With interest rates at an all time low, we helped Linda measure the benefits of sticking with her present mortgage lender’s standard variable rate (SVR) or switching to a new deal with a new lender.
As well as looking at her mortgage options, Linda also felt she could be doing more to save money and was keen to get better deals on her monthly household bills.
She said: “I’m not overly worried about my financial situation at the moment but I know I could be doing better. I’m aware there are things I should be looking at. But apart from shopping around for insurance every year, I never get round to it. I’m a single parent and I just seem to run out of time, energy or both.”
Linda is about to come to the end of a three-year discounted mortgage with Cheshire Building Society. Once the discounted rate ends she will move on to Cheshire’s SVR. Normally, when a discounted or fixed term ends it is worth remortgaging on to another deal, but because of the current state of the mortgage market, this isn’t necessarily the case.
SVRs traditionally tend to be higher than the rates available on deals for new customers but with interest rates at record lows and many lenders looking to widen profit margins, the SVR may be a cheaper option.
One of our mortgage advisers looked at the options available to Linda and for the time being at least, she will be better off staying with Cheshire and moving on to its SVR, which is 3.0%. Linda only has seven years left until her mortgage is repaid and ideally she is looking for a longer-term fixed rate deal so she knows exactly what her monthly payments will be and doesn’t have to worry about remortgaging again.
Our mortgage adviser said: “To move to a new deal, Linda will be looking at a higher rate of interest and set-up fees of at least £500. As Linda is used to being on a variable rate I have advised that the SVR is the cheapest option at the moment – she will automatically move onto the SVR so there will be no set-up fees. She will also have no tie-ins so will be able to remortgage at any time. Therefore, I’ve said I will look on a regular basis to see if more competitive deals become available because if we can find a good longer term fix, she would be interested.”
When comparing mortgage deals it is important to look beyond the headline rate and factor in all the associated costs – only then will you be able to identify the best option for your circumstances. If you are not confident about doing this yourself, speak to an independent mortgage adviser. Our article ‘How to choose a mortgage’ should also help.
Around 50% of households have never changed gas or electricity provider and Linda's is one of them. Although she pays by monthly direct debit, which is a cheaper option than paying quarterly, she is paying British Gas’ standard rate for her gas and is on EDF Energy’s standard electricity tariff. She pays £61 a month for gas and £50 a month for her electricity.
After last year’s huge energy price hikes, both British Gas and EDF have recently announced reductions to some of their prices which would bring some relief to Linda. But she can make further cuts by switching to a dual fuel online tariff.
Many people don’t realise how much money they could save by changing energy tariff but the savings are significant. In Linda’s case, she stands to reduce her annual bill by nearly £300.
By using our utility comparison tool, we found that British Gas’ WebSaver 2 tariff is the cheapest option for Linda – she should save £299.18 a year. As she already receives her gas from British Gas, switching that element couldn’t be easier, but even transferring her electricity over from EDF Energy should only take four to six weeks.
Changing energy supplier really is one of the simplest ways to save money. Our utilities expert, Scott Byrom takes you through the process in his video ‘How to switch your energy provider’.
Linda has banked with Natwest for years even though she earns just 0.1% when her balance is in credit and is charged an annual rate of interest of 19.24% if she goes overdrawn. Although Linda doesn’t keep much in her current account – she moves money into a savings account each month so has little left once her outgoings have been accounted for – and rarely goes overdrawn, her Natwest account doesn’t offer much.
By switching to Alliance & Leicester’s Premier Current Account, Linda could make herself £100. A&L is offering a £100 switching incentive to new customers who open a Premier account. It is a branch-based account that pays 0.5% on balances up to £2,500. A&L also offers a £2,000 interest-free overdraft for the first year after which customers pay 50p for every day they are overdrawn up to a maximum of £5 per month. The account also includes a free annual European multi-trip travel insurance policy, which could be useful to Linda.
For more information on current accounts, read our article, ‘How to choose a current account’.
Savings – potential saving: £70
Linda currently has a savings account with Cahoot which is paying 1.5%. She aims to save around £300 per month.
Halifax Regular Saver is currently paying 5%. This is fixed for 12 months and you can pay in up to £300 a month, so it could be perfect for Linda and net her £69.62. However, it’s not ideal if Linda wants a savings account she can dip in and out of as withdrawals are not permitted.
It is probably worth her opening a standard easy access account as well. Egg’s savings account has the leading rate at 3.35%. This does include a 12-month bonus of 2.10% though, so she may need to move her savings again in a year’s time.
For more help on finding the best home for your savings, read our article ‘How to choose a savings account’.
Insurance is one area where Linda tries to shop around for the best deal. Her buildings and contents insurance is with Equity Red Star and she pays £218.35. However, when it comes up for renewal in April, she could probably get the same level of cover for significantly less.
We used our price comparison tool and found her a great deal with Swinton Insurance at £99.78 for both buildings and contents cover – more than 50% less than the cost of her current policy. Her potential saving here is £118.57.
Like most households, Linda still pays BT for her landline and has had the same broadband provider for years.
She pays £15 a month to BT and £17.99 a month for her broadband with Orange - £32.99 in total. However, if she continued paying BT for line rental but opted for O2’s standard broadband and phone package - which offers connection speeds of up to 8 Megabits, unlimited downloads as well as free calls at any time of the day to UK landlines - she could reduce her monthly bill to £22.50. This will save her £125.88 a year.
Switching broadband provider is straightforward and you won’t be left without internet access during the transfer. Our broadband expert James Parker explains how the process works in our video ‘How to switch broadband provider’.
Want to know how you might be able to save money? Scott Byrom, moneysupermarket.com’s utilities expert and myself, Clare Francis, will be answering your questions in a live webchat at 1pm on Thursday March 5. Submit your question now.
Disclaimer: Please note that any rates or deals mentioned in this article were available at the time of writing.