With mortgage repayments on the rise, homeowners are looking for ways to cut back. Here are seven ideas to make ends meet.
In comparison with previous years, this year hasn't been quite so easy for homeowners.
First, the Bank of England raised its base rate three times, taking it from 5% at the start of 2007 to 5.75% by July. Second, a global credit crunch started in the summer, making it far harder for banks to borrow from each other. The upshot of all this is that mortgage rates have been rising, putting households under financial strain.
Another problem for hard-pressed homeowners is that many are facing much steeper repayments when their attractive fixed-rate home loans come to an end. Borrowers who took out short-term fixes in 2005 and 2006 face `payment shock' when their rates come up for renewal this year or next. Worryingly, these homeowners can look forward to paying at least 1% a year more for their home loans.
Of course, one way to dodge steeply higher mortgage repayments is to remortgage when a special-rate deal ends. (You can do this through the Fool's award-winning, no-fee mortgage service.) Then again, although you may obtain a better rate than your present lender is willing to offer you, remortgaging isn't a universal cure-all.
Indeed, according to Fool partner Moneyfacts, mortgage arrangement fees have almost doubled over the past two years, making it far more expensive to switch between lenders. Moneyfacts calculates that the average upfront arrangement fee has rocketed from £441 in November 2005 to £827 today.
Even worse, one in eleven mortgages (9%) charges a percentage-based fee, which can add up to 3.5% to the cost of a home loan. Then again, almost one in four mortgages (24%) has no arrangement fee, so there is still plenty of choice for both homeowners and homebuyers.
Recently, I've noticed an increase in the number of my friends and acquaintances who are grumbling about mortgage repayments. Many are paying £100 or £200 a month more than they did last year, and this extra expense is becoming a pain. Several have taken second jobs in order to balance their household budgets. Others are cutting back and making sacrifices in order to make ends meet.
If you worry about being in a similar pickle, then here are a few Foolish suggestions to help you lift your income and lower your outgoings:
1. Enhance your earnings
One obvious option is to put in a few more hours at work -- assuming that you get paid overtime, that is. Other employment options include demanding a promotion or get a bigger pay rise, taking a part-time job or even changing jobs. Also, look to other sources of income, such as taking in a lodger or earning a top rate of interest on your savings.
2. Cut back on Christmas
No-one forces us to take part in the annual splurge that is Xmas, yet most of us still join in. The average household spends over £2,100 during December, which is a huge sum. Then again, you could postpone spending on gifts until January, when £1 can be worth £2 in the sales. In addition, your money will go further with store vouchers, especially if you buy them at a discounted price, say, 5% to 10% off.
3. Give up life's little luxuries
One thing that you need to pay close attention to is your `latte factor' -- all those little treats that add up to a large outlay over the course of a year. Whatever your weakness is -- ritzy coffee and a muffin, clothes, gadgets and so on -- it could be undermining your financial security. So, think about making a few sacrifices, such as taking lunch to work or making a flask of coffee in the morning. As the saying goes: every little helps!
4. Enjoy more home, sweet home
I enjoy a night on the town as much as the next person, but I plan to cut back on going out once the party season is over. I aim to sacrifice a few nights out for more nights in, and substitute a few takeaways with home-cooked meals. I may even test my willpower with another bout of extreme budgeting in the New Year!
5. Curb your credit-card spending
One piece of research showed that people with credit cards spend up to a third more than those who do without `magic money'. Without doubt, we Brits have come to rely on our credit cards to tide us over, as we spend over £10 billion a month on them. However, by leaving your credit cards at home and relying only on your debit cards, cash and cheques, you may see a reduction in your overall expenditure.
6. Postpone big purchases
If you're thinking about splashing out on a big purchase, then it may be wise to wait until next year before taking the plunge. That holiday, new car or enormous widescreen television may well be a lot cheaper in 2008, especially if the credit crunch continues to hit retail spending!
7. Prune your household bills
It's well worth inspecting your household bills to see where you can make cutbacks. Switching suppliers can save you a pretty penny, especially if you've not done so before. In particular, shop around for lower tariffs for your gas and electricity, telephone, mobile and Internet, and other bills.
Lastly, for more advice on tightening your purse strings, read 25 Quick Money-Saving Tips. This is one the most popular articles ever published on Fool.co.uk, which just goes to show how many people are keen to cut back!
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