With thousands of frontline medical jobs being axed due to the deepening crisis in the National Health Service, patient care standards are again under pressure.

Little wonder therefore, that hospital consultants are going private for their medical care! In a recent survey by BUPA, 41% of NHS consultants have protected their medical care by going private. More than 90% of all consultants also hold consultant positions within the NHS.

The British Medical Association (BMA) argues weakly that the consultants’ commitment to private medical cover doesn’t demonstrate a lack of commitment to the NHS. The Deputy Chairman of the BMA’s Consultants’ Committee said, “Consultants may also like the anonymity of private care. One of the problems of being treated in the NHS is that consultants might find themselves in a bed next to one of their patients”. What a joke! Surely, being in a bed next to one of their patients would underline their confidence and commitment to the NHS. Their absence only serves to emphasize their lack of confidence!

Private medical cover does not provide care in the event of an accident, that’s still the role of the Accident and Emergency Unit at your local hospital. The overwhelming advantage is providing prompt care in a hospital of your choice for planned surgery and medical situations that arise at short notice. Take the case of Dr Sarah Burnett for instance.

Dr Burnett is a consultant radiologist with 15 years service in the NHS. She took out private medical insurance because she was less than impressed with the level of care she saw first hand. “NHS treatment is not a pleasant experience in any way – from the standard of the food, to ward cleanliness and the chance of catching MRSA”, she comments.

Last year Dr Burnet was diagnosed with breast cancer during an annual private medical screening. She required urgent and specialised surgery. Within hours she had seen the consultant surgeon and the operation was arranged. A few days later she was recovering.

“I was lucky enough to have exceptionally prompt treatment because I choose to pay for insurance. Under the NHS I would not have been screened until 50 for breast cancer and would not have been able to catch my cancer at such an early stage. The type of surgery I had is only rarely available on the NHS, depending on the experience of your local surgeon”, said Burnet.

If you, like Dr Burnet and almost half of the UK’s NHS consultants, want to go private, it’s wise to take out private health insurance. Choosing the right insurance cover is complicated as you need to decide the standard of hospitals you would want to use, the level of cover and various other options. For this reason, you need professional advice from a specialised medical insurance broker. One that knows exactly what’s on the market and can access it. Where better to get this advise than the Internet?

Just search for “medical insurance” and you’ll find all the sites you need. You’re best to steer clear of the insurance company’s own sites as they can only sell you their own products and you really need independent advice. And make sure you chose a site that puts you directly in touch with an adviser.

You really need to be able to talk over your requirements and chat about the best alternatives. All this can be done over the phone. And buying through a broker won’t cost you a penny more than going direct to the insurer of your choice. Indeed sometimes a broker can even be cheaper!

Than goodness for the Internet!

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If you make a claim on a critical illness insurance policy your insurer will routinely make exhaustive enquiries about the history of your health. Whilst you’ll have provided them with lots of similar information when you first applied for the insurance, they’ll now insist that all the information is rechecked. And if you said you were not a smoker, they will also want this verified by your doctor.

The reason is clear. The insurer is faced with a big claim, typically well over £100,00, and they want to know that you told the full truth about your health when you applied. This means that now you’ve claimed, they’ll crawl through your medical records in great detail checking that you told them everything when you applied. Even the smallest and apparently insignificant detail will be subject to intense scrutiny. And this can be upsetting for you.

The insurers defend this process saying that they need to be sure that back when they accepted the business, the applicant told the full truth. They want to be sure that the applicant didn’t cheat by omitting some detail in order to dupe the insurer into issuing a policy when they otherwise wouldn’t have, or to qualify for a lower premium. Either way, omitting information would be cheating and grounds for refusing the claim.

The insurers are particularly suspicious if the claim arrives during the policy’s first five years. Any claim arising in this period is classified as an “early claim” and they’re particularly on the look out for any policyholders who took out the critical illness cover already suspecting that that they may be ill.

The problem is that this intense scrutiny attracts a very bad press. If you’ve just made a claim, you’re inevitably very sick and the last thing you want is lots of questions and high handed hassle from your insurer. There’s clearly a conflict here and the insurers need to work much harder at softening the presentation of the enquiry process and they must liase much more closely with their claimants. They must present a much softer centre.

