Money news, advice and predictions for savers and spenders. This week: what the currency crash means for you.
By Jeremy Gates
This summer, the biggest headache for families heading for Florida was squeezing the best-value package from the leading travel operators.
As the pound sinks against the dollar, the big worry could soon be finding enough spare cash for the Sunshine State. Turmoil on currency markets could turn trips in dollar territory - currencies in South America, the Caribbean and Africa are also dollar-linked - into complex financial calculations.
Suddenly, both the yen and the dollar are in demand, with the wheezy sterling among the also-rans. If fears about our debt mountain persist, our foreign travel plans - and other areas of household spending - might need a rethink.
This summer, two adults and two children got 14-day Disney Ultimate Tickets to Orlando's big four theme parks - Magic Kingdom, Epcot, Hollywood Studios, Animal Kingdom - and several smaller ones for around £630.
At Attraction Tickets Direct (ATD), managing director Oliver Brendon says the current price is £786, largely because he hedged enough currency to hold a conversion rate of 1.75 dollars to the pound - against a current New York tourist rate of around 1.50 dollars.
ATD customers can pay a 10% deposit to guarantee the current ticket price for summer 2009 - or less if the price falls.
"In two months, the pound has lost 27% against the dollar, hitting the spending power of Brits in Florida," Brendon says.
The good news for holidaymakers is that cash-strapped operators are cutting prices to early bookers for summer 2009. Thomson's Al Fresco camping division, for instance, offers seven nights for a family of four on Spain's Costa Dorada next April from £249, including the Channel ferries and saving £280 on the 2008 brochure price.
Some of the 800,000 Britons with holiday homes abroad might do even better from the mayhem.
At currency specialist FC Exchange, managing director Nick Fullerton says: "A Eurozone home sold at 200,000 euros would give its British owner in the region of £157,500 - about £22,000 up on the value of a year ago.
"With the Euro strong and sterling taking a battering, and no improvement likely in the foreseeable future, investors may be better off taking advantage of currency rates, selling a Eurozone home to bring money back to the UK."
Don't do anything as drastic as that, says Stuart Law, chief executive of property investment company Assetz. He says savvy homeowners in France - and possibly Spain and Portugal too, if they own plenty of equity in their home - can raise loans on homes abroad to settle debts in Britain, with Euro mortgage rates below those in Britain.
"In France, until the last couple of years, there hasn't been much scope to raise money against property, and many British owners paid cash some years ago," Law says.
"At 1.24 euros to the pound, it may be efficient to use a Euro-mortgage in France - typically a repayment loan over 10-15 years - to raise funds against the credit crunch in the UK, or possibly to help children buy their first home."
Meanwhile, Britons fleeing the UK for good - nearly two million have left since 1997 - are using forward contracts to reserve weaker currencies, notably Australian and New Zealand dollars and South African rands, at a rate linked to the current one for up to two years, by paying a 10% deposit.
When the rand plunged 20% in a week in mid-October, Britons moving money to South Africa must have been tempted to lock onto the lower rate for up to two years ahead.
"What makes the present situation exceptional," says Nick Fullerton at FC Exchange, "is that major currencies, normally range-bound, are fluctuating more wildly.
"If you are moving £300,000 to Australia, the rate can move 20% in 24 hours - that's £60,000 up or down on the day before. It's huge stuff, and possibly why we have had the busiest trading month ever."
Fullerton says this is also a good time for British workers abroad to repatriate dollar and Euro-based earnings to the UK. His firm acts for employers, including film companies in South Africa and oil rig teams in Qatar, in transferring wages to UK bank accounts.
"We have pilots based abroad who want to be sure they get the same amount of sterling each month. Otherwise their wage is at the mercy of the markets," Fullerton says.
"If they are going to earn 180,000 euros a year, they send a 10% deposit - 18,000 euros - to take out 12 forward contracts on their behalf to ensure their sterling income is constant."
Can private investors cash in on the currency wobbles?
Fullerton says dabblers in currency markets are likely to burn their fingers.
Paul Dimambro, head of the Hargreaves Lansdown Currency Service, says intrepid investors use spread betting or Contracts for Difference to cash in on currency wobbles - although shrewder customers might have opened dollar-based accounts in a UK bank when sterling hit 2.11 dollars earlier this year.
"But you must remember," Dimambro says, "that interest on these accounts is low, currently below 1%. They depend on currency movements to deliver the return."
Hargreaves Lansdown, which promises exchange rates significantly better than those from banks, confirms strong demand from clients buying homes abroad.
Few can predict where rates go from here, but travellers who follow exchange rates closely in the days before departure and load a pre-paid card will tend to get an exchange rate around 10% above rates available at the airport.
Nationwide's debit card doesn't charge on overseas transactions, and money can be switched from a Flex account just before departure.
As a pre-paid Mastercard debit card loaded in advance with Euros or dollars, the FairFX Currency Card promises a keen exchange rate and close control of spending abroad. It charges no fee on retail transactions in the UK or abroad, and can be reloaded abroad free of charge, by mobile phone or internet.
Stephen Heath of FairFX says: "Although we can't give advice, we give flexibility to top up a card when the pound is stronger, and our internet model cuts costs to ensure a good exchange rate."
The FairFX euro card has a £9.95 fee, which is waived if it is loaded with a minimum £500 or obtained through the website www.moneysupermarket.com. On cash withdrawals abroad from ATMs, there is a £1.50 charge.
:: INFORMATION: Fair FX (enquiries@fairfx.com); FC Exchange (0207 989 0000); Assetz (0845 400 8000); Attraction Tickets Direct (0800 975 0002); Hargreaves Lansdown Currency Exchange (0117 311 3257).
