When economic gloom can prove a boon

When economic gloom can prove a boon There's a lot of gloom at present that could make consumers draw in purse strings, but savvy spenders - and savers - will find the downturn has its advantages for those prepared to chase bargains. From property and luxury goods to deposit rates and annuities, the current climate can prove a buyer's market, writes Caroline Madden

HOUSE PRICES

FOR YEARS we have bemoaned the ludicrous cost of buying a home, yet when house prices finally begin to adjust to more affordable levels it is seen as a calamity. For aspiring home-owners, it can only be a positive development.

According to the most recent Permanent TSB/ESRI house price index, residential property values fell by almost 10 per cent in the year to May. Admittedly this improvement in affordability has been tempered somewhat by the fact that it has become more difficult to get a mortgage.

Banks have tightened up on their lending criteria, and 100 per cent mortgages are pretty much a thing of the past, which means a sizeable deposit is now a must to get on to the property ladder.

Nevertheless, it is a buyer's market at the moment and cash is king, so once you manage to get over the first hurdle of getting loan approval, you can have your pick of properties. And now that estate agents actually have to work to earn their commission, you can expect a more attentive service than in the boom times.

However, many would-be property buyers who have received mortgage approval are still sitting it out on the sidelines in anticipation of further price reductions.

Given that predictions from brokers and economists last month indicated that further price falls of 20 to 30 per cent could be on the cards, waiting until the market bottoms out seems like a shrewd tactic.

Thanks to the slowdown in the construction sector, homeowners who have decided to improve their existing house rather than trade up are now able to do so for much less. Not only is it possible to negotiate much better deals for work such as extensions and renovations, there's a good chance that the builders might actually turn up when promised.

SALES

IT'S A BARGAIN hunter's paradise these days. Prolonged and aggressive summer sales have failed to boost flagging consumer spending, as hoped. Many retailers, from large stores to small boutiques, are still saddled with end-of-season stock. So don't believe those "final reductions" signs emblazoned across shop fronts just yet - the sales are set to run for some time to come.

Even if their official sales have ended, many retailers will either try to sell off old stock on a discount rail in a corner of the shop over the course of the coming season, or they may run a special clearance event.

For example, Clerys launched a four-day seasonal "clearance spectacular" event yesterday, offering up to 70 per cent off in all departments, even though its summer sales wrapped up officially last Sunday.

Consumers should watch out for sneaky practices, as some retailers resort to tactics such as marking a sale item back up and putting it on display as a full-price item again.

It's also important to be aware that many stores operate a no-return policy during the sales, so you might not be entitled to a refund if you simply change your mind about an impulse buy.

As any self-respecting bargain hunter will know, the ancient art of haggling is back in vogue and can yield great results - and not just for the usual suspects like cars or car insurance. From electrical stores to furniture outlets, it's entirely possible to negotiate discounts as long as you show that you are prepared to walk away.

The hotel industry in particular is feeling the pinch, so anyone planning a wedding should certainly haggle. Even if the hotel isn't willing to drop their menu prices, they may be prepared to negotiate on corkage or room prices, or at the very least throw in some freebies such as table centrepieces.

SAVINGS

THE EFFECT of rising interest rates on borrowers grabs plenty of headlines and airtime, but the other side of the equation - the benefits to savers - tends to get lost in all the doom and gloom.

It was predicted that the competitive post-SSIA saving offers launched last summer wouldn't last, but thanks to the credit crunch the war for deposits is fiercer than ever and savvy savers are making hay while the sun shines.

Faced with higher costs in the interbank funding market, lenders are either increasing rates on existing savings products or launching new products at higher rates in a bid to attract deposits, which represent a cheaper and more secure source of funding. Savers willing to invest some time shopping around for the best deals can reap the benefits of this intense competition for deposits.

