Loans2YouMoneyTalks

It’s an old English saying that something is as “Safe as Houses”, usually used when referring to taking a speculative financial decsion. 

However of late UK property itself has begun to slide backwards in value, blamed for the most part on the Credit Crunch that began last year in the USA caused by mortgage defaults in the sub-prime market.

The media are telling us that economists beleive that the UK will now experience a housing slump and economic recession although there seem to be differences of opinion as to how long it will last.  What’s the longer term view?

Now I may be over simplifying here, but we’ve said before on MoneyTalks that house prices in England were too high and that a reduction was likely, the Credit Crunch has merely brought forward something that was inevitable.  We’ve not been alone in that view.  

However ask me whether longterm I think investing in property is a good idea and I’ll for sure say that it is and that you should, even now! Why? Because if you take a loan for example to buy a flat for £100,000 even if this year it becomes worth £90,000. Take a moment to think what it is likely to be worth twenty years from now. Not convinced, well take a look at what your 100K flat was worth 20 years ago. Since then we’ve the 1980’s housing boom, followed by the 90’s slump but since 1997 tremendous growth. If you’d bought your 100K flat 20 years ago you’d have paid less than half that for it, probably more like 30K infact. Your home loan would perhaps have been 25K, who wouldn’t like a 25K mortgage today. Plus 20 years later chances are you would have finished paying for it now and be sitting on a nice chunk of equity.  There aren’t too many other ways to turn 30K into 100K plus and have the use and benefit of the property.

So in our opinion if you can secure a mortgage offer, there’s a good chance you’ll be able to pick up a property in the coming months at a more realistic price and that long term it’ll be a decision you’ll be glad you made.

The Bank of England governor Mervin King has criticised the idea of a possible public mortgage bank as a solution to the current lending difficulties.

You will no doubt be aware if you’ve applied for a mortgage within the last few months that “The Bar” has gotten rather higher for qualifying and that you’ll probably be needing a larger deposit. All this has led to far fewer new mortgages being taken up. According to Bank of England figures there were 33,000 approvals in July 2008 compared with 114,000 in July 2007.  

This lending difficulty has caused the property market to stagnate and house prices are falling, it’s a vicious circle and bound to happen if borrowers are unable to raise finance sufficient to make a purchase.

Mr King does not however think a publicly owned mortgage bank is a good idea. He told the Treasury Select Committee “If the Government were to guarantee mortgages…or set up a public sector mortgage bank to provide mortgages directly…what that would do is totally undercut the incentives private sector banks had to get their own balance sheets in order.”

Mr King is of course the authority on this subject, however with the UK governments acquisition of The Northern Rock don’t we already have a public mortgage bank? Northern Rock continues to trade under the same name but would no longer exist had the government not taken it over last year. We’ve said previously on MoneyTalks that in our opinion Mr Brown and Darling had not much choice but to act or risk a bigger meltdown of confidence in the UK banking system.

Now that the Country now owns the Northern Rock it’s public money that’s taken on the mortgages of it’s customers. It seems to us that so long as the lending was made responsibly and fairly that this could help kick-start the mortgage market again.

Mr King thinks that the Banks wouldn’t appreciate the competition saying “ Banks point out that their balance sheets will take some time to adjust. That won’t happen unless they have incentives to do that.” That’s fine but wouldn’t the competition give them an incentive? www.loans2you.net

Following assessments of the UK housing market from the UK’s biggest lender the Halifax released this week, some of the headlines about the property market verging on a 90’s style collapse do seem unjustified.

“House price growth at record low!” was one such headline. Now did you notice that word “GROWTH” it’s important in all of this. Prices have slowed down mostly everywhere in the UK except London  where prices have risen in the Greater London area by 5.5%.

Furthermore figures from the land registry showed that homes in England and Wales had increased overall by 1.8% during the year ended May 2008.  It turns out that this is the lowest level of increase since it’s figures on monthly changes began in April 2001. 

