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Homeowners look to offset the cost of higher rates

22 January 2007

Yorkshire and sister bank Clydesdale have seen the popularity of offset mortgages grow by a third since the Bank of England began increasing interest rates in August last year.

However, they believe consumers are still missing out on millions of pounds by not making the most of their finances.


According to the bank's findings:

  • One in five (22%) have no savings account;
  • Those that do are missing out on £1.9 billion in interest by not transferring spare cash from their current account to a high interest savings account;
  • 84 per cent of store card holders have no idea of the interest rate they are paying on them;
  • One in three (30%) workers admit they fritter away more than £100 each month on items they do not need.

So both Yorkshire Bank and Clydesdale Bank are offering anyone a free financial health check at one of their branches.


Stephen Porter, senior marketing manager at Yorkshire Bank, said: "It's a sad state of affairs that Brits have let their personal finances get so out of shape.  Many people will have vowed to quit smoking or cut back the Chardonnay in 2007 for the good of our health - but maybe surprised how good it can be for their flabby finances, too!   That's why we're encouraging anybody to come and see one of our experts so that we can take a holistic view of their finances.  We can then ensure any extra cash is put to good use, such as helping pay off your mortgage years early.


"In the last few months, we've seen more and more people considering offset mortgages.  People with these types of mortgages won't suffer as much in this climate of rising interest rates as they link homeowners' current, savings and mortgage accounts together.  This means their savings rate will have a greater offsetting effect on their mortgages, helping them save thousands of pounds and knock years off their mortgage term compared to a standard 25 year mortgage.


From its research, Yorkshire Bank has developed some top tips to get your finances in order:


1. Start the year with a new mortgage

Despite three Bank of England interest rate rises in recent months, Yorkshire Bank's research has found just one in six (17%) homeowners are reviewing their existing mortgage arrangements to check they are still getting the best deal.


However, since the first rate rise in August, Yorkshire and Clydesdale have together seen a 34 per cent growth in the total amount of money borrowed by homeowners taking out one of its Offset Mortgage Accounts.


2. Quit smoking

This may be the year to quit as the smoking ban in public places comes into force from July.  Yorkshire Bank calculations reveal quitting a 20-a-day habit could save on average £35 a week, or £1,820 a year.  If a couple was to quit their smoking habit they could save £3,640 a year.


By investing £3,640 a year into their savings account with a starting balance of £16,000, linked to a Yorkshire Bank Offset Mortgage Account for £150,000, they would save themselves £81,940.40 and knock seven years and one month off the term of their mortgage, compared to a standard 25 year variable mortgage at the same interest rate.


3. Halve your alcohol intake


If a married couple halved their alcohol intake from the suggested maximum amount they should drink, they would on average save £30.63 each week, equating to £1,592.50 a year.


By investing £1,592.50 a year into their savings account with a starting balance of £16,000, linked to a Yorkshire Bank Offset Mortgage Account for £150,000, they would save themselves  £65,774.72 and knock five years and eight months off the term of their mortgage, compared to a standard 25 year variable mortgage at the same interest rate.


4. Sort out your savings


Higher interest rates do have their benefits for savers.  However, one in five (22%) people are losing pounds everyday, according to Yorkshire Bank, by not having a savings account.


Those that are saving are also missing out on £1.9 billion of interest each year by leaving money sat in their current account each month rather than transferring it into higher interest savings.


Stephen Porter said: "Just like a gym membership that people stop using, people are not making the most of their savings account and are losing money as a result.


"Our research has found two-thirds of us have money left in our current account each month, on average having £316 sitting idle.  If this was simply moved into something like our Savings Account Plus, each account holder would benefit from an extra £98.69 each year, which as a nation equates to a whopping £1.9 billion."


5. Keep a closer eye on your spending


According to Yorkshire Bank research, more than half (51%) of people in the UK fail to keep a regular check of their bank balance, and one in seven (14%) confess they do not even know how much is in their account.

On top of this, nearly one in three (30%) workers confess to frittering away more than £100 a month on pointless items they simply do not need.


Stephen Porter said: "It's disappointing that half of the population aren't keeping a regular check of their finances, with some claiming it's too much hassle.  With internet and phone banking, it's never been easier to keep an eye on your balance.  Checking your finances regularly also helps control spending and it may help you to stop wasting money on things you don't actually need."


6. Scrap the store card


With store and credit cards bills from the festive spending arriving now, just one in three (37%) people surveyed by Yorkshire Bank think they will be able to pay off the full amount straight away.  This could be a problem for the 84 per cent of store card holders who admit they do not actually know what interest rate their card charges.


Stephen Porter said: "Shoppers are often seduced at the till into taking out a store card because of the promise of a discount. However, in reality, they can be extremely costly - especially when you can't pay off the full amount each month and don't know the true rate!"


To find your nearest Yorkshire Bank branch for a financial health check visit or call 0800 20 21 22.

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