Regular savings accounts (RSA), which allow you to set aside money on a regular basis, offer the highest interest rates for cash-rich consumers. Anglo Irish Bank launched an RSA in June which continues to lead the market, offering 8 per cent annual equivalent rate (AER) on deposits of up to €1,000 per month for a one-year term. The interest rate is variable, and guarantees to at least match the European Central Bank rate plus 2 per cent for the full term of the account.

Savers looking for the best home for a lump-sum deposit should consider Permanent TSB's "10-10-20" fixed rate account. It is guaranteeing a rate of 5.89 per cent AER for 20 months, on balances of €10,000 or more.

Before making a final decision, it's vital that savers check all the restrictions relating to the accounts they are considering. They should also be careful not to get sucked in by promotional offers for products that become far less attractive once the introductory period ends.

LUXURY GOODS

ANYONE WHO dreams of living a millionaire lifestyle will be pleased to hear that the trappings of wealth have become that little bit more attainable.

Take helicopters for example. At the peak of the construction boom, no self-respecting developer would be seen without one. Now many Irish helicopter owners are reviewing the running costs, considering their options and in some cases selling up.

According to Michael Hennessy of aircraft supplier Hennessy Aviation, the increase in helicopters coming onto the second-hand market has meant that prices have "softened" somewhat.

And it's not just private helicopter owners that are liquidating their assets. It emerged recently that the family of the late Dr Tony Ryan is selling up its executive-jet charter company, which operates a Challenger executive jet and a Bell helicopter.

Meanwhile, in the luxury car market, economic woes are creating plenty of tantalising bargains. According to David Byrne, managing director of the country's biggest car auction company Merlin Motors, car repossessions have increased by 45 to 50 per cent this year alone.

Merlin Motors auctions off repossessed cars on behalf of banks, and has had to double the number of auctions it runs every week to cope with the surge in volume.

A prime example of the many top-end cars being auctioned by Merlin Motors is the 2005 Bentley Continental Flying Spur repossessed from none other than struck-off solicitor Thomas Byrne.

It is estimated that the Bentley would have cost €250,000 new, but it was snapped up by a Dublin-based property developer for under €100,000. The estimated retail value of a similar car from a dealer is €170,000 to €180,000.

"The auctions are fantastic value because you're buying cars at trade price," Byrne explains. "Because of the rate of repossessions . . . you are in fact getting '07 and '08 cars here this year, still with the same warranty as a garage would give you . . . There can be anything between 30 and 50 per cent of a saving on them."

STOCK MARKET carnage has taken its toll on pension funds, but there is a silver lining for workers about to retire - annuity rates currently available to them are the best in several years.

An annuity is a guaranteed annual income, bought upon retirement. Some workers such as proprietary directors or self-employed people have the choice of buying an approved retirement fund (ARF) - a post-retirement investment fund - instead of an annuity. But for most employees paying into a defined contribution pension scheme, buying an annuity is the only option. At least they can now get more bang for their buck.

"Annuity rates are linked to interest rates, so obviously with interest rates gone up, people are getting higher annuities now as opposed to say three years ago," explains John Power of Power Life and Pensions. "There are various different rates, but in general, rates have increased by a couple of per cent.

"If you go back to August 1st, 2006, one of the most competitive single life* annuity rates for a male, 65 [ on his] next birthday, was 6.81 per cent," Power says. "This means for a pension fund of €100,000, a pension of €6,810 per annum would be provided by the chosen provider."

By August 1st, 2008, this rate had increased to 7.425 per cent. (Power adds the caveat that annuity rates can change every 10 days.)

Should the relatively high annuity rates available at the moment influence the timing of a person's retirement? "It is one factor that people should maybe consider if they have flexibility over when they retire," advises pensions expert Fiona Daly of Rubicon Investment Consulting.

"If there's an expectation that interest rates are going to rise, say over the next six months, they might decide, taking all of the factors into account, that's worth waiting for.

"It is something they would need to look at quite closely because there are a lot of different elements to the equation," she warns.

• A single life annuity ceases to be payable when the holder dies