The Time For Remorse

Bob Diamond, the new CEO of Barclays, lamented to the Treasury Select Committee that the time for remorse by the banks (wrt the financial crisis) is over.

Fair enough, maybe (not that I have noticed that much remorse so far).

However, that plea may receive greater sympathy from people if banks were a little less reluctant to lend money, and were to charge interest rates on loans granted that actually reflected the current low rate of interest set by the MPC.

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Loan Sharks

The ongoing drought of cheap loans and mortgages is forcing already heavily indebted people into the arms of loan sharks, who charge interest rates up to a staggering 1000%.

Known as "pay day loans", they are taken out by the hapless debtor to provide short term cover until pay day.

The Times reports that the number of deals taken out in the UK has risen by more than 130% since last August.

Payday UK, Express Finance and Pounds Till Payday offer loans of up to £1,000. Payday UK demands that £125 be repaid for a £100 loan, or £937.50 for a £700 loan. The loan is usually paid off within a couple of days, as soon as the borrower's wages are paid into their account.

Payday UK has a typical APR of 1355%.

Needless to say, by borrowing money at such extortionate rates of interest in this way, the hapless debtor is in fact making his/her situation far worse than it already is.

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The Great PPI Rip Off

Those of you who have been screwed by your bank or other financial organ into taking out an unnecessary and expensive payment protection insurance (PPI) policy should read this article in The Times, which shows that you can claim back up to £24K.

Quote:

"The insurance, which is bought by one in four people and is supposed to cover your mortgage or loan repayments if you are unable to work, is described as one of the last big rip-offs in the industry after endowment mis-selling and overdraft charges.

Banks often add the cover to your loan automatically, with many borrowers never realising they have it. Even when they do, most consumers are unaware of the extent of overcharging.

Mortgage cover from Halifax, for example, would add £103 a month to the cost of a typical £200,000 home loan, or £2,472 over two years. The cheapest cover on the market can cost two-thirds less."

However, as I have noted before, banks are not charities. The money that they repay to customers in the form of compensation will be made up for elsewhere, via increased rates on loans and mortgages.

They simply do not care about their reputations, or their customers.

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Bank Charges

As the date for the court appearance by eight banks, who will be taken to court in January by the Office of Fair Trading (OFT) for allegedly unfair bank charges, draws ever nearer; some banks are trying to show "some flexibility" in their approach to their customers.

Thisismoney reports that Lloyds will be the first bank to reduce its overdraft charges.

Quote:

"On November 2 Lloyds will introduce a monthly charge of £15 and a sliding scale of daily charges of between £6 and £20 instead of its previous daily charge of £30 for unauthorised overdrafts."

Whether this mollifies the OFT, or is the start of a price war between the banks, remains to be seen.

The list of shame includes; Lloyds, Abbey, Barclays, Clydesdale Bank, Natwest and its owner HBOS, HSBC, The Royal Bank of Scotland and Nationwide Building Society.

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Bank Signals Rate Rise

Mervyn king, Governor of The Bank of England, has signalled that there will be one more rise in interest rates this year.

In the Bank's quarterly Inflation Report, King indicated that without one more increase (the sixth since last August) he would not be able to keep inflation on target.

Rates are therefore expected to hit 6% within the month.

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Banks Get Tough

Britain's ever popular and "respected" banks are starting to "get heavy" with those in debt.

The number of home repossessions and county court judgements are rising, while personal insolvencies (IVA's) are dropping. This is a sign that the banks are growing weary of the IVA culture that has sprung up in the UK over the past year or so.

The Council of Mortgage Lenders (CML) reported that the number of home repossessions across the UK has risen to its highest level in eight years, in the first 6 months of 2007. Approximately 14,000 homes were repossessed by banks and building societies in the period Jan-June 2007, this represents a rise of 30% on the same period last year.

CML attributes this to the increase in sub prime lending, ie loans made to people who would normally be considered to be a db credit risk.

Michael Coogan, CML director general, said:

"The greater risks inherent in sub-prime lending are resulting in significantly higher levels of repossession in that part of the market compared to mainstream experience."

It is not just the mortgage market that is feeling a credit squeeze, but also the unsecured loan market as well. There has been a fall in the number of people being allowed to reduce their borrowing by entering into an Individual Voluntary Arrangement (IVA).