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If you can’t get insurance for your house, beware – the Royal Institution of Chartered Surveyors warns that uninsurable houses could lose up to 80% of their value and throw the homeowners into negative equity.

And it’s a flood risk that is most likely to make your house uninsurable.

According to a recent report 6.5 million homes are already at risk from flooding of which 1.5 million are in areas considered to be at high risk. By 2030 if global warming continues, this 1.5 million figure could more than double.

In January 2003 the Association of British Insurers (ABI) agreed the principles which committed insurers to offering buildings and contents insurance for properties in areas which are at risk of flooding once in seventy five years so long as flood defences were in place or to be built by the end of 2007.

It’s the responsibility of the Department for Environment, Food and Rural Affairs (DEFRA) to develop and maintain these flood defences but there’s widespread concern in the insurance industry that insufficient is being done. As a result the industry has warned that there could be widespread withdrawal of insurance cover if more is not done now to protect homeowners. In the mean time those in areas threatened by flood could find their insurance premiums soaring. In some cases premiums have already increases by more than 400% and in a tiny number of cases, cover has been withdrawn altogether.

Environmentalists have warned that unless DEFRA gets it’s skates on, the UK’s bill for flood damage could increase from the current £950 million a year to £3.2 billion. The average household flood damage claim costs insurers £30,000 and even localised events like the Boscastle flood of 2004 in Cornwall, cost the insurers £15 million. The government has completed flood defences in many high risk areas and protection for a further 80,000 homes is due this year, yet many areas remain vulnerable.

You can check whether DEFRA thinks your home is at risk of flooding by visiting www.environment-agency.gov.uk. The DEFRA maps were originally designed for planning purposes and provide information on a post-code basis.
Whilst many British insurance companies use this DEFRA information others like More Than, have their own flood maps which look at individual properties rather than post code areas. This means that if your insurer surcharges you for flood risk and uses the DEFRA information, you may still be able to get insurance at normal rates if an insurer using it’s own flood data identifies that your property is truly outside an at risk zone.

The ABI has emphasise the pressure on DEFRA to improve flood defences warning that unless the government continued to increase its spending on flood defences, the insurance industry may not continue their commitment to the 2003 principles. That would be bad news for many homeowners.

When you’re shopping for a loan the interest rate becomes the key issue. So when you visit web sites and read advertisements in the press, the universal judge of price becomes the Annual Percentage Rate of interest (APR) that’s on offer. After all, the government introduced APR’s as a standard calculation that every lender must use, precisely to enable the public to make reliable comparisons.

But who’s checking that the advertised APR’s are correct? Are the lenders cheating by promoting a lower APR than the one they are entitled to? The commercial success of a promotion can be hugely boosted by a really low APR so some must be tempted.

Reports show that 92% of all loan advertisements quote an APR Typical. (See below for a detailed explanation of what APR actually means). That’s the rate that the lender offers to two thirds of people applying for a loan. The problem is that no independent body is checking these figures. The system is open for cheating. Personal loans are regulated by the Office of Fair Trading but even they admit that their resources are stretched and they only check on a reactive basis. We think that’s administrative speak for hardly ever!

Understanding APR’s

APR
APR stands for “Annual Percentage Rate”. It describes the true cost of the money borrowed on loans, mortgages, and credit cards. And you must by law, be provided with the information.

The APR calculation takes into account the basic interest rate, when it is charged (i.e. daily, weekly, monthly or annually), any initial fees and other costs you have to pay. As all lenders are supposed to calculate APR in exactly the same way, it enables the public to make meaningful cost comparisons between lending products.

So if one finance company is offering you a loan at 5.9% plus an application fee of £75 and another is offering you an interest rate of 6.1% with no fee, then the APR figures will show you which of the two loans is cheapest.

APR Variable
When you see APR with the word Variable after it, this means that the interest rate is not fixed and may vary from time to time, up or down.

APR Variable Typical
This is the variant used in 92% of all advertisements for loans. It means that the lender cannot be totally specific about the interest rate you’ll be offered as their rates vary, usually in response to each applicant’s personal credit rating and the amount of money to be borrowed. Therefore, APR Variable Typical is used to give the public a general impression of the interest rates currently on offer from that lender. The addition of the word Typical means that at least 66% of applicants approved for a loan are offered that rate or cheaper. Then when a loan offer is confirmed to you, your paperwork will reveal the actual APR or APR Variable you personally are being offered. Don’t forget that the word Variable within the description also means that the interest rate isn’t fixed and may vary from time to time, up or down.

