The Financial Blog

Commenting on the Barclaycard’s forthcoming trial of mobile phone payments for purchases of £10 or less, Rob Kenley, head of credit cards at price comparison website moneysupermarket.com, said:

“Much has been made of consumer concerns around security surrounding the new breed of contactless payments and any initiative that helps allay these concerns is a welcome one. Using a mobile phone can provide consumers with more control because they can activate or deactivate the contactless chip using the handset in the same way as Bluetooth and this function could be PIN protected. The ability to switch off a contactless chip would provide customers with more confidence to adopt and use contactless payments, something that the current style of contactless cards is missing. Ideally they should also be able to see the balance of their oyster card on the handset screen so we hope there will be more developments of this sort.”

Cahoot is increasing interest rates on the Cahoot savings account by 0.10 per cent on the £500K + tier. Having said that the rates available on even the £1+ balance savings accounts are still among the best on the market today.

Head of Savings at Cahoot, Reza Attar-Zadeh, said “There has been a lot of competitor activity in the internet savings market recently and we wanted to make sure that cahoot continues to reward our customers with market leading rates.  By increasing the rates to 6.45 per cent for balances of £500,000 to £1m we are ensuring that the account remains the best in the market on this tier.”

According to Moneyfacts.co.uk a financial information company more lenders have pulled out of the unsecured personal loan market, they say it’s becomming a worrying trend.

Eskimo Loans, part of Northern Rock, and Hanley Economic Building Society have both pulled out of the unsecured loan market with emmediate effect and Moneyfacts say the number of unsecured loan  providers has fallen by 10 per cent this month. Moneyfacts blame the reduction on the credit crunch, high interest rates and the alarming increase in loan applications being declined.

Personal finance analyst at Moneyfacts, Esther James, said “Such a large reduction in just the last month is worrying. With no signs of rate rises slowing, it’s a rather unsettled market. The credit crunch is showing its strength in the personal loan market.”

Personally I don’t think this is really too much to worry about if you’re looking for a personal loan. Yes interest rates are rising but that shouldn’t come as a suprise for anyone who’s had a mortgage or any other form of credit in the last 12 months. Northern Rock are obviously still suffering and simply cannot afford any further mistakes and as such have pulled one of their ‘white label’ brands - Eskimo Loans. I think it’s really as simple as that…

When a debt management acts as an appointed agent for a client, it undertakes to calculate and disperse any disposable income to a client’s creditors, and as soon as the debt management company is informed by the client of the receipt of collection letters, the debt management company will contact the collectors and ensure they are sent the relevant documentation and payment is made correctly.

A debt management company’s staff should be directly available by phone, post and email to all clients and creditors in order to provide an effective service for all parties.

The first thing a creditor needs to understand is whether a debtor is in the ‘Can’t pay’, or ‘won’t pay’ category.

By receiving good information from a debt management company, this allows the creditor to make an informed decision and can reduce collection costs.

Since legislation came into force in April 1999 and following reviews by the Lord Chancellor Lord Justice Woolfe, the County Courts processes discourage dishonest actions which overload a debt companies systems and it’s up to creditors to justify their actions if they refuse reasonable offers of repayment.

Therefore, if a debt management company acts as an appointed agent for a client; it is unusual and unnecessary for creditors to proceed with legal action.

Many, if not most creditors will reduce or freeze interest and charges when a debtor is trying to repay their debt at the best rate they can afford. This demonstrates the client’s commitment to clearing the debt as effectively as possible by making regular payments. This isn’t a speedy process and many creditors will refuse the initial repayment amount offered ask for higher repayments.

This happens because the creditors have policies to only accept a specific percentage and they think the debtor has a higher disposable income than stated in the income and expenditure report.

There is most certainly a place for free debt help services, just as there is also a need for state benefits where appropriate. However there is also an important role for fee charging debt management companies, for the people who hold up their hands and are prepared to be accountable for resolving their debt problems.

Debt problems are experienced by people with reasonable to good incomes, who admit to careless overspending.

Over half of monthly net pay is already earmarked to repay debts, a survey from comparison website uswitch.com has revealed.

It found the average person sees 35 per cent of their wages taken by mortgage payments, and a further 18 per cent being repaid to other debts.

Also in the last six months 21 per cent of people had “maxed out” on at least one of their credit cards or overdrafts. Yes, many people have quite a few to move their debt about!

