Get your finances in order by performing a financial health check

Since social distancing rules were introduced in March there have been few people who have not seen their finances impacted by the Coronavirus pandemic, making this the perfect time to perform a financial health check.

“Consumers that pick a point in the year to review their finances may do so every six months as a rule of thumb, but the impact of the Coronavirus may well be escalating this plan,” explained Rachel Springall, financial expert at Moneyfactscompare.co.uk. “As it stands, interest rates on savings and mortgages are falling and unsecured lending on credit cards or loans is becoming more expensive. This alone should bring a personal finance review to the forefront of the mind, particularly if someone has free time to spare. Making just a few changes could result in decent savings, so consumers would be wise to start now if they failed to do so over the bank holiday weekend.”

To help consumers carry out a financial health check we’ve taken a look at what has been happening in the savings, mortgage, credit card and loan markets over the last few months.

Since the Bank of England cut the base rate to a historic low of 0.10% in March, along with announcing a new Funding for Lending Scheme, savings rates have fallen, as the table below shows. Last week the Bank of England kept base rate at 0.10%, which is unlikely to change anytime soon, as such, savers could see rates fall further in the coming months and may want to look at securing the best deals now while they are still available.

Savings market analysis 

Commenting on the current saving market Springall said: “The two base rate cuts may create apathy among savers who feel there is little reason to switch, but this couldn’t be more damaging. Providers are cutting their savings rates so this should fuel the ambition to switch more so than ever before, as there is now a large gap between the worst and best rates. Some high street banks pay as little as 0.01% on easy access accounts today, such as from NatWest, but RCI Bank UK pays 1.20% gross as the market leader.

“Savers may be hesitant to lock their cash away and feel little incentive to do so right now. Fixed bond rates are falling, but the top deals continue to be on offer from challenger banks. These are the brands that savers should familiarise themselves with and consider using if they want a decent return.

“In the months to come, interest rates could well fall further, so earning anything above 1% might be a decent return. In the meantime, savers should sign up to any rate alerts, keep a close eye on the top rate tables and ultimately act fast to take advantage. It is also a good time to build a savings pot in case of emergencies, and the Coronavirus pandemic may well have changed the mindsets of consumers who had little disposable income to fall back on.”

While it has not been a good few months for savers, those looking for a mortgage will have been pleased to see that mortgage rates have fallen since March. This is particularly good news for those looking to remortgage as many lenders are offering automated valuations so that remortgages can go ahead. Saying this, first-time buyers and borrowers looking for a high loan-to-value will have seen many mortgage deals being pulled from the market reducing competition significantly in this sector.

Mortgage market analysis 

“Mortgage rates have plummeted to record lows, largely fuelled by the choice of higher loan-to-value deals being withdrawn from the market,” explained Springall. “This then spells bad news for first-time buyers, who typically have smaller deposits and they will be the ones hit hardest by the fall in choice.

“Remortgage customers could benefit from the fall in interest rates if they are sitting on a standard variable rate, thanks to the base rate cuts, but they could make bigger savings if they switch to a low fixed rate instead. In fact, there is only a small difference between the average two-year and five-year fixed mortgage, so borrowers may prefer to choose a longer-term fixed mortgage for more peace of mind.

“It is hoped that the choice of higher loan-to-value mortgages will return, so we may well see average rates start to rise when this happens. If consumers are comparing mortgage deals, they would be wise to look beyond the initial rate. The true cost of any deal should be considered carefully, especially upfront fees, so navigating the mortgage maze could be easier if consumers seek out independent financial advice.”

For consumers with credit card debt, transferring their balance to a 0% transfer credit card can help to clear the debt, although borrowers should keep in mind that the success of their application will depend on their current credit score. Since March the average number of interest-free days on balance transfer cards has increased slightly, but the fee for transferring a balance has also risen during this time.

Credit card market analysis 

“The credit card market has seen some volatility in the average length of introductory 0% credit card offers since the start of March, perhaps in response to consumer demand,” Springall said. “As it stands, borrowers might be searching for an interest-free balance transfer offer to consolidate debts considering economic uncertainties and subsequent concerns that these offers may tighten. However, despite the longest deal now standing at 30 months from TSB, the cost to move debt has risen, as the average balance transfer fee rose by 0.05% in two months.

“Those consumers hoping to apply for a 0% introductory purchase card on the other hand will find that the top deals have shortened since last month. Indeed, the top fee-free deal today is from Bank of Ireland UK with a 24-month 0% introductory purchase offer, but a month ago the top deal was 27 months from Barclaycard and Sainsbury’s Bank.

“As it stands, there may well be consumers out there unable to pay their credit card bills, but that is where payment holidays come in. According to UK Finance, as of 30 April, almost 700,000 credit card accounts had been given a payment holiday. Still, it is worth pointing out that debts do need to be paid eventually, so if borrowers are struggling, they would be wise to seek advice from a debt charity.”

Consumers looking to consolidate debt with a personal loan will be pleased to see that the average rates on unsecured personal loans have remained fairly consistent since March. Saying this, the average rate on a loan of £5,000 over three years has increased, which could be the start of rate rises within the unsecured persona loan sector over the coming months.

Unsecured personal loan market analysis 

Springall explained: ““It is clear to see that rates on unsecured loans remain competitive but there really is no certainty they will remain as such, in fact the average rate on smaller loans is on the rise. This market can be impacted by economic uncertainty and lenders could increase the cost of their loans or indeed pull them from sale, as we saw during the financial crash.

“Unsecured personal loans will be an attractive option for borrowers looking to consolidate their debts as they provide a fixed repayment plan and clear deadline as to when the debt will be repaid. However, if borrowers are savvy and only have a small amount of debt, a 0% balance transfer or money transfer credit card offer could be a most cost-effective choice.

“Those customers who already have a loan may well be one of the many utilising a payment holiday due to the Coronavirus. In fact, UK Finance members provided almost 470,000 payment holidays on personal loans. Consumers in this situation may hope for their circumstances to change for the better to enable them to continue paying back their debt. So, if they have free time to spare now, they would be wise to have a thorough financial health check and prepare themselves for when the payment holiday ends.”