APR Typical
This is the same as APR Variable Typical except that the interest rate is not variable - it is fixed for the duration of the loan.

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At last you’ve scraped together the money for a small deposit on your new home. On top of that you’ve got the money for surveyors and solicitors fees. Then you’ve got stamp duty to pay at 1% of the property’s price (if the price is over £250,000 the stamp duty percentage increases – see the information at the foot of today’s blogg). Phew! You’ll just make it – a homeowner at last!

Then the mortgage lender sends you a new bill that you hadn’t expected – another £1,500 please Sir. It’s called a Higher lending Charge (HLC) it’s charged if your mortgage is 90% or more of the house price. About three quarters of all lenders charge it - £1,500 being the average charge.

And guess what - it won’t benefit you in any way whatsoever! In practice you’re paying for a form of insurance that protects the lender, not you. The HLC pays out to the lender if the borrower defaults on the mortgage, the property has to be repossessed and the sale proceeds are insufficient to fully repay the outstanding mortgage. The HLC then pays out the shortfall to the lender.

But that doesn’t let you off the hook! Despite receiving everything it was owed, you still owe the shortfall to your lender and they’ll continue to chase you for the outstanding money.

Whilst most of the lenders who still charge HLC’s will agree to add it to your mortgage, that’s little solace. In any case that means that you’ll end up paying interest on the charge. Over a 25-year term, that’ll mean you payout closer to £2,700!

Our view is that HLC’s are outmoded. If a lender is worried that you will default, then they shouldn’t be lending to you. And with all the hi-tec credit checks and risk assessments they use to process your application, you would think the lenders were doing enough to protect themselves. In any case you may well end up effectively paying a small interest premium for a 90% plus mortgage.

According to a survey by the Nationwide Building Society, during the last five years £1 billion has been paid out in HLC charges by some 800,000 borrowers – just over 60% of which were first time buyers, the very people who struggle most to buy a home. It sounds to us as if the lenders charging an HLC may well be simply taking the opportunity to profiteer.

Could it be time for the Office of Fair Trading to open up the box and take a look inside in the same way as they did with credit card charges? They recently ordered a reduction of up to 40% in those charges.

Current rates of Stamp Duty on house purchases in the UK

Price of house under £60,000 No Stamp Duty
Price of house £60,000 to £249,995* 1%
Price of house £250,000 to £499,995* 3%
Price of house over £500,000 4%

*The Inland Revenue rounds up house prices to the nearest £5. So a house sold for between £249,996 and £249,999 will be rounded up to £250,000 and they’ll charge you 3% Duty on the lot!

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One of the ways you can reduce your monthly outgoings is to get a new loan to pay off your existing loans and outstanding credit card balances and indeed, pay off any other outstanding debts. Called a debt consolidation loan, you then pay off the combined loan over a longer period thereby, reducing your monthly payment.

In practice another way of achieving even a greater reduction in monthly outgoings is to re-mortgage and increase the amount you borrow in order to pay off those troublesome debts. The Citizens Advice Bureau (CAB) advise people not to make this decision too lightly saying, “Our Bureaus are seeing people coming in who are being threatened with repossession as they struggle to make payments.”

Whilst the aim of re-mortgaging to restructuring debt is to reduce monthly outgoings, you must be aware that over the years you will end up paying much more. That’s because the mortgage repayments are spread out over a much longer period than a normal loan and throughout that time the interest continues to clock on.

Take someone who needs £25,000 to restructure their existing debts. If they took out a 5 year loan at 6.9%, the monthly repayment would be £492. If they re-mortgaged over 25 years then with a typical re-mortgage deal of 4.85%, their monthly repayment would be £150 less. But the interest cost would soar. Instead of paying £4,510 on the 5 year personal loan, the interest on the additional £25,000 taken out on the re-mortgage would add up to £19,046 over the full 25 years.

