YOUR MONEY: 'Anyone who is intending to buy euros in the near future should consider buying at least half their foreign money now before rates get even worse.'
BY NAOMI CAINE
The pound is plunging - and that's bad news for holidaymakers, anyone who has bought a foreign property with a euro mortgage and people who have retired abroad.
Sterling last week dropped to record lows against the euro at around 1.05 euros to the pound. The gloomy economic outlook does not suggest a currency revival anytime soon. The Bank of England is widely tipped to cut interest rates even further, which will most likely push the pound even lower. Mark O'Sullivan of Currencies Direct says: "We are already seeing the pound trade at an all-time low against the euro and this is likely to get worse as more investors lose confidence in the pound amid fears about the UK economy."
If you are planning to travel to the Continent, perhaps on a skiing trip, the best advice is to scour the market for the best currency deal. A number of firms including Marks & Spencer and the Post Office do not charge commission when you exchange money. But check out the exchange rate. Some companies might try to recoup the money lost on commission fees with a poorer exchange rate.
You might be able to get a good currency deal online with a foreign exchange service such as Travelex, Fairfx or HiFX. Travelex also offers an online price guarantee. If you can get a better deal at one of the high-street banks or major retailers, it will refund you the difference. Just remember to include any delivery charges in your cost comparison.
Some experts suggest that you exchange your money now, even if you are not planning to travel immediately. Stephen Heath, chief executive of FairFX, says: "Anyone who is intending to buy euros in the near future should consider buying at least half their foreign money now before rates get even worse, and buy the rest later just in case sterling regains some strength."
You could also consider a travel money card, which you can load up with foreign currency before you travel. Some cards charge a fee of about £10, but the fee is often waived if you load over a certain amount, typically about £200.
Just don't wait to exchange your money at the airport, because it often works out more expensive. At the end of last week, the exchange rate after commission in the Travelex bureaux in Glasgow and Edinburgh airports worked out at less than one euro to the pound.
If you are one of the estimated two million Britons who own a property in Continental Europe, you could be feeling particular pain from the currency crunch. Receiving a salary in sterling while paying a mortgage in euros, the poor exchange rate means higher monthly payments.
For example, if you have a 100,000 mortgage at 5% over 25 years, the monthly payments will be 584. That's the equivalent in sterling of £542 now, up from £463 six months ago.
You can protect against a further drop in sterling by locking into an exchange rate. You can usually fix your exchange rate for a week up to a year or more. But remember that so-called forward rates are often worse than standard rates. You also run the risk that the exchange rate moves against you.
It's not all doom and gloom for people with property overseas. If you let the property and receive the rent in euros, you are cushioned from the worst effects of the exchange rate. You might even be able to release some of the equity in your home to benefit from the relative strength of the euro. Miranda John of Savills Private Finance says: "If you took out a euro mortgage a few years ago, you might now be able to switch to a better rate. So, you could take on a bigger mortgage to release some of the equity in the property, without any noticeable increase in your monthly payments. If you then convert the euros into sterling, you are getting a good deal."
The situation is trickier for the million or so Britons who have retired abroad. Many live on a fixed income paid out of a sterling pension, which means they have lost about 30% of their purchasing power in the eurozone since the beginning of last year. Even if their pension rises each year in line with inflation, the increases are unlikely to make up for the loss on the exchange rate.
The average pensioner couple living in the euro area is now £215 a month worse off compared with the beginning of last year, according to HiFX. The basic state pension for a couple of £628 was worth 961 in January 2007, when £1 bought 1.53. But on Thursday, when sterling traded at just 1.05, the same £628 bought just 659 - a difference of 302, or £287 at the current rate.
Pensioners can lock into an exchange rate to safeguard future payments, but they should be aware that they could lose out if sterling strengthens.
Making sure that debt doesn't spoil 2010
More than 4.5 million credit card customers - one in 10 - are still paying off debts they ran up last Christmas, according to research from MoneyExpert. People aged between 25 and 34 are most likely to be suffering from a financial hangover, with 15% still in debt from Christmas 2007.
Hangover debts can be costly. Someone carrying a balance of £1000 from last Christmas will have spent around £169 in interest over the year, if their rate was 16.9%.
Experts are urging consumers to get their debts under control. Sean Gardner, chief executive of MoneyExpert, says: "Hopefully the realisation that another year has rolled round will encourage card users to restructure their repayments and start clearing their debts. Despite a tightening of procedures for credit-card applications over the last 12 months there are still many deals available that will help people cut debts."