We’re not saying all is as it was 18 months ago, but put into perspective seems to be not as bad as the media would have us believe. The”Credit Crunch” is being held responsible for the current slowdown but as we’ve said before here a house price correction has been inevitable for some time because buyers have been priced out of the market.

As anticipated the bank of England have decided that interest rates will remain at 5%.

We think that probably they would have liked to have increased them slightly as inflation is causing the economy problems. However it looks as though with a slight fall in house prices that they are thinking of borrowers here.   

Will the rate increase next month? What are your predictions? Our view is that again they will be kept at 5%.

Certainly it looks that way.

The PM described the Labour parties dismal showing at the recent local elections as a “Bad Night” and he wasn’t wrong! The party lost 310 ccouncillors with the Conservatives gaining 252 Labours worst defeat in over 30 years. 

 Yes although these were elections for local councils the public see them as an opportunity to voice their opinions on National politics and had this been a general election then certainly Labour would no longer be in government and the Conservatives would return to power.

 Tory leader David Cameron said “I think this is a very big moment for the Conservative Party, but I don’t want anyone to think that we would deserve to win an election just on the back of a failing government.”

A poll for The Independent newspaper showed the Conservatives had stretched their lead over Labour nationally to 14 points from seven following a row over Brown’s decision to abolish the lowest rate of income tax, a move which left millions of the poorest households worse off.

Mr Brown blamed the “testing” economic conditions for the Labour’s poor performance which drew comparisons with the thrashing John Major’s Tories suffered in 1995, two years before their landslide General Election defeat.

It looks very much to us as if Mr Browns’ assessment of the result being due to testing economic conditions is spot on. The scrapping of the 10p tax rate has caused a huge row inside the Labour party and perhaps came as the last straw for many voters with other concerns about the economy.

The banking crisis which is not over yet it seems has cost the Government and therefore us a huge amount . Estimates for the take-over and Nationalisation of the Northern Rock are 150billion plus the Bank of England injection of a further 50 billion to encourage the banks to start offering more mortgages again. Unfortunately so far it seems they’re sitting on the money! 

That was very difficult for Mr Brown and his Chancellor but in our opinion it was right to act as they did before confidence in the wider banking sector dissolved.  

Inflation is causing problems too. Officially the figure is 2.5% but that has always excluded both fuel and house prices.  The Retail Price Index which does include mortgage interest payments but not house prices rose to 4.1% as at the end of Feb 2008. If you were to factor in the cost of buying a home by comparison with 1998 the figure in some areas of the UK would be more like 15%! So unless you’re income has risen by at least 100% or more these past 10 years you are worse off.  If you have been retired during this time and been living out of a fixed income you will for sure be finding life more expensive now, although chances are you’ll have at least paid for your home.

Oil price $116 a barrel. OK that’s the price today as I write this entry with forecasters saying $120 a barrel very soon.  Whislt demand continues to rise and supplies struggle to keep up we must expect the price to continue to rise. What nobody knows of course is for how long?

The government in the UK has argued that together with the credit crunch these are matters over which it has no control, so don’t blame us! However inflation is their problem, and as fuel goes up so does the cost of bringing goods to our shops and supermarkets.  If Tesco, Sainsburys and Morrisons all have to pay more for the diesel in their trucks sooner or later they have to pass the increases on to their customers and they are.

Could the government help ease this situation? Here are the stats, what do you think? According to    petrolprices.com  whose latest figures are based on petrol being sold at £107.9p (Out of date info now I know) Here’s the deal: Petrol 32.6p, VAT 16.07p, Fuel Duty 50.35p, Retailer 8.8p. More info available on their website  www.petrolprices.com  it’s  really worth a visit.  Because fuel has risen in price so sharply so has the amount of tax the government collects, from 39.4p per litre in 1996 to 63.7p per litre by 2007.

It would be nice to think that the UK government would consider a cut in fuel taxation but it seems highly unlikely given the revenue they are receiving from it. They of course argue that the price must remain high to discourage us from using our cars on environmental grounds.