So our advice is to ensure you consider a flexible mortgage where you can make overpayments as soon as your financial circumstances improves

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After a crisis of confidence last year the buy to let market is booming again. Earlier fears that interest rates were rising and property values could crash are well behind us. So, fuelled by rising confidence and rising rental yields, landlords have been snapping up new properties and swapping to cheaper mortgage deals.

On average, rental incomes increased by 3.3% in the three months to January whilst income as a percentage of the property’s value – the rental yield – edged up to 6.45% from 6.42%. The latest report from the Council of Mortgage Lenders (CML) shows that the number of buy to let mortgages increase by 39% in the second half of 2005 over the preceding six months whilst the value of these mortgages rose by 47%.

Indeed, with expectations of steady increases in house prices, a glut of cheaper buy to let deals and a healthy demand from tenants, especially the first time buyers who remain priced out off the property ladder, we expect the boom to extend throughout 2006.

And mortgage lenders are happier too! Industry figures show that buy-to-let mortgages have become a safer bet than homeowner mortgages. According to the CML, the percentage of buy-to-let mortgage in arrears is now lower than the figure for homeowner mortgages - and the arrears trend for buy-to-let is downwards whist it’s upwards for homeowners.

The mortgage lenders have responded by relaxing some of their lending criteria and promoting aggressively again.

Historically, buy-to-let lenders have wanted monthly rental income to exceed 130% of mortgage payments – so if the mortgage was costing £1,000 per month, the rental value needs to exceed £1,300. But now several lenders have relaxed this criteria. The reason’s not just the market’s lower risk profile. Over the last five years house prices have risen faster than rental income yields, making it more difficult for landlords to meet the 130% criteria. So now the lending average is closer to 125% whilst Northern Rock is happy to lend where the income simply equals the mortgage payment.

At the same time we have seen a trend for lenders to increase the percentage of the property value they will lend. Whilst 75% used to be the top level, the average is now 85% with Northern Rock lending up to 87% and GMAC stretching to 89%.

Buy-to-let interest rates have fallen too. 4.79% is available from the West Bromwich Building Society for a two year fixed rate whereas 4.75% is available from the Mortgage Trust on a three-year fix - but both these deals incur a 1.5% arrangement fee. In the case of the West Bromwich deal, when you recalculate the interest rate including the fee and amortising the fee over two years, the equivalent rate rises to 5.54%.

Arrangement fees should not be a headache for landlords whose prime concern is cash flow. It’s worth paying a large fee to obtain a low headline interest rate. It’s because the rental income/mortgage payment calculation is based on the headline interest rate thus reducing the rental that has to be charged in order to meet the lenders lending criteria.

If you are interested in joining the buy-to-let boom, remember to do your homework. Research your local market thoroughly. Look at rental values, trends in property prices and levels of un-let properties.

And be aware that some lenders are becoming concerned at the buy-to-let market in city centres. Many large cities now have a glut of new flats and apartments which can also be overpriced. Developers are responding by offering enticing cash back and discount schemes rather than reducing prices. Lenders are responding by reducing the value to lending ratio back to 75%.

It also worthwhile remembering that it’s important to know how much you can afford to pay for the mortgage each month factoring in for the inevitable periods when the property is empty.

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At last, really cheap life insurance – but there are strings attached. Aren’t there always!

As from 6th April 2006, if you pay into a pension and at the same time pay for life insurance cover, then you can use your pension contribution allowance to reduce the cost of your life insurance. This is achieved by receiving 22% tax relief on your life insurance premiums if you’re a standard rate tax-payer, and relief at 40% if you’re a higher rate tax payer.

The combined pension and life insurance premium you pay, will automatically be reduced by 22% by the pension provider but if you’re a higher rate taxpayer, you’ll have to claim the balance to bring the relief up to 40%, on your end of year self-assessment return.

But there are three conditions:
• The company providing your pension must also provide your life insurance and be paid as a combined premium.
• Your pension fund plus the insured value of your life insurance, must not exceed £1.5 million.
• Your annual pension and life insurance premiums must not exceed £215,000.

In practice the life insurance savings will not be quite as big as you might otherwise expect. This is because the underlying cost of the life insurance will be a bit more expensive than a stand-a-lone policy with the same company and the odds are that the company providing your pension will not be the cheapest on the life insurance market. Furthermore, you will not be able to buy a combined pension/ life insurance policy online - so you’ll will miss out on the Internet’s discounted prices.

