Building Societies are beginning to introduce some cheap mortgage deals – but you’ll have to get up early to bag one.

The Newcastle B. S. and the Coventry have stolen a march on their competitors by launching some fantastic rates but there are signs that the Newcastle could their deals very soon and the Coventry withdrew theirs after just seven days,

The basic problem is that the building societies are unable to borrow in the money markets and all their mortgage lending have to be funded by investors savings and mortgage repayments from their clients. So if their deals turn out to be very popular, the money runs out in a flash.

And first time buyers still shouldn’t get too excited either. They may be the first to get out of bed and queue at the building society, but all these deals still require a deposit of at least 20% and a near perfect credit history.

The credit crunch remains with us.

Just imagine. You’ve been to the show house, fallen in love with the housing development and signed up to buy a house off plan for £500,000 and paid the 10% deposit. The only problem you may have thought was that you’d have to wait 12 months to move in.

Ten months later the letter arrives to say that the house will be ready in 8 weeks. But things have changed. House prices have fallen and the building society values the house at £425,000 and, as business is not so good, your income has fallen too.

What do you think the building society will say? Yes, you guessed it – no mortgage! But you have signed a contract to pay the balance of £450,000 for your new home and the builder wants his money and you’ve signed a legal contract to pay.

This sort of situation does happen. Berkeley Homes is in the process of taking an unknown number of it’s clients to court to recover the money they are owed.

So please be very cautious if you are tempted to buy a home off plan especially if you are having to raise a hefty mortgage to complete the deal. And also be aware that, despite the recent upswing in house prices, some commentators are still forecasting that house prices will go into reverse again next year.

Please be careful.

Next Wednesday, judges at the Supreme Court will rule on the legal battle about unfair bank charges.

This is the case between the Office of Fair Trading and the main high street banks and will decide whether the OFT can assess the fairness of overdraft charges – which have been as much as £39 a time for exceeding your account limit. The Court of Appeal has already ruled that charges can be assessed but the banks appealed to the Supreme Court which is the highest court in the land.

It is estimated that 1.1 million people have £1.7 billion worth of charges awaiting this decision because a freeze was placed on complaints back in July 2007 when the banks appealed against the Court of Appeal’s decision in favour of the OFT.

Banking experts believe that the banks could face a £20 billion payout if they were forced to repay all the charges under dispute.

The Financial Services Authority is expected to announce a new crackdown to head off irresponsible mortgage lending of the kind that was witnessed pre credit crunch.

The central recommendation is expected to be a requirement for all lenders to undertake detailed affordability checks before lending and make the lenders responsible for showing that the borrows can afford to repay the loan. This recommendation sounds the death knell of the self-certified mortgage which previously enabled borrowers to get their mortgage without providing proof of income.

Self-certified loans were popular with the self employed and accounted for over a third of all new mortgages back in 2007. But defaults on them have run at a far higher level than ordinary home loans so the FSA has decided to call “time” on them.

Other changes being considered by the FSA include extending regulation to second charge lending and the buy-to-let market.

Interest rates on personal loans are continuing to rise as lenders remain worried about borrowers keeping up with their repayments.

The rates from Marks & Spencer, Egg, and Tesco have all recently risen by 1.2%, 1% and 0.2% respectively. Twelve months ago, the typical interest on a three year loan for £5,000 loan was 11.2% whereas today it is 12.2%.

Rates have risen because lenders think that the outlook for defaults continues to worsen. As a result the anticipated losses have to be covered by the majority of customers who do fulfil their obligations. This tends to indicate that the banks are supporting those economists who foresee a worsening unemployment rate. Now that the government is clearly planning savage cuts in expenditure the fuller, longer term affect of the credit crunch it is coming home.

We have to advise that despite the recent signs of recovery, the best advice remains batten down the hatches.

Ambitious buy to let landlords are finding it more difficult to expand their portfolios of properties as banks like Lloyds, which includes HBOS, impose new borrowing limits.

