IN THE week the Bank of England warned families in the UK to expect their standard of living to fall, new evidence has emerged that Scots have already woken up to the reality of the fallout from the credit crunch.
After years of cheap credit and relatively liberal lending policies, banks are becoming stricter about who they will give money to and how much.
As mortgages and other loans become more expensive, household bills – most notably food and utilities
– are also shooting up.
Figures released today by Friends Provident, a life and pensions company, reveal 68 per cent of Scots plan to tighten their belt this year because of the credit crunch and a third say the current economic situation is making them worry about their finances.
And the housing market is likely to continue to slow, with 23 per cent of Scots being put off taking out a mortgage or buying a property. This is a worrying finding given the fact Lloyds TSB Scotland yesterday reported the boom in Scottish house prices has come to an end, with the first quarterly fall in the average house price for seven years.
In these tough times, Friends Provident is advising against giving money to friends, unless you want the relationship to turn sour. Some 59 per cent of Scots have lent money to friends, but 19 per cent have never been paid back.
To try to cope with the financial pressure of the credit crunch, everyone would be advised to follow the lead of 35 per cent of the people surveyed and carry out a total overhaul of their finances.
James Ward, director of marketing at Friends Provident, said: "The credit crunch is already impacting on consumers, both financially and psychologically. The trick is to harness this heightened awareness and to do something positive, like overhauling your finances, budgeting effectively and investing your money in a way that makes it work smarter for your needs."
A further sign of people cutting back is that planned spending on cars has plummeted to its lowest point for two years.
Not only are there 5 per cent fewer people planning to buy a car in the year ahead, but those who do plan to go ahead and make a purchase will be spending less than before. Six months ago buyers planned to spend an average of £9,827 on a car, compared with just £8,851 now.
But Scots are belying their frugal image as more people north of the Border are planning to buy a car this year than in the rest of the UK. Some 28 per cent are planning to change their vehicle, compared with just 17 per cent in the south of England.
Mark Huggins, head of AA personal loans, said: "Faced with rising costs, including fuel, people seem to be shopping around for a more economical way of buying a reliable car. A third of buyers finance their car purchase with a loan, so it's important they shop around for the best loan rate, too."
With people making plans to tighten their belts, now would be a good time to look for a competitive savings account. This is especially true in light of research from Moneyfacts, an independent provider of financial information, showing how much higher savings rates are now than they were 12 months ago, despite the Bank of England base rate being back at the same level of 5.25 per cent.
Rachel Thrussell, head of savings at Moneyfacts.co.uk, said: "Despite the latest cut in base rate, the second in the last three months, fierce competition within the savings market and particularly the battle for best-buy recognition means that savers have the opportunity to grab some great deals at the moment.
"It seems that some institutions are favouring a strategy of bringing in more funds via retail deposits rather than relying so much on funding their lending through the money markets. Again this is a factor that has driven rates to such highs for UK savers.
"If you don't need to have access to your savings for a while, fixed-rate savings bonds also offer good value at present, and once you've signed up, you will not be impacted by the further anticipated downward fluctuations in base rate.
"With uncertainty surrounding stock-market investments at present, and many commentators predicting further rate cuts as we progress through 2008, there are likely to be many savers ready to take advantage of these opportunities."
The full article contains 757 words and appears in The Scotsman newspaper.