Having said all of that, if you’re a higher rate tax payer your tax savings are bound to ensure that your life cover is a real bargain! If you are a standard rate taxpayer, before you buy, we think you’d be wise to get an online quote to compare against the price for the pension associated life insurance.

There are also some other points you probably need to know. Firstly before you ask, no you can’t convert your existing life insurance policy into a combined pension purchase. The tax relief is only available when you take a pension policy and life insurance as one combined purchase.

Secondly, you can only take out life cover for yourself. Joint policies aren’t available as a pension/life insurance package.

And you can’t add critical illness cover to your life cover. Critical illness cover pays out a lump sum if you are diagnosed with a specified illness listed on your policy. If you also want critical illness cover, it’ll have to be a normal stand-a-lone policy.

Finally, if you’re tempted to buy a pension life insurance package and cancel your existing life cover, a few words of warning. The fact that you will now be older than when you first took out your existing life insurance policy, means that your premium rate will be higher. Furthermore, the premium for your new policy may be loaded due to any medical conditions you’ve developed since taking out your original policy. Even if you’ve simply put on weight, you could find that your premium is loaded. In extreme medical cases, your proposed pension provider might even refuse to provide you with life cover. All this means that you must obtain written acceptance from your pension company and compare the after tax cost, before you cancel your existing life insurance policy.

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Just before Christmas we commented on the Governments new “Open Market Homebuy” mortgage scheme which is planned to be operational in October 2006.
Under the scheme, first time buyers will be able to take out a mortgage for 75% of a home’s value and the government and the mortgage lender will each effectively buy 12.5% of the property. Then when borrowers eventually decide to sell the property, the owner will receive 75% of the net proceeds and 25% of the sale price will go to the Government and the mortgage lender, as they effectively own the balance.
In our view, first time buyers should not become excited about this scheme for four reasons: -
• The Government has now confirmed that buyers will have to suffer a 1% premium on the mortgage rate
• Despite hopes that more mortgage lenders would join the Halifax, the Yorkshire Building Society and the Nationwide, as co-sponsors of the scheme, no more lenders have joined in.
• The Government expects the scheme to lend to 4,000 first time buyers per year. That’s just over 1% of all first time mortgage deals arranged each year. In terms of availability, it seems as if Open Market Homebuy mortgages are going to challenge hens teeth!
• The Government hasn’t even announced the rules under which a first time buyer can qualify to apply for an Open Market Homebuy mortgage.
So even if you’re happy to pay the 1% premium, your chances don’t look too good for making the qualifying grade to become one of the first time buyers accepted onto the scheme.
Our advice is find a top class mortgage broker and seek out a great deal on the open market.

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Last summer the Office of Fair Trading warned the credit card industry that its penalty charges were excessive and had to be reduced. The industry largely ignored the warning so now the OFT is to force massive reductions - by up to 40%.

Later this month, the OFT is expected to announce maximum levels for the charges the providers impose on those clients who breach their credit limits, who pay late or whose cheques bounce. Rumours indicate that the cap will be around £15, perhaps lower, in comparison with the £20-£25 level so common within the industry.

This action follows an inquiry initiated by the OFT last summer. Eight of the largest credit card companies were asked to respond to the OFT’s provisional view that charges were at unfair levels and invited the companies to respond with data that would justify the fees they charged. Clearly, their responses failed to impress! It is known that HSBC, Lloyds TSB, Barclaycard, The Royal Bank of Scotland and Egg all argued that their penalties were justified by the costs incurred but their information couldn’t have been sufficiently compelling!

The consumer body “Which” is firmly on the side of the OFT. Their spokesman said, “We believe that bank and building society charges should be fair, reasonable and transparent, yet every year they make £3billion from these charges, which we consider to be disproportionate to the true cost”.

We agree. Just think – by dragging their feet for six months on this issue, the industry could easily have made £600 million more profit than the OFT thinks is truly justified. We say to the OFT, get tough and demand immediate action. Don’t give the banks etc months to put their act in order – that just lets them line their pockets for a little longer but even in a short time the excess profits they generate can be enormous.