Analysis of the market shows that 80% of all standard credit cards now offer 0% balance transfer deals. So if you are paying a high rate of interest on your debt you can switch the balance to another card with a 0% rate. Just watch out for fees, which can be as much as 3% of the transferred balance.
Virgin Money is currently offering a card with 0% on balance transfers for 16 months. Or there's the Barclaycard OnePulse, with 0% on balance transfers for 14 months.
If you want to use the card to make purchases, then the Halifax All in One and the card from Marks & Spencer Money both charge zero interest on purchases for 10 months.
If you have run up various debts on different cards, you might want to take out a personal loan to consolidate your borrowings. But loan rates are rising even though the base rate is falling. In October, about a quarter of all loans charged interest of less than 8%. Now, there are no deals below 8%, even though the Bank of England cut the base rate from 3% to 2% in November.
The cheapest loan if you want to borrow £10,000 over five years is now 8.2%,
more than four times the base rate. Just two months ago, best-buy loans were available at 7.7% - half a percentage
point lower than today, according to uSwitch. The average loan rate was 9.31% at the beginning of October; today it is 9.44%.
Louise Bond, personal finance manager at uSwitch, says: "The current economic climate is still unpredictable and the cuts by the Bank of England are not being felt by people looking to take out a personal loan. Six loan companies have increased rates over the last month by as much as two percentage points, sounding the death knell of the sub-8% best-buy loan era, which is really bad news for consumers trying to consolidate debts."
If you don't have any debts from last year, why not start saving now for Christmas 2009? If you can make a regular monthly saving, you can earn fixed interest of 6%. Andrew Hagger of Moneynet says: "By kicking off your savings plan now and putting away just £50 a month, you'll be really glad that you took such sensible and decisive action in 12 months' time when you've accumulated a £600 plus Christmas spending pot."
Tis the season to be burgled...or set on fire
Christmas can turn into Riskmas if households don't watch out, as insurers warn that fires, accidents and burglaries are all set to rise over the festive season.
The number of homes damaged by fire is expected to soar by 300% on Christmas Day, according to More Th>n. Ovens are a common source of fires. Christmas tree lights are another hazard, so you should always switch them off when you go to bed or leave the house. Candles are also dangerous, and should be kept away from curtains and other flammable materials.
Last year AXA, the insurer, received a claim for more than £6000 when a draught caused a string of Christmas cards to fall onto a candle, setting alight a tablecloth and causing damage to a dining room and living room.
Accidents can ruin a Christmas. AXA handles several claims each year for furniture damaged by falling or carelessly handled trees.A less obvious, but even more common, claim is for carpets ruined by water or sap from the base of the tree, which can create on average £1000 worth of damage.
Christmas offers rich pickings for burglars with all those presents under the tree. Items on the thief's wish list this year are expected to include the new shape iPod Nano, the latest Apple MacBook range, and the Nintendo Wii and Wii Fit. Judith Roberts, M&S Money insurance manager, says: "Householders can take practical measures to deter burglars and protect their homes by keeping expensive Christmas presents out of view, closing curtains during the long, dark December evenings and fitting timers to lights and radios to create doubt in a burglar's mind." Also, make sure you dispose of any wrapping or boxes carefully, so thieves cannot identify the latest gadgets by rummaging through your rubbish bin.
You should remain vigilant beyond Christmas Day because New Year's Eve is the festive season's worst day for burglary. Homes are 25% more likely to be broken into on December 31 than on an average day, according to Norwich Union claims data.
It's a good idea to check your household insurance to make sure you have adequate cover over the holidays. Some insurers automatically increase cover over Christmas but it's worth reading the small print because only a small percentage offer unlimited cover.
Abbey cuts fixed-rate mortgage deals
Abbey has trimmed the rates on its fixed mortgages by up to 0.6 percentage points, only a week after a similar price cut.
The lender now offers a two-year fix at 4.64%, with a £549 fee and a minimum 25% deposit. You can fix for three years at 4.64% if you have a 40% deposit. The rate is 4.89% if you can only put down a deposit of 25%. Both the three-year deals charge a fee of £995.
Borrowers who prefer to lock into a five-year rate pay 4.94% with a 40% deposit, 5.09% with a 25% deposit and 5.84% if they have a deposit of 15%. Again, the fee is £995.
Abbey also has a two-year tracker on offer at 3.99% if you can put down a deposit of 40%.
Nici Audhlam-Gardiner, Abbey's mortgage director, says: "Abbey continues to offer very competitive deals, demonstrating that we have been, and continue to be, open for business."
For more information visit your local branch or www.abbey.com.
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