The Insolvency Service has reported a 15% reduction in the number of IVAs issued in the second quarter of 2007 to 10,698.

The Registry Trust has reported that the number of county court judgments (CCJs) issued to consumers in England and Wales increased by 5% in the first half of 2007 to more than 420,000.

The credit squeeze will get worse over the coming months. Those that are thinking of increasing their debt burden should make sure that they fully understand what they are committing themselves to.

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Get Out of Jail Card

Congratulations to the Financial services Authority (FSA) for showing its true colours the other day, when it came down firmly in favour of the banks rather than the public in the ongoing row over excess bank charges.

The FSA has ruled that banks will not have to make any more refunds to disgruntled customers, re excess charges, until the court case initiated by the Office of Fair Trading (OFT) is heard next year.

The OFT is taking high street banks to court over the excess bank charges.

Commercial Court judge Mr Justice David Steel has ruled that the trial will take place on a date to be agreed, between January and the end of February 2008.

It is estimated that bank customers have been stung with over £1BN in overdraft charges so far this year.

Well done the FSA for the giving the banks a free "get out of jail card".

Cab anyone remind me as to whom the FSA is meant to work for again?

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Bricks and Mortar

The increasing reliance of the British economy on the housing market was revealed yesterday, when the government released figures that show that a staggering 60% of the UK's £6.5 trillion wealth is now tied up in property.

The Office for National Statistics (ONS) said that the value of Britain, if it were up for sale, has risen by over 5% (an increase of £326BN in 2005).

The increase was more than accounted for by the rise in the market value of Britain's housing stock.

The ONS figures show that the wealth of the UK is now highly sensitive to movements in the housing market, particularly given the declining importance of manufacturing to the economy.

Britain is now worth £6.5 trillion, with the UK housing stock accounting for £3.9 trillion of that figure.

The trouble is that a large factor within the "value" of the housing stock is that of speculation, rather than fundamentals.

This bodes ill for the economy as a whole, given that speculative bubbles have an annoying tendency to burst.

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Inflation Figures Fudged

Mervyn King, the Governor of the Bank of England, has finally has admitted (albeit in a coded manner) that the inflation figures on which UK economic policy is based are fudged.

King stated that he was "surprised" that rising house prices are not included in the official inflation figures.

Given that the house price figures are included in the Retail Price Index (RPI) but that Gordon Brown, during his heady days as Chancellor, changed the official inflation index on which policy is based to the Consumer Price Index (CPI) which excludes house price inflation, I am surprised at King's "surprise".

Since 1997 King and the Monetary Policy Committee at the Bank of England has had the task of keeping the CPI around a target of 2%.

Currently the CPI stands at 2.4%, but the RPI stands at 4.4%.

There you have it, interest rates are being set on the basis of erroneous figures. This fudge has caused the credit boom of the past decade, which has lead to the house price boom which in turn has lead to the debt crisis that is facing Britain today.

The architect?

None other than our new Prime Minister Gordown Brown.

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Rate Rise

Be warned today the Bank of England is expected to raise interest rates again, which will of course negatively impact the cost of borrowing for all of those already labouring under mountains of debt.

Last time the MPC narrowly voted 5-4 against raising rates, it is widely expected that the vote today will go the other way.

Those of you who glibly say that people should not get themselves into so much debt int the first place, would do well to remember that the level of house prices that we are now seeing in the UK is unprecedented.

How else are people meant to be able to afford to buy a home now, without taking on an excess level of debt?

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FSA To Warn on Sub Prime Market

The Financial Services Authority (FSA) will this week issue a warning about the UK's subprime mortgage market, which lends to people with poor credit records.

The FSA will criticise both lenders and brokers, when it publishes the results of its investigation into the mortgage market.

The FSA has reportedly found poor record-keeping at some brokers, showing that they are unable to demonstrate that they sold customers mortgages that were suitable for them (echoes of the endowment mortgage scandal, don't these people ever learn?).

The FSA's report comes amid the continuing collapse in the US subprime market, partly due to a sharp rise in borrowing costs in the past three years.

Another nail in the coffin of the tarnished reputation of the UK's financial services industry.