Get your skates on OFT!

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These days, if you apply for any form of loan or credit, the finance industry will inevitably scrutinise your credit history. You’ll hardly have to tell them anything as within a fraction of a second, their computers will lock into your credit file held by one of the big three credit agencies; Equifax, Experian and Callcredit. And you’d be amazed what they know about your finances!

As far as the finance industry is concerned, the more information they can get about you, the better. Their computers then analyse all this information and statistically assess your application.

For years now banks, building societies and other financial institutions have been sending information about your finances to the credit agencies. They know all about all the credit applications you’ve made, the times you’ve missed or been late paying a loan, mortgage or credit card, the balances on your loans and credit cards, whether you pay off the minimum each month and even your credit limits. They’ve also accumulated lots of other information about you culled from the voters’ roll and the public register of court actions where county court judgements are recorded.

Yet despite this mass of information, there is one notable omission. Despite representations to the government, information on any student loans that you may have is not available to the credit agencies. This is because student loans were set up as a debt to the taxpayer, not a commercial business.

Before September 1998, student loans were repaid by mortgage style direct debits to collect loan repayments once the graduate started earning over £15,000. But more than 59,000 of these pre 1998 graduates are understood to be in arrears on these repayments to the tune, on average, of about £2,750 per graduate.

After September 1998, the system of collecting student loans changed to a much more efficient method which avoids the possibility of bad debts. Repayments are now deducted direct from salaries by employers along with income tax and national insurance.

The credit industry argues that it needs information on student loans as they can represent a significant strain on the graduates’ finances – especially as the loans are repaid at the rate of 9% of the graduates’ income in excess of £15,000. And with the introduction of top-up fees, the average student loan is now much bigger. Therefore, to fully assess their financial situation they need this information. This view is supported by a spokesperson from the Finance and Leasing Association Consumer Credit Counselling Service who said, “Knowing whether a young person has a student loan and whether it is being paid back is useful.”

Yet despite the clamour to share the information, the Department for Education and Skills remains steadfast in its decision not to allow the Student Loan Company to share its information with the commercial sector.

Even the Citizens Advice Bureau wants this decision changed arguing that the credit industry needs the student loan information to help ensure that graduates are not taking on so much debt that they can’t afford to maintain repayments.

But for now at least, the situation remains. Credit agencies cannot obtain any history about student loans.

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For providers of loans, mortgages and credit cards, getting to the top of the Best Buy” tables is like hitting the jackpot. The customers can’t get through the door fast enough!

Customers can find the Best Buy tables in press and magazine articles or on certain price comparison web sites - they’re like manner from heaven for those of us wanting to emulate scrooge! Indeed, for finance companies, top positions can make all the difference between success or failure for a new product. So it should come as no surprise to learn that enterprising finance executives are not behind the door when it comes to devising tricks to find a way to the top of the tables.

Take Alliance & Leicester’s Moneyback Loan for instance. This loan product recently hit the top of the Best Buy tables for a £5,000, 3 year loan in a subscription only magazine for finance professionals called Moneyfacts. The interest rate was 5.5%. But the marketing boys at Alliance & Leicester had engineered the product to win top place for a £5,000 loan. The product was structured so that unless a client wanted exactly £5,000, the amount the client ended up paying increased and effectively pushed the product well down in the comparison tables. Not was all it seemed!

In the mortgage market, the Northern Rock Building Society provides another good example. It has a table topping position for it’s two year fixed rate mortgage. But look closer and you’ll find that they’ll only lend on 80% of the property’s value and it has a 1.5% arrangement fee. This means that it only makes sense for those wanting a mortgage of over £175,000 and effectively rules out most first time buyers.

Now take credit cards. Which is the better deal – Cahoots card charging an attractive 11.9% or HSBC’s at 13.9%? The answer is that it depends on how you use your card! Cahoot charge interest right up to the date they receive payment whereas HSBC only charge interest to the date the bill is produced. The result is that if you regularly paid off your bill, HSBC would be cheaper!!

So what is the lesson to be learnt? Lenders are in the market to make profit and you can bet that if on the surface, a loan, mortgage or credit card looks really cheap, there’s going to be a catch somewhere – some angle through which the lender gets more money back.

