The Financial Blog

56 economists have been surveyed over the past 3 days and the unanimous verdict is that the Bank of England would hold it’s interest rates at 5.75% at the next meeting on October 4th. 

However 13 of the 56 surveyed said that rates were likely to fall in November, with 36 fortelling a cut to 5.5% by March 2008.

If the recent banking crisis gets worse and starts to seriously affect the economy the cut is predicted to happen sooner rather than later, however if the banking sector starts to stabilise then it’s expected that cuts will be put on hold until early next year.

Of course what this all means to you depends on whether you are a borrower or a saver - drops are great for borrowers, and particularly beleaguered first time buyers and those looking for bigger mortgages, but it’s also likely to make for a drop in the interest rate for your savings.

I was listening again to BBC’s File on Four radio programme which had a story on how first time buyers are being encouraged to lie about their income in order to get a mortgage big enough for their first home. It’s repeated on the 30th September at 5pm on Radio 4 and I would really recommend listening to find out exactly how the rises in the housing market has pushed some first time buyers to the brink.

The scam is done by inappropriately issuing self-certification mortgages where the buyer just states an income. Unscrupulous brokers then don’t check on the income but manage to pass the mortgage.

One borrower whose real income was £25,000 told how he was advised to double that on his mortgage application. The plan worked and he was left with a loan of more than £200,000 stretching his income to it’s absolute limit.

The FSA needs to step in to stop this deception but that doesn’t get to the real root of the problem - we need a serious answer to how people can be expected to purchase starter homes with average house prices soaring over £180,000.

House prices, which were widely believed to at least be levelling off, are on the up again according to the latest data from Nationwide. 

September saw a price rise of 0.7 % to an enormous average of £184,723.

This does however bring the annual growth rate to 9% - the lowest for a year and the quarterly rate of price growth (allegedly the best measure of growth or lack thereof) slowed 0.4% to 1.6%, which is the lowest since July 2006.

So more bad news for first time buyers who have to be considering selling their kidneys on the black market for a starter home. On top of this Northern Rock have previously been leaders in offering huge mortgages to people trying to get a foot on the housing ladder and they really aren’t a viable option at the moment, not least because of the fact that I doubt you could get in for an appointment with a mortgage advisor past the queues of frightened savings accounts customers.

Maybe Abbey can step up, beaing in mind their recent odd negative equity mortgage?

Barclaycard, Britain’s biggest credit card company, with over 10 million credit card holders, has slashed credit card limits for 500,000 customers in a bid to stop them defaulting on monthly repayments.

As well as the credit limit cuts, Barclaycard are looking at the credit worthiness of applicants in more detail. More than 50 per cent of applicants are being rejected and Barclaycard are also monitoring existing customer’s debts more closely.

A Barclaycard spokesperson said this would be the first of a number of new initiatives and they will continue to take action if a customer shows signs of getting into financial difficulty.

The spokesperson also said Barclaycard move credit limits all the time and in some cases they would be leaving customers limits unchanged. They may, however, reduce the level of cash advances customers could get with their credit card because there are indications that people who use their credit card to get cash are often more likely to have debt problems.

Barclaycard have also started new customers on a ‘low and grow’ scheme, giving a low credit limit to begin with, increasing it over time as the customer proves they can manage the credit card debt.

If you’re keen to try and get your hands on the new Barclaycard Platinum Special you can apply online using the link below.

The Barclaycard Platinum Special is one of the best balance transfer credit cards available today, get 0 % on balance transfers for 14 months + 0% on purchases from the date your account is opened. 14.9% Typical APR (Variable). Click here to apply online now… ** FREE £10 House of Frazer gift voucher ** after you make you first purchase, by 30/11/07. To be eligible for the voucher apply before 31/10/07.

No sooner is it announced that Northern Rock are paying a £59 million dividend to shareholders, than it is vetoed by MP’s and institutional investors. 

After the markets closed last night enough pressure was placed on Northern Rock to stop the payout going ahead.

But obviously this isn’t enough in the saga of Northern Rock - they revealed that they are in preliminary talks with a number of parties interested in a takeover. Should no takeover go forward there are rumblings that the government might take it on.

Taking the contrary view to the quick ‘fire sale’ mentality is the UK Shareholders Association, which has established an action group for Northern Rock shareholders calling for a board shake up to get confidence back.

