this wide since last summer.”
It is always worth seeing if you can reduce your bill. But be sure to look at the unit price to ensure you are comparing like with like.
Companies are allowed to pay staff £6 a week tax free if they are obliged to work from home, so find out if that is an option.
Working from home
If setting up a home office has meant buying new equipment, you can claim income tax relief for employment expenses, including broadband and heat. Fill out a P87 form if the expenses are less than £2,500 for the year. For more than that, you will need to complete a self-assessment tax return. The relief is available if the expenses are “wholly, exclusively and necessarily” needed in performance of a job, so cannot be bought for personal use and claimed for later.
Loss of income has led to over 1.6 million households applying to have mortgage payments and interest charges deferred for up to three months, but it is not a step to take lightly.
While there have been assurances that taking a “payment holiday” will not affect an individual’s credit rating, there have been warnings that some may be turned away from future borrowing as they are effectively declaring they are in financial difficulty.
You must agree the “mortgage holiday” with your lender – otherwise payments which are stopped may be recorded as being late.
Talk to your lender about extending the term, which will increase the overall sum paid but make it more manageable each month. And if you are not on a special deal, you can remortgage.
Since the base rate cut, the number of mortgages has dropped by almost a half, according to Which?, but there are still some competitive rates to choose from.
If you are on a tracker mortgage or another type of variable rate deal, you should be seeing costs come down by about £40 a month for every £100,000 borrowed.
With quieter roads, insurers are reaping the benefits of fewer claims.
Some are passing some of this on: Admiral was the first to offer partial refunds to drivers stuck at home, promising £25 for each car and van it covered as of 20 April. LV= has also said it will return money, but this will not happen automatically, or for everyone. Contact the company if you think you qualify.
Drivers who are doing substantially fewer miles may be able to get a partial refund by contacting their insurer. This could also be an option if a named driver is not using the car.
There is some early evidence that the impact of coronavirus may decrease premiums. “An unintended consequence has been fewer cars on the roads and fewer accidents, so it’s fair to assume that this could result in reduced prices,” says Dave Merrick from MoneySuperMarket. Drivers are advised to make sure their policy does not “auto renew” and they can get the benefit of shopping around.
Savings and interest rates
This year is the end of a lost decade for savers, and recent events will leave them with little confidence that there will be any improvement in the near future. At the height of this emergency, the Bank of England cut interest rates twice in the space of a week, bringing them to the lowest level in its history.
While it typically takes about three months for changes in the base rate to go through the market, there is already evidence that savings rates are being hit. The average easy-access rate – where you can withdraw your money at will – has fallen from 0.56% to 0.38% over the tumultuous period, according to financial data site Moneyfacts.
This may not be the end of the cuts so people would be wise to look at the best rates available now and switch. “In the months to come consumers may well rely on simple savings accounts to store any disposable income from lockdown, cash taken out of the stock market, or even pension freedoms cash,” says Rachel Springall of Moneyfacts. “If this cash floods the savings market, providers could cut rates to deter investors – if they are awash with cash – or even pull accounts entirely to cope with demand. This means savers have to be quick off the mark to secure the best possible rates and keep a close eye on the changing market.”
Leaving money in the high street banks won’t earn you much, so it is worth checking what the challenger banks can offer – for example, NatWest’s easy-access rate is 0.01% compared to 1.20% from RCI Bank UK.
Some people may consider a fixed one-year bond to guarantee them a return over the coming year but due to the uncertainties surrounding the economy once the coronavirus problem subsides, some will be reluctant to lock their money away.
The best rate for a one-year fixed-account is 1.65% with Bank of London and The Middle East, which also has the best two-year fix at 1.75%. FCMB Bank gives 1.75% on a three-year fix. All have a minimum investment of £1,000.
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