In our view there’s no such thing as “A Best in Market”. What’s best for you will depend on your personal circumstances and how you want to operate the finance. So by all means look at the “Best Buy” tables but do so with a pinch of scepticism and a healthy regard for the small print! The problem is that most people are not sufficiently experienced to sort out the small print – so our advice is that when considering a significant financial purchase, use a broker. This does not necessarily mean that you’ll have a brokerage fee to pay, many of the brokers work off the commission they receive from the lenders, and their experience could save you a packet.

All the best financial brokers have web sites so our advice is stay online and let your fingers do the searching!

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The Competition Commission has at last moved to shame credit cards in to cutting their charges. The move comes after the Commission concluded that the industry was overcharging customers up to £100 million each year through excessive interest rates and other charges.

The main culprits were found to be store cards which were charging up to 30.9% interest even though the Bank of England’s base rate stands at just 4.5%. The worst culprits were TJ Hughes and the Faith Card who you can see heading the Table of Shame shown later in this article.

In addition, the commission came down on high penalty charges for missed or late payments and Payment Protection Insurance. Penalty charges currently average £15 per event – but the Commission argue that these charges are also excessive.

As for Payment Protection Insurance, the Commission has decreed that whilst this insurance can be a good idea, credit card operators have abused it. Therefore, Payment Protection Insurance must no longer be sold as a package with a credit card; it must always be purchased as a separate transaction. That’ll be good news for the Internet where all the cheapest Payment Protection Insurance deals can be found with premium savings up to 60% in comparison with credit card and loan packed arrangements.

The new rules from the Competition Commission mean:

· If a credit card charges more than 25% interest, it must carry a warning that there are cheaper ways to borrow. These warnings must be displayed on each monthly statement.

· The interest rate and penalty charges must me clearly displayed on the front of every monthly statement.

· The monthly statement must also warn of the consequences in terms of higher interest charges, of only paying the monthly minimum repayment.

· Cards must offer the option for customers to clear their monthly balance each month by an automatic direct debit. This avoids any possibility of interest charges and late payment penalties.

· Credit Card operators can no longer sell Payment Protection Insurance packaged with the credit card. They must be both separate and optional transactions that enable purchasers to see the true cost.

These new rules seem certain to shame retailers into cutting their charges – that’s not to say that 25% pa interest is a snip! Main line credit cards are currently charging circa 14% to 18% and we think that’s too high! Indeed, between 80% and 90% of store cards are charging more than 25% and are held by some 11.5 million customers. But some retailers have already realised that their sky high charges couldn’t be sustained and have taken steps to trim back. Harvey Nichols has already trimmed their interest from 28.5% to 21.9%, River Island has gone down from 29.9% to17.9% and Monsoon from 29.9% to 18.9%.

But who are the bad boys? Here’s our Table of Shame:

TJ Hughes 30.9%
Faith Card 30.9%
Owen & Owen 30.7%
Burtons 29.9%
Dorothy Perkins 29.9%
East 29.9%
Evans 29.9%
HMV 29.9%
JD Sports 29.9%
Kwik Fit 29.9%
La Senza 29.9%
Laura Ashley 29.9%
Miss Selfridge 29.9%
Russell & Bromley 29.9%
Ted baker 29.9%
Topshop/Topmam 29.9%
Wallis 29.9%
Warehouse 29.9%
House of Frazer 29.3%
Bhs Gold Card 29.0%
Habitat 29.0%
Oasis 29.0%
Harrods 28.9%
Fenwicks 27.9%
Selfridges 27.6%
Bentalls 27.2%
Jaeger 27.1%
B&Q 26.8%
French Connection 26.8%
Argos 25.9%
Homebase 25.9%
New Look 25.9%
Note: Some of these cards offer lower rates for payments by Direct Debits
Source: Competition Commission/Moneyfacts March 2006

Most car buyers will have spent hours researching makes and models of car before deciding what to buy. Then four out of ten sign up for the car within 30 minutes of stepping inside the showroom.

But will their diligent research extend to finding the cheapest source of finance? It seems not. Almost 50% of new cars bought privately are bought on finance and nearly 20% sign up for the finance deal offered by the manufacturer. That could turn out to be a costly decision. With manufacturers finance typically costing 13.7% over a 3 year including a 10% deposit, they could be throwing about £1,800 down the drain.