POUNDNOTES
:: Don't plunge back into the housing market too soon, says Moneyfacts.co.uk head of mortgages Alan Harper. He thinks first-time buyers who put their deposit money in a high-earning savings account until the market bottoms out might eventually get a house of their dreams for a lower price - and on a better mortgage deal, because they require a smaller percentage of price.
On a typical £200,000 home purchased near the top of the market in October 2007, buyers might have borrowed just over £160,000. If prices dip 26% in two years, the same house costing £150,121 in autumn 2009 might need a loan of only £105,500.
"Lenders price for risk, so the smaller proportion of property value for which you have to borrow, the lower the risk to the lender and the better the deal," Harper says.
However, he admits some first-time buyers who delay their purchase won't always come out on top.
"Market conditions could mean much higher rates next year, and borrowers could then find themselves in a worse position," he says.
"The trick, of course, is to get the timing just right, but the volatile market adds to the gamble of knowing when to buy."
:: Although lending for house purchase plunged during the third quarter, there can be no disputing that HSBC provided consistently the most competitive products, with only Yorkshire BS anywhere near as a rival, says mortgage website mform.co.uk.
The website, which monitors best buy products in all product categories, has Nationwide BS in third place, followed by Newcastle BS and Halifax.
"HSBC's financial strength enabled it to stay ahead of rivals as consistently the most competitive," mform.co.uk spokesman Francis Ghiloni says.
"It has achieved this by going direct to the consumer rather than using brokers, and borrowers should note that the best deals are now available direct."
Figures from Impartial.co.uk, the 'Find a mortgage advisor' service for consumers, show that the typical two-year fixed-rate mortgage costs 5.5%, with the cheapest deal at just 5.39%. One in five mortgage holders currently pay Standard Variable Rate (SVR), and could each probably save £212 a year by moving to a lower fixed rate.
Impartial says 2.6 million homeowners expect to remortgage within the next six months.
"Mortgage advisors can help 1.25 million homebuyers coming to the end of fixed rate deals, and also another four million still languishing on their lender's SVR, which are higher than the next best fixed-rate deals," says Impartial's Kevin Barrett.
:: Although trusted High Street brand Argos has linked with Provident Personal Card to offer consumers an 'Easy Shop Card' for use only in Argos stores, shoppers are warned that interest charges over six months on money on gifts could cost 222.76% APR.
Consumers can borrow £100-500 to spend in any Argos store, and don't need a banking facility to repay the money because a 'local agent' collects repayments at their house.
Provident Personal Credit also sells 'sub-prime' gift vouchers with an APR up to 222.7%, for use in Argos stores and 96 other major High Street stores including Woolworth, B&Q, JJB, Topshop, Burton, Mothercare, Comet, HMV, Halfords, Debenhams and House of Fraser.
Louise Bond at price comparison service uSwitch.com says: "Despite being attached to trusted High Street brands, these deals are essentially sub-prime loans with inflated APRs.
"Vulnerable consumers may not care how much they have to pay back as they focus on just getting through Christmas. Taking a quick fix can cost them dear in the long run."
:: As the Bank of England looks to cut interest rates to head off recession, savers should look carefully at what an account offers before they sign up.
Sainsbury's Finance says more than 13 million people have a total of £165 billion in accounts which impose penalties on withdrawals. Some of the best-paying accounts pay no interest on the entire balance for the month in which a withdrawal is made.
Sainsbury's Internet Saver does not impose any penalties on withdrawals and pays 5% gross AER on deposits of £1-plus.
Newcastle Building Society is launching an Inflation Protector account, which promises to match any percentage change in the Retail Price Index (RPI), plus the addition of 2.25% gross/AER annually on a minimum £500 investment.
The last published change to RPI was 5%, so Newcastle BS will pay 2.25% above that - a gross return of 7.25%.
The Inflation Protector can be held either as a Bond or an ISA to protect interest earned from the taxman. A limited issue, it has a maturity date of November 25, 2010.
Enquiries: Newcastle BS (0845 600 4331); Sainsbury's Bank (0500 405 060).
:: HIGH-FIVE SAVERS:
Phone No Rate Account Period Deposit Interest paid
Anglo Irish Bank 0845 455 2222 7.05% (F) Fixed Rate Bond One Year Bond £500 On maturity
Secure Trust Bank 0121 693 9111 6.57% 60 Day Notice 60 Days £1,000 Quarterly
Anglo Irish Bank 0845 455 2222 6.55% Seven Day Notice 2 Seven Days (B) £1 Yly
Derbyshire BS 0845 600 2005 6.55% Postal 60 Triple Guarantee £250 Yly
Scarboro BS 0845 634 3760 6.51% Balance Builder Issue 1 None (B) £1 Yly
:: TOP-FIVE BORROWERS:
Phone No Rate Period Max% Adv Fee Incentive
First Direct 0845 610 0100 5.49% for term 90% £399 Yes
Mkt Harboro BS 01858 412250 5.49% for two years 75% £595 Yes
Nationwide BS 0800 302010 5.63% for term 75% £599 Yes
Britannia BS 0800 013 2322 5.64% for three years 80% £999 Yes
West Bromwich BS 0800 298 0008 5.89% to 30/12/18 75% £949 None
Code:
*F - Fixed
*P - Operated by Post
*B - Operated by Post/Telephone
*T - Operated by Telephone
*W - Operated by Internet
*H - Operated by Internet/Telephone
*S - Available only to those aged 50 or over
*R - Available to those aged 60 and over.
:: Source: Money£acts - Tel: 0160 347 6476 (All rates subject to change without notice)