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US Sub Prime Infection Spreads To UK

The fallout from the US sub prime mortgage collapse has spread to the UK. Cambridge Place, the London fund manager, has been forced to close its $908M listed fund as a result.

Cambridge Place said that it would sell the assets of Caliber Global Investment, a London-listed fund, after suffering a net loss of $8.8M in the first quarter of this year.

Caliber has about 60% of its investments in the US, mostly in mortgage debts rated BBB or below. These are securitised tranches of mortgages given to people with impaired or nonexistent credit histories.

Not surprisingly such loans are high risk and carry an interest rate premium. The collapse in house prices in the US has caused borrowers to default on their payments, thus causing a knock on effect affecting those funds that bought the securities.

A sneeze in America can give Britain a very nasty cold.

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Excess Charges Mass Hearing

Today will see a record number of people have their claims for the return of bank overdraft charges dealt with at Leeds Mercantile Court.

Around 200 cases have been scheduled to be heard, though some have been settled at the last minute.

Over the last 12 months there has been a surge in mass litigation, whereby angry bank customers have sued their banks for the return of the charges they have had to pay for having an unauthorised overdraft.

Banks have attempted to settle all the cases against them, rather than contest one before a judge; as they fear a precedent being set.

Were that to happen, all the banks would be forced to go back through their records for the past six years and repay the overdraft charges to every single customer who they have charged in that time.

In order to clear the large number of cases coming before district and county courts, mass hearings have taken place in the past few months at courts in Leeds, London, Guildford and Birmingham, with more to come in the next few weeks.

The banks have refused to say how many people have threatened to sue them, or how much they have paid out.

As I have said before, banks are in the business of making money. Even if a precedent were to be set, and every penny in overdraft charges were to be repaid, the banks would find other means of making money out of their customers (eg current account charges, lower interest rates on savings and higher rates on loans).

The dice are loaded in the banks' favour!

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Mortgage Effectiveness Review

The Financial Services Authority (FSA) is to up the ante on its investigation into the UK mortgage market, with a new focus on those consumers considered most at risk from mis-selling.

This will be the second stage of the FSA's Mortgage Effectiveness Review, and will focus specifically on sub-prime lending and lifetime mortgages.

This shift in emphasis comes at a time when there is increasing concern that lenders are engaging in irresponsible lending to consumers, who might not be able to afford repayments if circumstances change.

These doubtless would be the same lenders who gorged themselves during the endowment mortgage heyday in the 1980's.

Vernon Everitt, the FSA's director of retail themes, said:

"Although there are signs that the UK housing market is coming off the boil, the question is, to what extent are consumers prepared for the consequences of a weaker economic environment?

With recent base rate rises, the ratio of payments to income is creeping up and many fixed-rate deals are coming to an end, potentially increasing the vulnerability of both borrowers and lenders.

So given this climate, all the players in this market clearly need to think through their decisions very carefully indeed. We are, as you would expect, taking these issues seriously and have made debt and affordability one of our priorities.

Initially we are looking at this in respect of more vulnerable groups: the sub-prime market, interest-only mortgages and those taking a mortgage into retirement.

We want to make sure that consumers are not being offered sub-prime rates when they could be eligible for much better prime rates."

In other words, the level of consumer debt, and the rise in the housing market, make some people desperate and vulnerable to the actions of less than scrupulous lenders.

The question is, what does the FSA intend to do once it has completed its review?

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Slow Down In Housing Market

The UK housing market slowed slightly in May, as housebuyers started to take on board the effects of the recent interest rake hikes by the Bank of England.

The Royal Institution of Chartered Surveyors (RICS) issued its regular monthly report, which said that a balance of +24% of its members reported house prices rising in May, lower than the 29% in April and below the +26% predicted.

RICS spokesman, Jeremy Leaf, said:

"With interest rates expected to rise even higher and some home owners fearing the end of fixed rate deals, affordability conditions are set to worsen across the board and will herald a cooling market."

RICS noted that the effect of the rates rises have had on new buyer enquiries has so far been quite limited, with the absolute level of demand still high in light of buoyant economic conditions.

This modest slow down augurs for a further rate rise, as the Bank of England will wish to temper the housing market further.