Someone buying a Renault Megane Sport Saloon Privilege costing £16,000, would end up paying £17,384 over the full 3 years. However, if you have a good credit history, you could get a personal unsecured loan at only 5.5% and end up paying just £15,631 – that’ll give you a saving of £1,753. This illustrates that accepting the showroom’s finance instead of shopping around for a low rate loan, can hit your pocket hard – its like giving back the discount we hope you negotiated!

I can hear you telling me about the special finance offers that the manufacturers advertise extensively. Yes there are some good deals but always look closely. Some only relate to specific models and specific specifications, often the cars that the manufacturers are having trouble shifting, and some deals have stings in their tails. Take the current offer on the Volkswagen Polo E2. This deal is advertised at 5.8% with a monthly repayment of £99 over 35 months - but at the end you’ll find you have to make a final balloon payment of £3,750 or trade your E2 in for another Volkswagen.

The manufacturers offer these deals to encourage brand loyalty and a repeat purchase in 3 years time. They know that most people will trade their car in after 3 years rather than find the large balloon payment.

Of course, manufacturer’s finance and cheap personal loans are not the only way you could finance your car.

Hire purchase is the traditional way to pay for your car. Here you pay a deposit usually of at least 10% or trade in your existing car for at least the same value, and then your HP loan for the balance, is secured on your car. Therefore, in practice your car still belongs to the hire purchase company until you have made your final monthly payment.

If you want to sell your car before you’ve completed the HP agreement, there will almost always be an early redemption penalty – often two or three months interest. The HP company will always register its interest in your car with HPI the finance tracking agency. This will effectively mean that you will not be able to sell the car until you have paid off the balance of the HP you owe.

The other alternative is Personal Contract Purchase. These are the deals most dealers will attempt to sell to you. You also agree the annual mileage you expect your car to clock up. Then you pay a deposit and part of the purchase price is deferred until the end of the agreed payback period. Your monthly repayments then pay off the balance and the interest. These schemes are very flexible so you can choose the length of the car loan and the amount of the deposit but interest rates vary considerably between lenders. At the moment the average is about 12.8% - still well above the 5.5% rate for a cheap personal loan.

At the end of a PCP contract you’ll have three options – pay off the deferred sum and keep the car, trade in the car using the trade in value to help pay off the deferred sum and hopefully leaving a balance towards a new car, or hand in the car and walk away with nothing more to pay.

This last option is always subject to the provision that your cars’ condition reflects normal wear and tear and its mileage is in line with the annual mileage you agreed when you purchased it. If the mileage exceeds the agreed mileage, then you’ll have an excess mileage charge to pay based on the number of excess miles. The cost per excess mile will be specified in the PCP agreement.

One of the advantages of PCP is that the guaranteed buy back option, effectively protect customers against excessive depreciation.

As the dealers take a commission for selling the PCP contract you may find that they will give you a bigger discount off the price of your car or even throw in a low cost servicing package or low cost insurance. But you’ll need to do a little homework to ensure that these extra goodies are truly worth the extra interest you’ll have to pay within the PCP contract.

Have you recently received a batch of cheques from your credit card company suggesting that you might like to use them to treat yourself? No? Well that’s surprising as over 10 million are sent out to cardholders every year.

Beware. If you use the cheques the charges can be high. Purchases sometimes attract a higher rate of interest than standard card purchases and there’s no interest-free period. You may also be charged a handling fee of up to 2%. All these charges swell the credit card company’s coffers by around £57 million every year – so they’re particularly keen on them!

But the Office of Fair Trading and the consumer group “Which” are much less impressed. They are urging consumers to tear the cheques up. They also want legislation to ensure that the credit companies properly inform their clients about the true costs of using the cheques.

Even last year, as part of a wide ranging enquiry into the credit card market, the influential Treasury Select Committee concluded that card companies should stop mailing unsolicited cheques. Their concerns were the cost of the cheques and the way these cheques were encouraging additional debt.

“Which” certainly agrees with the Committee. Their spokesman said “We want unsolicited credit card cheques to be banned, especially as we have found that companies use them to encourage indebtedness”.

We agree.

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