This is not meant in anyway to be a political thread, we wish it to be neutral and for you to comment, but can this level of taxation really about the environment or raising money?  No doubt if Mr Brown were to announce a reduction in fuel duty now, he’d be accused of an environmental U turn and trying to buy voters back!

House prices also have started to turn in a downward direction, a difficult one for the government this.  Not a vote winner for Mr Brown with those who’ve purchased recently and have mortgages of 95% or more.  Of course if you purchased 5, 10 or 15 years ago your property may have doubled or even trebled in value so you’re unlikely to be complaining should there be a reduction in prices, unless you’ve borrowed heavily on your increased equity.  Borrowers are finding it tougher to  obtain mortgages now and those coming off fixed rate deals are being faced with higher payments due to the rate increases.

Experts have been saying that house prices have been too high in Britain for sometime, illustrated recently by a work colleague who was told by a chirpy lady on the desk in Barclays, “Did you know we can offer you a mortgage of up to 6 times your salary?” Colleague smiles and says “That’s great but unfortunately the average house round here costs 10 times my salary!”  That’s London for you!  The point is that whether a home costs 7, 8 or 10 times a reasonable salary the price must be too high and lenders just are not going to look at income multiples like that in the current climate. So a slowdown looks likely as does a reduction in the cost of properties. 

Mr Brown and the government are not going to like this. The housing market is seen as a key economic indicator in Britain. If prices start to slide we tend to think that possibly the whole economy is in trouble even if as I’ve mentioned there is likely to be a correction in values whilst incomes play catch up. A slowing housing market isn’t likely to be much of a vote winner. The other problem for the government is reduced stamp duty revenue. Take a look at these figures produced by the Halifax Bank last year:  

 Tripling in revenues from higher stamp duty bands in past five years

Stamp duty revenue raised from sales of properties valued at more than £250,000 rose by 208% in the past five years from £1.6bn in 2001/02 to £5.1bn in 2006/07. More than nine-tenths (92%) of the rise in the total annual residential stamp duty take over the five years has been due to an increase in the amount raised at the higher stamp duty bands.

South of England generates most stamp duty revenue

The South of England* contributed 73% of all residential stamp duty revenues in 2006/07 at £4.7bn, led by £1.7bn of stamp duty revenue from London (27% of the UK total). Two other regions generated stamp duty revenue of at least £1bn – the South East (£1.4bn) and the South West (£1.0bn).

It’s easy to see how a slowing housing market with fewer properties being sold would result in a fall in stamp duty revenue.  Bad news for a government with so many existing financial commitments. Following the row within their own party Chancellor Alistair Darling announced changes to the personal tax system to help low-income customers affected by the abolition of the 10% starting rate of income tax. Personal allowance for the 2008-09 tax year will be increased by £600 from £5,435 to £6,035, and the threshold at which someone starts to pay higher rate tax will be reduced by £600.It looks as though the government listened to its critics and to the public following the local elections by giving us this concession, but whether it will be enough to turn around their fortunes is unknown. Given the result in the Crewe and Nantwich by-election last week it looks like Mr Brown has his work cut out to persuade the Country he’s got it right.

As always we welcome your comments, The Loans2you team.  www.loans2you.net 

It can be a very daunting prospect but do you know the full story? Here’s our unofficial lowdown of what you need to know.

Firstly when is it right to consider bankruptcy?  We would recommend you visit your local Citizens Advice Bureau to have a  discussion with a debt counsellor before doing anything.  You’ll get frank and free advice based on your individual circumstances.   They should explain the other options you can consider,  debt consolidation, debt management and an IVA.  You can also read about these in our Debt category. However if you have spiralling debts and no prospect of realistically reducing them via other means bankruptcy could be your best option.

The upside to bankruptcy is that once your order is made at the local County Court and you’ll receive a copy on the same day, you are then protected from your creditors. Should any contact you asking for money, you can show them your bankruptcy order.  This will cost you  £485 which must be paid to the County Court in cash on the day of your bankruptcy. The cost is a split between the court fee and the official receivers office.  More on this later.

