Money Saving Advice

Mr Mervyn King, governor of the Bank of England has said that whatever the Bank did with interest rates the cost of borrowing is likely to go up as a result of the sub-prime crisis in the US, and the knock-on effect it has had on financial markets around the world. In effect he was admitting that the Bank no longer has control over interest rates.

This will come as a major blow to home owners who were hoping that the bad news of turmoil in the financial markets would at least have the effect of preventing any more interest rate hikes by the Bank of England. Sadly, the same reason that interest rates may have peaked may also cause banks to put up their mortgage rates anyway.

Both Mr King and Chancellor of the Exchequer Alistair Darling had critical words for banks and their risky and reckless lending habits. Mr Darling called for a return to “good old-fashioned banking” and encouraged borrowers and lenders alike to ensure that borrowers could repay any money they were lent.

Abbey and Bank of Scotland both put mortgage rates up on the same day as Mr King made his bleak forecast. After five base rate rises since last August, Mr King said the Bank could lower its rate from 5.75% to ease the pain for home buyers, but warned that there was guarantee that it would do so. The cost of borrowing between banks is at its highest for almost nine years, but Mr King said he has no intention of bailing out irresponsible bankers, as that would only encourage them to carry on speculating and taking risks with offering people loans. However, he said he would “protect the public from the consequences of the turmoil by continuing to maintain economic stability” by setting interest rates in order to meet the government’s inflation target of 2%.

Many economists believe interest rates have now peaked at 5.75%, at least for 2007.

Posted by Peter Kenny at 05:03 AM | Permalink | Comments (0) | TrackBacks (0)

Brits enjoy the feeling of driving a brand new car off the forecourt, but it is best not to be saddled with more debt than necessary as you take your shiny new set of wheels onto the road. The sad fact is that the most popular cars lose around 42% of their value in the first year, and the single most popular, the Ford Focus Style 1.8, costs £14,622 new, but is worth only £7,536 twelve months later.

If you’re paying for car using credit then, with that type of loss of value, you want the best deal possible. A showroom finance deal is not likely to be the best bet. The average car showroom finance deal charges interest at 10.76% APR, which is as much as 4.5% higher than the best unsecured loans you might find elsewhere.

Perrys is one of the largest car dealerships in the country, and if you borrowed £6,995 towards the cost of a £7,995 Ford Fiesta, you would have to pay interest at 12%, amounting to £2,282 over five years.

A preferable deal could be found at MoneyBack Bank, at 6.3%, meaning an interest payment of just £1,150 – and an excellent saving of £1,313.

You might find an offer of 0% car loan, or cashback or free insurance at some dealers, but you need to understand the price of the car before you jump at those offers, as they may have bumped up the car’s price to pay for those “free” extras.

Many people like to replace their car every two or three years, and a personal contract purchase (PCP) can help achieve this. As this begins, the manufacturer lends you 75% of the car’s value. Together with a promise of a fixed trade-in price, you agree not to exceed a stated mileage, usually around 12,000 miles a year, and you can trade the car in at the end of the period or pay the remaining 25% to own it outright.

Posted by Peter Kenny at 07:23 AM | Permalink | Comments (0) | TrackBacks (0)

The recent stock market falls will not necessarily have an impact on the housing market, according to analysts. They still maintain that the UK economy remains strong and unemployment is low.

They did say, however, that the US sub-prime mortgage market will probably have an impact on mortgage rates in the UK, but it might lead to some lower rates, not higher.

Martin Ellis, Halifax chief economist, said: “I don't think the stock market falls will have much of an impact. The economic fundamentals are still very strong, the economy is doing well and unemployment is still very low. If you look back to the stock market crash of 1987, the housing market remained strong and continued to be so into 1988.”

It is interesting to recall that following the stock market fall of 2001, people turned their backs on shares and invested in buy-to-let property instead. A repeat now would give the housing market a boost.

The view is that what is happening in the stock market – however dramatic – is a short-term issue, which would need to pan out for a lot longer to have an adverse effect on the housing market. However, this view does come with a warning that if the downward market does turn into a bear market then there could be wider implications for jobs in the finance sector which might result in an impact on the property market.

The turbulence could lead a rise in some mortgage rates, but a fall in others. Where funding for the mortgage market could get harder for lenders dependent upon the wholesale market, but swap rates, on which loan lenders base their fixed rates, are linked to gilt yields, which have fallen. Some mortgage lenders have already brought their fixed rates down by around 0.25%, and others could follow.

Posted by Peter Kenny at 04:09 AM | Permalink | Comments (1) | TrackBacks (0)