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Rate Rises In The Pipeline

Those of you who breathed a sigh of relief last Thursday, when the Bank of England chose not to raise interest rates, should take heed from the warning issued by Mervyn King (Governor of The Bank of England).

King, in a speech to business leaders at a CBI dinner in Wales, has put borrowers on notice that there will be further rises in rates. King warned of "persistent inflationary pressures" the result being that the Bank "may need to take further action".

King warned of the dangers of excess debt:

"It is unwise to borrow so much that the repayments are affordable only if interest rates remain at initial levels."

That is a clear message to all, that further rates rises are coming.

King noted that there are inflationary pressures within the system, as there are attempts by businesses to raise prices as spare capacity has been taken up by strong demand stoked by a buoyant world economy, as well as the fastest growth in business investment for almost a decade.

King added:

"There has been some underlying upward pressure on inflation that is in part hidden by the volatility in domestic energy prices."

He said that the Bank's Monetary Policy Committee (MPC) would be watching gauges of spare capacity, of companies' pricing plans, and of inflation expectations.

Quote:

"If these indicators remain elevated, the MPC may need to take further action."

The message is clear, those of you who are heavily in debt need to ensure that your finances can withstand a rise of between 0.5% to 1% in rates in the coming year.

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Rate Hikes Yet To Be Fully Absorbed

The recent interest rate hikes by the Bank of England have yet to be fully absorbed by the UK housing market.

That at least is the conclusion of the Royal Institute of Chartered Surveyors (RICS).

Quote:

"The full impact of current rate hikes on the housing market should not start to appear until after the summer."

It would seem that there are indications that there is some cooling off in the housing market. The Land Registry survey for April showed that prices are being buoyed by London, while house prices fell in four English regions. Figures from the Bank of England showed mortgage approvals fell for the third month running in April.

It is expected that the Bank of England will raise rates at least one more time this year.

Belt tightening time is upon us.

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Fighting Fund Set Up

Who would be a banker in today's Britain?

Gone are the days when the bank manger was a respected gentleman, in the Captain Mainwaring mould. Now the image of banks and their staff is that of a tacky used car salesman, trying to dishonestly screw the hapless customer out of every penny they own.

Another nail has been knocked into the coffin of the banks' credibility, by the launch of a £100,000 fighting fund to encourage people to launch legal challenges against what they say are illegal bank charges.

The money has been pledged by MoneySavingExpert.com and the Consumer Action Group, as well as private individuals.

The theory being that the funds will be used for claims that could set a legal precedent, in the fight against excess overdraft charges. The move comes after two county courts ruled against two customers of Lloyds TSB.

In the first, a district judge at Birmingham County Court dismissed a claim Kevin Berwick brought against Lloyds TSB on the grounds that charges were a legitimate part of the current account service and found that he had failed to lodge sufficient evidence.

The second ruling, made against a claim for £3,000 brought by Julian Rudd, came on 11 May. A judge at Lancaster County Court also found Mr Rudd, a builder, had failed to state an adequate claim.

Claims from customers have risen by 40%, according to the Financial Ombudsman. Hardly surprising, given the amount of media coverage now given to the issue of bank charges.

Which? claims that the penalty charges earn British banks £4.75BN a year.

The fund will be held in a trust by the Govan Law Centre, and will be activated when the right case presented itself.

Marc Gander, the co-founder of the Consumer Action Group, said:

"Those who do go to court usually win by default. Yet for the rare few where the bank does put up a defence, the big lesson to learn is that even where [the banks] don't show up in court, it is still worth doing proper preparation."

We shall see.

It should be remembered, as I have stated many times before, that banks are not charities. In the event that penalty charges are reduced, or capped, they will find other ways to levy charges on their customers. The most likely avenue being an end to free banking.

What will the campaigners say to that?

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Inflation

Analysts expect the rate of consumer price inflation to fall from 3.1% in March to 2.8% in April, when the figures are released tomorrow.

This in theory is good news for those with mortgages and debt, as it takes some of the pressure off the Bank of England to raise rates again. However, the Bank of England in its inflation report is expected to repeat its warning that there are increasing risks of inflation over the medium term.

Therefore borrowers should be aware that there may be at least one more increase in interest rates this year.

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Interest Rates

As predicted, interest rates rose yesterday.

They now stand at 5.5%.

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