Downside.  To start with your credit rating will be shot down in flames! Saying that if your debts were already so nasty that you needed to go bankrupt chances are you had defaults and CCJs which would have prevented you from obtaining credit anyway. The difference in bankruptcy is that it is illegal for you to obtain credit of more than £500 whilst within the bankruptcy period.  Also officially you must disclose that you are bankrupt. Best just to forget getting credit really! Once your bankruptcy period is finished usually after 1 year, your credit rating will still be impaired because the credit reference agencies will keep the details on file for approx 6 years. 

Don’t worry if you need credit urgently for a car etc there are plenty of companies who’ll consider once your bankruptcy is finished. However you will have to pay a higher rate of interest.  The other major negative factor to consider is that you are highly likely to lose any assets,  property,  savings etc that you own now. More on this later. You will also get a tiny mention together with other folks who’ve declared themselves bankrupt in the local paper. Remember if you are self employed and have a business it will almost certainly be closed down so if you are an employer you need to advise any staff you have.

If you are a one man band such as a plumber, electrician etc etc, nobody is going to want to make you unemployed. You will be allowed to keep all of your equipment used for work plus your transport unless it has a large amount of oustanding finance owed on it.

How it’s done then. The first step is to obtain the necessary paperwork from your local County Court and to fill in the necessary information which includes making a list of all the companies you owe money to both secured if applicable to your home and unsecured such as personal loans and credit cards.  Bear in mind that if you own your home and have equity within it, you could well have this reposessed meaning you would need to find alternative accomodation. Again take advice on this when visiting the Citizens Advice counsellor.  Having completed the paperwork, you need to make an appointment to visit your local County Court to present your bankruptcy. You may well find that they don’t offer appointments and that you’ll have to attend between say 8.00am and 11.00am. Busier courts work in this fashion.

One point when listing the creditors, you only need list the company dealing directly with the debt. For example, you owed 3K to a credit card company, they then sold your debt to a collections company. When completing the bankruptcy paperwork  list the collections company as the source of the debt, and perhaps under this the name of the original creditor. It is not necessary to list every debt collections agency who have written to you about the same money. When the official reciever writes to your creditors informing them you have become bancrupt, these other companies should be informed by them.    

Bankrupty Court Procedures

As previously mentioned it is not always necessary to make an appointment with your local County Court to make a bankruptcy declaration. Some busy courts will simply advise you to attend between 8.00am  and 10.00am for example. Do check with your local court before attending. If you are working remember the whole process is going to take most of a day so you’ll need to arrange a days leave. 

You need to report to the Clerks of the courts office. These offices tend to get quite busy so if you want to get seen arrive early! They deal with all the paperwork for you, checking to see that you’ve completed everything correctly. This is when you pay the court fees which include those paid for the official receiver. You then have to wait patiently for an opportunity to be seen by a district judge. He or she make the bankruptcy declaration for you.  

No need to feel nervous at this time, remember these folks are extremely busy dealing with many matters throughout the day of which your bankruptcy will be only one. They won’t be looking to make your life difficult. When you meet the judge, be respectful at all times and refer to the district judge using Sir or Madam. They will then review your paperwork and will almost certainly ask you a few questions. Answer clearly and honestly without waffle as they don’t have time for this! Assuming the district judge is satisfied the bankruptcy will be made for you and you’ll be asked to report back to the offices of the clerk. The clerk of the court will issue you a copy of your bankrupty, again you may be asked to wait for this as they’ll probably be very busy. The paperwork then given to you is an official letter confirming you bankruptcy, important should you have a creditor contact you prior to your seeing the official receiver, together with contact details for the receivers offices. After your bankruptcy you must see the receiver. Usually the form is for them to telephone you giving you an appointment time. This usually happens within a few days of your having been to the court. 

The Receivers Office

Mostly it is normal for the receivers office to telephone you after your bankruptcy to make an appointment. If you haven’t heard from them within a week telephone and make the appointment yourself! You are required to see the receiver.