Last week Lloyds announced that its lending to landlords would be capped at £3 million and a maximum of 9 properties. Prior to this announcement, the bank would have lent £6 million on as many as 18 properties. It is not known how this will affect landlords who need to refinance their portfolios as their existing finance deals come to the end of their term, but presumably these landlords will have to diversify their borrowing to new lenders. Whether they will find new willing borrowers will depend on the equity within their property portfolios.

This move by Lloyds is another symptom of the finance sector wishing to diversify and reduce their exposure to the buy to let market which has been so badly hit during the current recession. Many landlords invested heavily in city centre apartments only to see the value of these properties fall by 50 per cent in cities such as Leeds, Manchester and Bristol.

The Northern Rock has already admitted that it costs about £25 a month to administer a mortgage that is in arrears so why do many other lenders continue to charge up to £115 a month for those in arrears? Is it punishment or profit? You decide!

And this problem is not small – the figures are huge. Figures from the Council of Mortgage Lenders show that there were 399,000 accounts in arrears at the end of last March. That means that they are charging nearly £46 million each month in arrears charges when the true cost is just under £10 million.

If the homeowner has equity in their house then these charges don’t seem to matter to the lenders as they will get their money back as and when the property is sold. So they don’t spare the horses on any other charge either. Say for example, you want a debt councillor from your lender to come around to see you – that’ll be another £100 please! And if the lender has to repossess and sell your property your eyes will water when you see what they typically charge for estate agents fees – we’ve heard of 5% of the sale value. Who would dream of paying an estate agent 5% when the market norm is 1.5% at the most?

And if the lender has had to change the locks then a pair of locks on the front and back doors will typically cost £400 plus a further “management handling fee” of £50.

It seems all wrong to us. People who have their backs to the financial wall should not be preyed upon. Yes they should pay the costs incurred in sorting the situation out but what we are hearing of amounts to out and out profiteering on the most vulnerable.

It must be stamped out!

The average cost of overdrafts stands at an all time high – 18.9% which is the highest since the bank of England’s records began in 1995. It would seem that the bailed out banks like the Royal Bank of Scotland, are responsible for the highest charges.

The cost of personal loans is lower with an average rate of 13.1% and this is the highest since 2004.

This is further confirmation, as if any were really necessary, that customers are not seeing any benefit of the historically low Bank Rate which is standing at 0.5%. It is clear that whilst the banks are restricting the amount they lend, they are boosting their profits and balance sheets by pushing up charges on all their financial products.

This combination of record levels of interest and restricted supply of credit is set to choke economic activity in the UK and negate the affect of the £1.4 trillion of public money that the public injected into the UK banking system. And figures out this week show that recovery in the UK is lagging the USA and mainland Europe. The reason given for this is that financial services were a large proportion of the UK’s output and it is that sector that has been most badly affected by the recession.

This all suggests that if the UK’s recovery is to get going, the Government will have to tackle the availability of credit.

Experts are warning that a second wave of house repossessions could hit the country. Whilst repossessions were down 10% on the previous quarter, the outlook continues to look bleak.

Industry figures have revealed that the number of households in serious arrears has rocketed by almost 50% during the last 12 months. Against this background, the Government has been applying pressure on lenders to go softly on those behind with their payments. This to some extent has suited the lenders as house prices have dropped up to 335 in some areas and they want prices to recover somewhat before they take action.

This situation has led Shelter, the housing charity, to warn that as interest rates, house prices and unemployment rise, we could see the second wave of repossessions.

Currently 2.5% of households are significantly behind with their repayments – some 205,600 homeowners. It is this group which is most at risk as they could be taken to court at any time. But the Council of Mortgage Lenders insists that it’s members are doing everything they can to help those in arrears.

The Financial Services Authority has announced plans to increase fines for mis-selling financial services by up to 300%.