“Many such shareholders were persuaded to invest in shares in the company in recent months based on the apparent strength of the business when in reality the company was in great financial difficulty, such shareholders have suffered major financial losses as a result. We believe that more value might accrue to shareholders if the company is permitted to stabilise and rebuild its franchise with customers as opposed to undertaking a ‘fire sale’” a spokesman said.

So what’s the best course of action for a bank that is losing money hand over fist and needs the government to help it out to avoid leaving thousands of customers in trouble?

That’s right - pay a £59 million dividend to shareholders because of the great job they’ve done!

The dividend was announced in July and Northern Rock have stated that the payout will still stand even though the bank is in crisis.

Surely someone will step in and stop this madness?

As the stock markets seem to be back from the brink and the panic at the Northern Rock appears to be over, does this mean we’re over the worst?

Well, so far it seems there has been very little impact for the ‘average’ person on the street, city bankers and brokers may have a few grey hairs but will there be any long term effects for you and me?

In the short term we can expect higher interest rates, Abbey, Halifax and Royal Bank of Scotland are among the first lenders to increase some of their mortgage products, in particular the variable rates. This increase in rates could slow down the housing market and reduce consumer spending which may calm the economy.Perhaps the biggest area for concern is the housing market. A recent survey from the property web site Rightmove has already identified a sharp fall in the number of properties selling.

The good news is banks are putting together some fantastic savings account rates, a few offering in the region of 6.3 per cent AER (Annual Equivalent Rate) and credit card interest rates have, so far, remained unchanged. The zero per cent balance transfer and cash back credit cards are still readily available.

Probably 2 of the best 0 per cent offers in the world!

Barclaycard offers 0 per cent on balance transfers for 14 months with a 2.5% fee of the amount transferred. Click here to apply online now. 14.9% Typical APR .

Halifax One Special is again a fantastic offering of 0 per cent on balance transfers for 12 months, Typical APR is 15.9%. Click here to apply now. However this has a 3% balance transfer fee.

I was browsing the web and came across this story from This is Money.

A bank bombarded a cancer patient with 762 phone calls in 10 months after he went into debt.

Classy. The proponent of the calls was Barclays for a sum of under £5000, a matter in dispute because of an issue with the Halifax insurance policy that should have covered them in case of inability to work due to sickness.

So what do you do when you are getting 6+ calls a day? Change your number! That should sort it right? Wrong!

When they changed their number to escape the barrage the bank rang their daughter instead, making dozens of calls to her mobile over four months.

Thankfully due to the little known Protection from Harassment Act 1997 the couple and their daughter have managed to bar Halifax from calling them.

So what’s the moral of the story?

If you owe the banks money and get behind on your payments, they will step all over you to get their cash back, so keep up to date on your payments, and if they have wrongly charged you over the past few years and you are considering making a claim against these unlawful charges then do it!

Believe me if it was the other way round they would have called you 4 or 5 times already today.

So the Northern Rock effect continues to mess things up like the ripples in a pond from someone dropping an HGV into it. After the previous news on Northern Rock we posted following the mass hysteria it should come as no surprise that the shock waves continue.

Financial comparison site MoneyExpert.com commissioned a survey where the sole question seems to have been whether or not consumers still trust the government with their savings. A huge 44% states that they just don’t trust them to protect their savings.

So what do people want? Quite simply more protection than the current system that offers to guarantee the first £2000 of savings in full and 90% of the next £33,000.

With savings accounts being billed as “no risk” is this too much to ask from the government?

The news of events at Northern Rock over the past week or so has urged Credit Action, the money education charity, to highlight the benefits of basic personal finance skills like budgeting and responsible spending.

Borrowers and savers have been made uneasy following the news from Northern Rock, commenting on the situation, Credit Action director, Keith Tondeur, said:

“While people should not panic, the current crisis in the financial markets is a timely reminder that people need to be sensible about their financial commitments and not spend more than they can afford.”

Things to do;

• Make a realistic budget covering day-to-day living expenses.
• Keep a diary and take note of your spending for a week or few weeks, maybe a month. See where exactly you’re spending your money.
• Pay off outstanding debt on credit cards before using them again.
• Check your mortgage payments are the most competitive they can be. Are you due to re-mortgage? Seek Independent Financial Advice and find the best deal.
• If you can it would be a good time to save money. Savings interest rates have hit around 6% for the first time in years.
• Find the best deals on things like mobile phones. Comparison sites like http://www.onecompare.com allow you to focus on what features you actually need with your phone, finding you the best deal for your circumstances.
• Lastly but definitely not least if you do decide to borrow don’t over stretch your budget. If you miss payments you may end up with a bad credit rating.