The Financial Blog

Hooray I hear you cry! The Bank of England has today reduced interest rates by 0.25 per cent following the Monetary Policy Committee meeting.

The rate reduction is the first for two years and I think is really an attempt to help keep inflation in-line with targets more than anything else.

Let’s face it, in light of the recent credit crunch and subsequent tightening of credit availability to consumers and businesses, most banks and building societies will not be rushing to reduce their interest rates in-line with the Bank of England base rate.

So although its good news that rates have been cut, I think we’re along way from further interest rate cuts and certainly a good few years away from having the readily available credit solutions we’ve been used to for the last decade.

IVA (Individual Voluntary Arrangements) companies have agreed new industry standards to help people resolve their debt problems.

IVA companies and the British Bankers’ Association have agreed a set of industry standards which cover information, documentation, advertising and IVA advice.

During an IVA lenders are contractually bound to stop charging interest on debt so that the consumer can repay a specific amount every month, an IVA usually lasts for 5 years, after which the debts are written off. This move has resolved the arguing between lenders and IVA providers which originated from earlier this year.

Lenders felt that IVA fees were not fair in that most fees are paid up front to the IVA company providing the service. This meant that the IVA company had very little incentive to keep up to speed with the customer service side of the business or even see the IVA process through to the end of it’s 5 year cycle.

Also some IVA companies were advertising promises of ‘writing off 90 per cent of your debt’ messages to potential customers. This is an unrealistic and sometimes unmanageable claim.

Lenders were concerned that customers were being forced into an IVA product rather than a simple debt management plan or another more suitable product for the consumers needs.

This resulted in approximately 1 in 5 IVA’s being turned down by the lenders and an overall 14 per cent drop in the total number of IVA’s in process during Q3 of 2007, compared to the same time in 2006.

The British Bankers Association said that the new standards should be in place from February 2008 and will give consumers the peace of mind that these companies will have a set of industry standard practices to adhere to, which will only prove to protect the consumer in the long run. IVA companies will be operating fairly to help consumers struggling with debt problems.

No rules surrounding the amount of the fee have been structured but it’s now clearer to an IVA company that it’s in their best interests to ensure all customers see the IVA through its 5 year cycle, until it ends.

Chief executive of the BBA, Angela Knight, said: ‘People in debt and their creditors need to know that when an IVA is proposed it is the most appropriate solution. The BBA, the Insolvency Service and the participating IVA providers are united in support for this agreement, which should provide customers with the reassurances they need in order to make the right choice for their financial circumstances.’

Every so often on our travels around the web we happen across some sites that might be of use, and being the benevolent souls that we are we like to pass them on!

The latest of which is a nifty service for US residents that offers to cut in half the time you spend filing your returns, and more importantly, cut your tax bill!

Or as they put it: With the tax services offered through Joycetaxservices.com consumers can eFile a return and literally cut their tax filing time in half.

So if you think this may be handy for you go and check out Joyce’s Tax Services and see what you think!

It’s crazy that 2.94 million homeowners are buying their annual buildings insurance cover from their mortgage provider. For a start it will most likely be one of the most expensive places to buy building insurance, are we just too lazy to even try and find alternative quotes?!

And here’s a surprise; only 28% of people with buildings cover purchased from their mortgage provider believed that their lender had offered them the best deal.  Almost 18 per cent believed they had to purchase it from their mortgage provider to secure their mortgage; 13 per cent chose with their lender because they got an instant quote and it was all too easy to say ‘no’; and 7 per cent couldn’t be bothered to shop around.

This new research was conducted by Sainsbury’s Home Insurance and also highlighted a general lazyness when it came to look for alternative quotes for home insurance. 26 per cent of homeowners with home insurance didn’t bother sourcing additional quotes when buying home buildings and/or content insurance.  An additional 16 per cent of people got one quote to compare that supplied by their current provider.

Head of Home Insurance at Sainsbury’s, Steve Johnson,  said:  “Buying a home is often a hectic time and for many people it may seem tempting to just purchase buildings cover from their mortgage provider.  However people really should shop around to check they’re getting the best deal.  Despite the fact that home insurance premiums are reportedly on the rise(2), there are some great deals out there if people take the time to evaluate what’s on offer.”

