Sarah Pennells is a personal finance journalist and the face behind SavvyWoman.co.uk. We think she does a great job at explaining financial subjects in a very clear and accessible manner. You can find her column below where she writes about the latest financial news, and helps you get more from your money.
Longer mortgages – big worry?
Traditionally, mortgages have lasted for 25 years. But in recent years, more people have been taking out mortgages over a 30 or 35 year term. Figures from the Bank of England show that in the first three months of the year, almost one in six people taking out a mortgage set it up to be paid back over 35 years or more. A further one in five took out a mortgage of between 30 and 35 years.
The longer the mortgage lasts for, the more you’ll pay in interest. The advantage of a longer term mortgage is that your monthly payments will be lower.
For example, if you borrow £200,000 over 25 years at an interest rate of 3%, you’d pay around £950 a month. Assuming the interest rate never changed and you didn’t have to pay any extra fees, the total amount you’d pay back would be £285,000.
If you took out the same mortgage over 35 years, you’d only pay £770 a month, but, because you’d make the payments for ten years longer, the total amount you’d repay would be £323,000. That’s an extra £38,000!
SARAH’S TIP: If you have a longer mortgage, see if you can make any extra payments. Most mortgages are flexible enough to let you pay extra every month, or when you can afford to, although depending on the mortgage deal you have, there may be limits on how much you can overpay. But even a small amount can make a big difference. Using the example above, if you have a £200,000 mortgage charging 3% interest over 35 years, and you paid an extra £50 a month (which would make your monthly payments £820 not £770), you’d knock three and a half years off your mortgage term!
Unarranged overdrafts – big shake up on the way
If you go into the red without asking your bank first, you may be charged interest at up to 20%, or a daily or monthly fee, or both. Depending on who you bank with, you could be charged up to £95 a month for going overdrawn.
Now the financial regulator, the Financial Conduct Authority (FCA), says the fees are too high and can be hard for consumers to understand.
The banks say that they charge more for this kind of borrowing than for arranged overdrafts or personal loans because they don’t know how much someone might want to borrow until they go overdrawn.
But the FCA says that the current situation – and charges – can’t continue. It’s investigating this area and will publish a report on what should happen next, in the spring.
Watch out for council tax fraudsters
If you pay council tax, you may get a call or text out of the blue telling you that you may be entitled to a council tax refund. Sadly, you probably aren’t.
Action Fraud says it’s seen a big increase in council tax refund scams in the last few weeks. So, what are the telltale signs?
- You get called or texted out of the blue. Council departments don’t generally text to say you’re due a refund. It’s far more likely to be a letter if you’re genuinely due some money back.
- You’re asked to pay an upfront fee to secure the tax rebate. If you’ve paid too much council tax, you can ask your local authority if you’re entitled to a refund. You don’t have to pay them anything in the first place.
- You’re asked to give out your bank details. Be very wary about giving out your bank details to someone without knowing who they are and being sure they really are from the council and not just pretending that they are.
What’s a pension deficit?
This week, it’s been reported that the UK’s university pension scheme has a deficit of £17.5 billion. The figure is positively eye-watering, but what does that mean and, if your employer’s pension scheme has a deficit, should you be worried?
There are different ways you can measure a pension deficit, but broadly speaking it’s a difference between the amount of money that’s in the company pension scheme and the amount the scheme has to pay out in pensions.
SARAH’S TIP: You can only get a pension deficit with final salary or other salary-related pension schemes. That’s because the employer promises to pay you a certain pension that’s linked to your salary. Final salary pensions used to be very popular, but are quite rare now, especially in the private sector.
If the pension scheme has a deficit, it doesn’t necessarily mean you should be worried. In fact, many final salary pension schemes have a gap between the money that they have and what they’re committed to paying out. That’s partly because we’re living longer and because investment returns have been low recently. But some are gradually reducing that gap.
Depending on the size of the deficit, the employer might have to pay more, the pension scheme members might have to pay more, or the pensions that the scheme pays out might have to be reduced.