Ann Robinson, at uSwitch.com said: “More than half our take home pay is now eaten up by debt repayments, but our ability to repay and manage this debt is clearly faltering.

“The banks are being forced to write-off vast sums and, as a result, they are tightening their lending belts. This means that credit will become both harder for consumers to get and more expensive.”

People in the UK have some of the biggest debts in the world. This is because the ‘buy now pay later’ culture has evolved strongly in the UK during the last decade, fuelled by low interest rates and easily attainable credit. However in the last 6 to 12 months we’ve seen interest rates rise and people are really starting to feel the pinch as their debts become more difficult to manage.

People should seek professional debt help if they’re worried about any financial commitments they cannot afford to repay.

Understandably when it comes to mortgages, borrowers are opting for fixed rate mortgages so they can rely on their interest rate remaining steady and plan a budget for the months ahead.

One in three of us are opting to fix our mortgage rates for five years or more and the main reason for this is certainty. More and more people are now fixing their mortgage rates for five years rather than two years, and I suppose they’re trying to make their financial stability last as long as possible…

This is quite a surprise as interest rates are expected to decrease in the New Year, however there are a few people predicting more interest rate rises instead.

For most people a mortgage is the biggest financial decision we have to make in our lives. It’s no surprise that most of us simply want to know exactly how much we have to pay out each month, which is why fixed mortgage rates are becoming so popular.

You can’t predict the future but at least if you’re on a fixed rate mortgage product you know exactly how much your mortgage will cost you every month, for the length of the fixed term period.

You should try to make sure the deal is right for you and be sure to read through all the terms and conditions paying special attention to areas like Early Redemption Penalties. This is usually a fee calculated as a percentage of the total amount you’re borrowing. The percentage decreases as you move towards the end of what is called a ‘tie in period’. For example a five year fixed mortgage rate may mean you are tied into the product for five years (the term of the fixed rate offer). If you need to move or pay off the mortgage within the first five years you are usually charged a percentage of say five per cent in the first year, four per cent in the second year, three per cent in the third year, two per cent in the fourth year and one per cent in the fifth year.

There is huge consumer demand in the UK for fixed rate mortgage products and there are now plenty of ten and fifteen year fixed rate deals available. Good news for those of you who want to fix for financial security.

The November Chiltern Debt Monitor reveals that over the last month the percentage of wages that debtors can afford to offer creditors has fallen by one per cent to 17 per cent, but the amount they are contractually obliged to pay has remained the same at 67 per cent.
 
Average level of debt: £26,340
Average age of debtor: 43
Yearly gross income: £23,504
Male: 42%
Female: 58% Average number of creditors: 8
Affordable payments as a % of contractual payments: 26%
Monthly living costs: £1,087
Monthly disposable income: £228
No of months to be debt free: 145
 
This means that, without a debt management plan, debtors would be forced to pay £881 towards their unsecured debts leaving just £434 each month for housing, food, travel and clothing costs.

Debtors can actually only afford to offer creditors £228 a month, which is just 26 per cent of their contracted amount.

Chiltern’s Joanne Gill says: “Our research shows that six million people in the UK are struggling with their finances and one million admit to being seriously overstretched; these figures demonstrate that predicament very clearly.

“Debt is a source of constant stress for many families as they juggle their credit commitments to maintain their minimum payments and spiral further into debt. It is particularly pronounced at this time of year as people feel under pressure to enter into the festive spirit whether or not they can afford to.

“But there is a way out for families in this position, an informal debt management plan provides the structure for people to repay their creditors at an affordable level and only after their living expenses have been deducted from their wages.”

Living costs in November were slightly higher than those in October at 83 per cent of income compared to 82 per cent a month earlier.

An informal debt management programme offers a flexible agreement between the creditor and debtor which ensures the creditors get a fair proportion of their debt repaid while the debtor is able to pay their priority bills and for food.

Chiltern makes payments to more than 1300 creditors each month on behalf of its clients and has a broad spectrum of customers ranging from a vicar to a tattooist.

The Chiltern Debt Monitor is a regular analysis of Chiltern Debt Management’s database of live customers to determine the profile of debt and debtors in the UK.