Again the receivers office is usually very busy and they’re not likely to be looking to make the process any more difficult for you or them. However remember the receiver is there to get the truth about your affairs so be honest and respectful at all times. Expect to be asked about your debts and how they came about. You are likely to be with the receiver for an hour or two but don’t worry they’re human and you’ll be offered a cup of tea or coffee and a break if you need one.  

If you are financially able the receivers office will be looking to see if you are able to pay any money to your creditors within the period of your bankruptcy. Assuming that this will be the first time you’ve been bankrupt this is usually for 1 year. Should it be established that you have been dishonest and deliberately obtained loans etc you knew you couldn’t pay, the receiver can extend the term of your bankruptcy.

The receiver will ask you to give them any bank cards, store cards or credit cards you have so remember to take them all with you. The receiver will inform your creditors and your bank of your bankruptcy, and your accounts will all be closed. They will advise you to maintain contact with them should your financial circumstances change. So if you win the lottery whilst you are bankrupt the receiver will expect you to pay up! Unlikely example we know but you get the idea. Say you were unemployed when you became bankrupt but subsequently you are offered a well paid new job, the receiver will expect you to advise them of this and you may be asked for a contribution towards your creditors.    

Restrictions during bankruptcy period

There are quite a few and you’ll be given full details of all of them in paperwork given to you by the court when obtaining the initial paperwork and again by the receivers office as a reminder. For most people the primary concern is how to function financially during the bankruptcy period.  You are not allowed to obtain credit of more than £500 at any time during the bankruptcy. Legally you must also inform anyone you borrow money from that you are bankrupt. In the real world this never happens as credit reference agencies keep the details of your bankruptcy on record anyway so any lender will be able to see this and will refuse you a loan anyway!

You will almost certainly need a bank account to use to have your salary or cheques paid into if you are s-employed.  This is certainly possible to obtain even whilst you are bankrupt but don’t go expecting any Gold cards or super facilities because you won’t be offered any. In the UK you’ll be restricted to a basic account only if you are accepted, however if you need something more there are accounts you can open overseas.  Remember you are only bankrupt within the UK. Here’s a link to a website that can offer to open you a bank if you’re bankrupt Click here to apply Be sure to let us know if it’s helpful to you.

If you find yourself stuck for transport whilst bankrupt, car finance is going to be impossible to obtain until after you are discharged and then it will be at a much higher rate of interest. You could of course by an old bucket to get you from A to B, however provided you can supply 3 months bank statements proving income and some deposit money we can help you. Yes even during your bankruptcy! Take a look at our website   http://www.car-leasing-uk.org.uk/contract_hire.html  We can offer you non-ststus contract hire of a vehicle.  This could be helpful to you.

In the vast majority of cases you’ll be out of your bankruptcy within a year and the restrictions will no longer apply. When the year is up make sure you write to the court you made the bankruptcy and obtain a discharge certificate. You’d need to be able to produce this before being able to apply for any kind of loan or finance in the future.

Once you have been discharged from bankruptcy and have a discharge certificate you will be able to apply for a loan or a credit card should you need one, however you’ll be regarded as a higher risk and you must expect to pay a higher rate of interest.  Saying that it can certainly be to your advantage to obtain a low credit limit card or a small loan as provided you maintain the payments on time, you’ll be steadily on the way to rebuilding your credit rating.

We hope you’ll find the information here has been helpful, and as always we welcome your feedback, the Loans2you team.   

It certainly seems like it doesn’t it! If the Barings crash can be made into a movie anything is possible! The temporary Nationalisation of the NR is this weeks latest instalment of a story which is going to run and run.

Figures are putting the cost of saving NR at £110 billion a cost to be met by the UK taxpayer so why do it?

Last year we speculated that the reason the UK government stepped in to save Northern Rock was to prevent a more serious meltdown caused by investors grabbing their cash not just from NR but spreading to other companies also.  We think this is still the case and that hopefully it will be prove to have been justified. 