Go to sainsburys.co.uk/homeinsurance for a quote today

New research from Moneyexpert.com reveals that 4.4 million of us are still paying debts on credit cards ran up last Christmas!

oneyexpert.com the financial comparison web site is warning the 10 per cent of us who’ve yet to pay off last years Christmas credit card spending, not to rack-up further debt on top of the 2006 bills…

I doubt many of us will listen; APACS, the UK payments association, estimates for Decemeber alone we’ll fork out £53 billion £11.7 billion expected to be put on credit cards.

Chief Executive of MoneyExpert.com, Sean Gardner, said: “It is not time to cancel Christmas but for millions of us it really is time to cancel some credit cards.

“We can all give into temptation at Christmas and put it on plastic but if the debt lingers from year to year you’re starting to get into trouble. Borrowing money is fine as long as you have a repayment plan.

“Unfortunately it appears millions of us do not. And with lenders getting tough that is not a good position to be in. If you’ve not cleared the debts of Christmas past it is time to face up to the future.”

The research showed that 3 per cent of Brits took 2 months to clear their Christmas debt, a further 3 per cent took 3 months. 2 per cent took four months and 1 per cent of Brits took 4 months to clear their Christms debt.

Total UK personal debt – source creditaction.org - compiled December 2007

Total UK personal debt at the end of October 2007 stood at £1,391bn. The growth rate increased to 9.7% for the previous 12 months which equates to an increase of £122bn.

Total secured lending on homes at the end of October 2007 stood at £1,169bn. This has increased 10.5% in the last 12 months.

Total consumer credit lending to individuals in October 2007 was £222bn. This has increased 5.8% in the last 12 months.

Total lending in October 2007 grew by £8.8bn. Secured lending grew by £7.3bn in the month. Consumer credit lending grew by £1.4bn.

Average household debt in the UK is £8,920 (excluding mortgages). This figure increases to £20,741 if the average is based on the number of households who actually have some form of unsecured loan.

Average household debt in the UK is £55,877 (including mortgages).

Average owed by every UK adult is £29,311 (including mortgages). This grew by £250 last month.

Average outstanding mortgage for the 11.8m households who currently have mortgages is £99,090.

Two fifths of mortgagors have secured debts of over £90,000, up from one fifth in 2004.

Average interest paid by each household on their total debt is approximately £3,744 each year (this equates to ~ 9% of take home pay).

Average consumer borrowing via credit cards, motor and retail finance deals, overdrafts and unsecured personal loans has risen to £4,678 per average UK adult at the end of October 2007.

Britain’s personal debt is increasing by £1 million every 4 minutes.

Expect your energy bills to increase next year as most suppliers will pass on a rise in wholesale gas prices by increasing the price we pay. Analysts predict that By February 2008 prices will rise by at least 15 per cent.

Karen Darby from SimplySwitch.com, the price comparison and switching service, said: 

“Wholesale prices have been creeping up for some time now and several analysts are predicting gas bills to rise by at least 15 percent. Almost three quarters of UK homes are connected to the gas mains, so this will affect millions of people directly. However, it’s not just gas bills that are likely to soar. With 40% of the UK’s electricity generated by burning gas, a rise in wholesale gas prices means that electricity bills will rise too.

“Over the past year, wholesale gas prices have fallen by half, with wholesale electricity costs down by almost a third. Despite some highly-publicised price reductions, the major suppliers have only brought average bills down by around 15 to 20 percent. If energy prices rise as much as analysts are predicting, customers could be forced to pay an extra £131 per year in energy bills.*

“It has already been estimated that an energy price hike of just 10 percent would push 400,000 more households into fuel poverty. A rise of 15 to 20 percent would have an even more devastating effect, and more needs to be done to protect vulnerable households.

“Luckily, for those wishing to protect themselves from rising bills, there are some highly competitive capped deals available. In the past, capped deals were expensive, with customers paying way over the odds for their added peace of mind. Now, however, some capped tariffs are nearly as cheap as the UK’s best non-capped deals and charge no penalties if the customer wishes to leave.”

Visit simplyswitch.com for more details.