Case Study 1
Age/Sex: 25 year old female
Dependants: 3
Total debt: £44,518
Contractual amount: £1,385
Income: £845 month
Expenditure: £745
Affordable payment: £100
Reason for debt: Split with partner and left with debts accrued during relationship.

Case Study 2
Age/Sex: Couple both aged 36
Dependants: 2
Totaldebt: £16,859
Contractual amount: £1,140
Income: £2,416
Expenditure: £2,236
Affordable payment: £180
Reason for debt: Drop in earnings to look after children, both partners now working.

Barclaycard seem to have stolen the show from The Royal Bank of Scotland by announcing that they will be the first to publicly trial contactless mobile phone payments in the UK. Although they haven’t actually given any dates, they’ve just stated ‘Barclaycard is to become the first credit card provider to publicly trial mobile phone payments in the UK.’

The Barclaycard trial will allow selected customers to make contactless payments for £10 or under by touching their mobile phone against a payment terminal.   

Following a successful internal trial, the public trial is being used to assess consumer appetite for new payment methods. Other partners in the trial include O2, Visa Europe, Nokia and Transport for London.

Click here to see the original blog with full details on contactless mobile phone payments

Over the last 2 years mortgage fees have almost doubled according to new research from Moneyfacts.co.uk

In November 2005 the average mortgage fee was £441 and today it’s at £827. Not only have fees risen but 9 per cent of fees are now a percentage fee – where you’re charged a percentage of the total amount you borrow.

Mortgage Analyst from Moneyfacts.co.uk, David Knight said “Thousands of borrowers coming off a two year fixed rate will be bracing themselves for higher interest charges, with the best deals over 1% higher than in 2005. But they will also need to prepare themselves to pay much higher fees, with the average fee rising 100%.

“The use of percentage fees has become more common with 9% of all prime mortgage deals charging a percentage fee ranging between 0.2% and 3.5%. The highest fee from Northern Rock at 3.5% would add a massive £4,550 to an average loan of £130K.

“The increase in fees may not automatically mean that the cost of the deals has increased. What it does mean is the maze which borrowers need to navigate to get the best deal has become more complicated.

“Unfortunately too many borrowers still focus their initial attention on getting the best rate, without taking full consideration of the true cost of the deal. Providers to some degree exploit this by offering a wide range of low rate, high fee deals.

“With around 24% of all mortgages not charging a fee, the market certainly offers choice, no matter what type of deal you are after.

“No fee, low fee, high fee and even percentage fees can offer a good deal for the right borrower. The trick is to successfully navigate the 6000 plus deals to find the best one for you. This maze of thousands of mortgages, with differing rate and fee combinations means it is more important than ever that prospective borrowers need to do their homework before committing to their new mortgage deal.”

The Royal Bank of Scotland is offering a free trial for 3 months with it’s Black credit card which includes £1,000 worth of benefits.

The RBS Black credit card offers a range of luxury benefits like a complementary pass for over 500 international airport lounges and free annual travel insurance for your family.

There’s also a 24 hour service which includes theatre reservations, party planning, travel planning, decorating and cleaning services. It’s like a full concierge service with your credit card! The total value of the services is estimated at over £1,000.

The credit card benefits include;

• Worldwide usability through MasterCard
• An automatic minimum credit limit of £15,000
• Up to three additional cardholders free of charge
• 24-hour, multi-lingual, personal assistant service
• Extensive travel insurance cover for you, partner and any dependent children
• Enjoy access to over 500 executive airport lounges as a Priority Pass™ holder
• Round-the-clock travel service to make all your travel arrangements for cardholder
• 24-hour home or roadside response cover for cardholder’s main car, be this in the UK or Europe
• 24-hour support service for emergencies involving plumbing, electrics, drains, windows and doors
• Card protection for all credit cards – whether at home or overseas
• Exclusive offers including RBS Black Card invite-only events throughout the year

Director of Personal Cards at RBS, Dennis Jones, said: “We are so confident that the service provided to RBS Black cardholders is amongst the best offered by any premium card provider that we have decided to offer new customers the chance to experience these quality services free of charge for three months.”

After your 3 month free trial the card will cost you £250, annually and there is no obligation to continue after 12 months. To apply for the RBS Black card you must be over 25, oh and have an income of £75K per year or more, so that’s quite a few of us out of luck then!!

If you do earn over £75K (and you’re over 25) go to www.rbsblack.com for more information!