Do let us know your thoughts.    

Our opinion is not, but it doesn’t seem to matter where you look right now, the media seem convinced that the UK economy is heading for at best a slowdown at worst a serious slump. News that the government is propping up the Northern Rock hasn’t helped the gloomy outlook either.

Sure saving the Northern Rock is going to cost the whole Country allot of money but the government felt they had to act as the run on the Northern Rock could easily have spread to other high street banks and building societies as savers rushed to grab their savings causing economic meltdown on a huge scale.

The slowdown in the housing market is also used as an indicator that things are about to get tougher in the year ahead, but surely a slowdown was long overdue anyway as UK house prices grew at 15% per year for 10 years.  As with everything else we buy if the prices treble whilst incomes only increase modestly there will be a lack of affordability. Imagine if Starbucks were now charging £6 for a cup of coffee. Chances are we’d be drinking way fewer cups! That hasn’t happened with property as consumers have thought that values will continue to grow at a rapid rate and the painful lessons of the early 1990s have been long forgotten. Once again lenders have been granting higher and higher loan to values on property encouraging buyers to take on more than they can afford.  However the biggest single factor that caused the big 90’s slump was interest rates which at one point reached a crippling 15%  Of course average home loans were far less than is normal today but it had a devastating effect on the housing market.       

Looking at today’s economy there is nothing pointing towards higher interest rates in fact they remain relatively low at 5.5% and we can’t see them going up at the next review in February.

Our view is that sure they’ll be a slowdown in the housing market and most likely an overdue reduction in prices which in turn will help housing become more affordable. Good news if you’re a first time buyer, not bad if you’re a long term investor. Whatever you buy today will be worth more than it is today 10 years from now. 

This week we had news that the cost of crude oil reached $90 per barrel, up by 40% this year alone and although they’ve fallen back slightly the trend seems to be upward.

The causes are being discussed in all media, instability in the Middle East for one,  and increased demand from rapidly developing Countries for another. Experts also tell us that peak production for the largest oil fields has already been passed.

Gloomy prospects for sure, but where does that leave us Brits?

We are already paying more for petrol that anywhere else; surely our government should act before transport costs threaten our economy.

We would like to see a reduction, YES a reduction in the amount of fuel duty the government takes on petrol and diesel. Let’s not forget that if we weren’t being penalised so heavily by government with both fuel duty and VAT we’d be paying 35p a litre, not a £1.

Now of course there is an environmental price to pay which most of us accept, but our road network gets busier and busier because there isn’t a viable affordable alternative for most of us. That’s what makes us all so angry about it, the money gets taken but it’s not being spent on finding these greener alternatives!

Surely short term the government could afford to reduce fuel duty until crude prices become more stable, and show us it’s spending what it does take on providing more environmentally friendly alternatives. 

Do let us know what you think.

Certainly that’s the unbiased opinion here in the Loans2you office.  

Following a good week for the Conservatives at their Blackpool conference, where George Osborne announced a rise in the inheritance tax threshold to 1 million pounds was very well received.  He also raised the question of the other miserable tax, stamp duty again very unpopular with voters.  

In our opinion stamp duty is and remains simply a fine on home ownership. It doesn’t cost 1% let alone 3% of a property’s’ value to amend the record of who owns it at the land registry!  The tax is wholly unfair and very unpopular. Notice that rates haven’t changed very much in 10 yrs, something which can’t be said of house prices, the governments 1% has increased by a vast amount.

Back to today however, and new chancellor Alistair Darling announced that the inheritance tax threshold would increase to £600,000 for married couples, surely reacting to the conservative announcement. Certainly sounds like good news doesn’t it? But hang on a minute chancellor the individual threshold was already at £300,000. In reality all that has happened is that the government plan to allow couples to combine the allowances they already have. Notice no change whatsoever for single people who leave money or property to loved ones in their estate.   

At best this is perhaps a small step in the right direction but doesn’t seem to be going anywhere near far enough. Do let us know what you think.