Earlier this month, the monetary policy committee voted not to lower the base rate. However, savers shouldn’t get too comfortable as a cut is almost certainly on the horizon.
Those depending on income from savings and investments have already felt the squeeze over the past seven years, with rates set at just 0.5 per cent. With a cut likely in the near future, now is the time to take action to protect your income.
Claim what’s due to you
According to Government figures, older people lose out on £3.5 billion in housing benefits and pension credits because they don’t claim what they’re entitled to.
The independent website EntitledTo has an excellent benefits calculator that’s anonymous and easy to use. Just fill in a few details online and find out if you’re claiming everything that’s due to you – click here.
Maximise your savings
Some people keep their cash in their bank or building society account because it’s a safe option, but this could mean losing out on a decent return. Experts suggest you would be better off taking a portfolio approach to your savings.
You might, for example, split your money between an easy access savings account, monthly interest account to give you regular income, and long term accounts that offer higher interest rates.
- Santander offer up to 3% on £20,000
- TSB offer 5% up to £2,000
Easy access savings accounts:
- Virgin Money 1.26%
- Shawbrook 1.25%
- Coventry BS 1.3% (easy access, withdraw anytime)
- First Direct 1.3% (easy-access, linked to bank account)
- Nationwide 2% (with access, fixed for five years)
Review your investments
If you’re depending on a portfolio of investments for your income, be aware that the value of what you hold may fall or rise over the coming months. You may have already seen a slump in value following the Referendum and the volatility is likely to continue with the political uncertainty surrounding the Leave vote.
Some investors have been tempted to sell all of their shares and investments in response to the market falling. Experts have urged investors to keep calm and use the market turmoil as an opportunity. Although it can take a strong stomach when the markets are down, avoiding a knee-jerk reaction is crucial.
At the same time, it’s important to take action now in preparation for the possibility of your income falling further – particularly if the UK enters a recession. At this point, companies will be likely to pay lower dividends.
For new investments, experts suggest that you aim for a balanced portfolio that includes growth investments such as shares (offering long-term returns) and also more secure assets like fixed interest accounts. Those investors with a diverse portfolio will have seen the least impact from the recent stock market drama – good diversification will see some assets rise when all others fall.
Consider property investments
The HomeLet Rental Index shows a rise in rents through the first part of 2016, although this was at a slower pace in comparison with 2015. It is thought that Brexit will act as a restraint on the supply of new housing and if this plays out, demand in the private rental sector could increase.
But new would-be buy-to-let investors should do their sums first – the rise in stamp duty and changes to the way mortgage interest can be deducted against profits has made investing more expensive. There is also the possibility of interest rate rises in the future and prospective borrowers should make sure they could still afford the mortgage payments, if these do happen.
Look at equity release
Older people may have a substantial amount of equity locked up in their home, thanks to years of rising house prices. Equity release products and lifetime mortgages can help you gain access to that value without selling off your home.
Such products are becoming increasingly popular according to the Equity Release Council. £4.3 million is loaned every day by the over 55s against the value of their homes, with each loan paying £80,000 on average.
Although this type of loan used to be a niche product, a number of high street lenders now offer lifetime mortgage deals – including Santander and Legal & General. You should however take financial advice before signing up to one of the plans, as they can be costly in the long run.
Boost your income
It makes sense to review your finances to see if you could make any savings on current expenditure. Martin Lewis and the Money Saving Expert team recommend you give yourself a ‘Money Makeover’, which includes an overhaul of your budget, savings, household bills, debts and much more.
There are plenty more ways to boost your income – for example, the Government’s rent-a-room scheme allows you to pocket £7,500 a year tax free from renting out a spare room in your house. Read the Money Saving Expert guide to making extra cash for this and 65 other ways to boost your income.
Finally, it’s worth seeing if you can save any tax. According to financial advice experts Unbiased, the average person paid £165 too much tax last year.
If you would like advice on lifetime mortgages or becoming a buy-to-let investor, speak to our property team now.