Money Saving Advice

Rival banks are beginning to protest about the plans for Northern Rock, complaining that the nationalised bank could benefit from competitive advantages over them, taking business away.

MPs were also concerned that Rock was trying to attract new customers with offers above their homes’ worth, thereby running the risk of repossessions in the future.

This crisis doesn’t appear to be over for the Government as it would not deny claims that taxpayers face a £100mb bill for advice to be paid for from banks and lawyers during the quest for a buyer. Chief Secretary to the Treasury Yvette Cooper said: “I can't tell you what the figure is. But what I can tell you is that when a bank gets itself into trouble, inevitably there are fees and costs involved.”

As Chancellor Alistair Darling went into action in the Commons to push through emergency legislation to take Northern Rock into public ownership, he inevitably faced criticism from Conservative leader David Cameron who called for Mr Darling to be sacked. He said: “I think we have to ask ourselves, does this Chancellor have any credibility. Do people trust what he says?”

It was also, according to the Conservatives, amazing that Rock was still allowed to offer 125% mortgages, with a quarter of the debt unsecured. Rock’s interest rate on unsecured loans is 12.9%, whereas it is 13.1% at Halifax and 15.4% at NatWest.

Adrian Coles, of the Building Societies Association, felt that the assistance being given to Northern Rock by the taxpayer would 'lead to pressure being put on organisations that have not failed and do not need taxpayer support'.

CBI director general Richard Lambert, said: “It is critically important that state ownership of the bank should not be allowed to distort the savings market, through access to government funds on favourable terms.”

Prime Minister Gordon Brown re-iterated that nationalisation was a temporary measure. However, new Northern Rock boss Ron Sandler has stated that it will be 'some years' before the bank can repay its loan debts.

Posted by Peter Kenny at 08:22 AM | Permalink | Comments (0)

Rising mortgage payments and increasing debts elsewhere are pushing over ten million adults to the brink of financial ruin in the UK.

Research commissioned by financial website uSwitch.com reveals a distressing picture of problems for a large chunk of the population in the grip of money troubles. Around one in four have major concerns that their current borrowing levels are already out of control, or about to become so.

Around one in eight – 5.4 million – have missed a payment of a debt of a bill in the last six months, and one in ten have had a direct debit, payment or cheque bounce in the same time. Around 3% actually fear that they could lose their home.

The impact of the five interest rate rises between August 2006 and July 2007 have finally begun to have a damaging effect on people’s finances, with some £100 having been added to most monthly mortgage repayments, and all credit – loans, overdrafts, credit card rates – is higher than it was.

The situation has been made even worse by the global credit crunch, with banks and building societies pushing up mortgage rates even further, refusing more loan and card applications, and chasing more borrowers through the courts to pay their debts.

Further studies by Mintel and Moneynet.co.uk have backed up the findings of debt paralysis by uSwitch.com.

Britons now owe a staggering £1.3 trillion to financial institutions, with the average person seeing half of their take-home pay going on mortgage repayments and other debts.

Director of consumer policy at uSwitch, Ann Robinson, said: “This is crunch time for consumers and it couldn't come at a worse time of year. In the run-up to Christmas, traditionally one of the biggest periods of consumer spending, people are concerned about their jobs, their homes and their ongoing ability to manage their debts and bills. The days of easy credit and the ‘buy now, pay later’ culture may be numbered, but they will leave a painful reminder for those left struggling with debt. The credit crunch will claim casualties - it will be enough to tip some over-indebted households over the edge.”

Posted by Peter Kenny at 05:01 AM | Permalink | Comments (0)

The losses from bad credit loans incurred by US investment banking giant Merrill Lynch were worse than it at first thought, at $3.4bn (£1.6bn). The losses due to sub-prime mortgages and loans to fund company takeovers were a massive $7.9bn, and Merrill admitted that it had had to take a more conservative view of the value of its assets backing the doubtful debts.

The result of this was that Merrill posted its first quarterly loss for six years, and put Merrill at the top of the list of worst affected institutions from the subprime crisis and credit crunch.

Merrill said: “This is due to additional analysis and price verification ... including the use of more-conservative loss assumptions in valuing the underlying collateral.” It cast some doubts over chief executive Stan O’Neal’s handling of the crisis.

The season of third-quarter results announcements is at-hand on Wall Street, and bosses there were working to try and come up with a standard method of valuing their loans so that the market could make a fair comparison of how the banks had coped. This change in Merrill’s valuation casts doubt on the success of that exercise. There had been some doubts about how low Merrill’s original estimate had been, and Bill Fitzpatrick, an analyst from Johnson Family Funds, said: “This is a bloodbath for certain. It speaks very poorly to Merrill's risk management practices. Clearly heads are going to roll, and I wouldn't be surprised to see meaningful near-term lay-offs.”

Lee Norton, analyst at JS Asset Management concurred, saying that the results brought questions about Merrill’s management, adding that they were paying the price of having reduced numbers of experienced professionals in Merrill’s debt departments, leaving inexperienced heads in charge.

As Merrill reported a net loss of $2.3bn for the quarter, O’Neal blamed sub-prime market uncertainties, saying Merrill was working to resolve the impact.

Posted by Peter Kenny at 05:23 AM | Permalink | Comments (0)

The latest FSA review of the sub-prime market criticised lenders and intermediaries, exposing weaknesses in lending practices and in the methods used to assess a customer’s ability to afford a mortgage. It wasn’t all bad news: the research found no particular evidence of bad credit remortgages being wrongly sold to prime customers, despite accusations of this in the past. There were criticisms, of course, and the inability to assess a customer’s affordability was a definite concern. Some points were raised against intermediaries and brokers and their inability to demonstrate why they took a particular course of action. There is some evidence of poor record keeping.

There were, according to the report less than half of the files on customers with self-certified incomes which explained why customers had to certify their own incomes. In fact, of course, self-certification of income might have been the right thing to do, but without evidence, the FSA can only be suspicious of the motives. The question is whether well-kept records might have painted a very different picture for the FSA to view.

There is little doubt that the sub-prime sector has made great strides in recent years to come into the mainstream form murky back-street dealings. Borrowers with debt problems are no longer forced into the ravenous maws of loans sharks. Sub-prime customers are now better served than at any time in the past. If one or two providers slip up in their processes from time to time, then the FSA is there to keep them in check.

Borrowers with poor credit histories now have access to a large range of competitive products from lenders who are strictly regulated (as the latest report amply demonstrates) by one of the toughest regulators in the world.

It is easy to make sub-prime a target for criticism, especially when it is a dirty word in the US after the goings-on over the Atlantic, but in the UK things should be kept in perspective.

Posted by Peter Kenny at 05:02 AM | Permalink | Comments (0)

The burden of debt is reaching record levels as the four interest rate rises in a year begin to take their toll. UK household’s are using around 19% of their income to repay borrowed money and the interest on it.

The previous highest level was in late 1990 at 18% according to figures from accountants Pricewaterhouse Coopers (PwC). In quarter three 1997 only 12% of average income was used to repay debt, but the figure has been on a steady rise ever since.

Interest rates are almost certain to rise again in early July, making the situation even worse for many households.

In recent months rising utility bills, fuel prices and increasing interest rates have not been matched by earnings increases, leaving many households worse off. This means that the amount of spending power for goods and services will be reduced. This will inevitably lead to lower consumer spending in the next two or three years. This is, of course, what interest rate rises are designed to do to cool an overheated economy. The danger is that interest rates will be pushed up too far, cutting spending by so much that spending stops enough to result in companies struggling against falling orders.

PwC reports that after debts and bills have been paid, the level of income rose by 3.1% per annum from 2004 to 2006. It was 3.9% per year over the longer period of 1997 to 2006. Since 1995 household spending has been going up by 5.5%, whereas as disposable income has gone up by only 4.9%. The result has been an increase in borrowing to match the shortfall. The increase in borrowing means higher mortgages and more credit being taken on by more people

PwC forecast GDP growth to fall to 2.75% for the rest of 2007, from 3% in the first quarter, and then to 2.5% in 2008. Consumer inflation is expected to go down towards the target of 2% in early 2008.

Posted by Peter Kenny at 09:44 AM | Permalink | Comments (0)

The amount of county court judgements has risen once again and currently the figures are at the highest that they have ever been. The problem is said to be down to a constant struggle with consumers to keep up with credit cards, store cards, high mortgages and loans. People these days seem to have more than one type of debt and that is when the problems can really start. Just one missed payment can set off a string of events which can then lead to a massive debt problem.

Lenders have simply had enough of the bad debt craze and so they are now making an example of people and taking out county court judgements against them. It is thought that there is just under a quarter of a million judgements out against people today. Now if more and more people continue to get into debt it is thought that the figures will rise dramatically up to one million county court judgements.

Obviously this is not great news for the lender either as there is every possibility that the consumer will have to declare themselves bankrupt. Then the lender would get no money back at all and that is obviously not what they want. They would much rather come to an agreement but if one cannot be met then they will take out a county court judgement.

The thing with a county court judgement is that bailiffs then usually get involved and there is often nothing worse than bailiffs turning up on your doorstep. So if you do end up with a county court judgement then things do not look particularly good.

Overall the number of bad debt does seem to be decreasing a little but it is still a big problem. With lenders becoming tougher with consumers it is more than likely that there will be a large rise in the amount of people claiming themselves insolvent.

Posted by Nick at 04:43 PM | Permalink | Comments (0)