The FSA says it is responding to evidence that businesses fined for mis-selling are failing to sufficiently improve their standards and operations. This seems to particularly apply to the Payment Protection Insurance scandal where improvements and the resolution of claims seem to be grinding ever so slowly.

Under the new proposals penalties will be based on up to 20% of the company’s revenue from the product category concerned involved in the mis-selling or, in the case of an individual, up to 40% of their annual salary and bonuses.

The record fine for mis-selling Payment Protection Insurance was £7 million which was levied last year on Alliance & Leicester. Alliance & Leicester subsequently got tangled up in the credit crunch and it now owned by Santander, the huge Spanish based banking group.

Figures from the Bank of England prove that Britains’ banks have been lifting their interest rate margins to unprecedented levels whilst restricting their lending.

Well actually, it shouldn’t have taken the Bank of England to prove what every family already knows. We have seen the average interest rate on our credit cards rise from 14.8% at the start of the year to 15.9% today. We’ve also seen the margin between bank rate and the average tracker mortgage rocket.

So banks are trading down whilst at the same time fattening up their margins. And throughout their investment portfolios, the banks are reducing their risk exposure. That package is a recipe for big profits at the banks – but it is very bad news for the British public.

There is little doubt that the supply of credit is going to remain tight and virtually non-existent for those of us with less than perfect credit histories. Try asking for an overdraft, a mortgage, a loan or a new credit card and watch your bank manager frown and suck his teeth.

And when the economy is confirmed as back in a growth trend, watch those interest rates rise! At the first opportunity the Bank of England will want to increase its base rate from the current lowest level ever of just 0.5%. Hands up who expects the high street banks to reduce their margins when that happens. Oh yes, you in the corner, what’s your name?

“Alice in Wonderland”

Although the bank of England kept interest rates on hold last week at 0.5%, many experts are forecasting an increase before the year is out. When interest rates are so low, it doesn’t take a genius to forecast that the next move is up – but forecasting the timing of the increase is more tricky.

So what would an increase in mortgage rates mean to you? If you’re trying to sell your house, it’s not going to help is it? And if you’re happy where you are, have you fixed your interest rate?

In recent weeks many lenders have reduced their fixed rates and the number of deals under 4% have doubled. And with the best 2 year fixed rates sitting at less than 3%, now could be the time to get that fix.

To a certain extent, the interest rate situation will be conditioned by developments in the housing market. We feel that the recent mini upsurge we have seen has no legs as unemployment is still rising and mortgage lending is running at 60% down on last year. And if we are wrong, the Bank of England will see rising prices as time to bring forward the inevitable rate increase.

Therefore, with rates having edged down and with future rate increases on the horizon, anyone who moves their mortgage to a fix is making a shrewd move. If you can fix now for 5 years at less than 5%, that represents cheap borrowing – go to it!

The Financial Ombudsman Service (FOS) is now receiving three times as many complaints about debt collectors as in the last twelve months. The complaints are usually about relentless hounding and harassment.

But, say the FOS, when they get involved matters usually get resolved very quickly. As soon as the debt collector knows that the spotlight is on them, it remarkably focuses their mind.

So if you are being harasses for a debt that’s not yours and have done all in your power to explain that, here are some tips:

• Contact the company that employed the debt collector that you are being harassed. Under the guidelines laid down by the Office of Fair Trading, the business that employs the debt collector can be held responsible for its behaviour.
• If you are being harasses, phone the local office of the Trading Standards. And if you are threatened, contact the police straight away.
• You should not be contacted at unreasonable hours. So take a note of the times you’re called, what is said, and the language they use.
• It is illegal for them to ask you to call them back on premium rate phone numbers.
• If you have already settled the debt, the debt collector must check that out. They cannot make unjustified payment demands.
• And if, despite everything, the debt collector continues to hound you, write to the FOS.

Since the start of the year 1 in 4 of redundancies in the EU have been in the UK. Out of 219,390 job losses in the EU, 63,314 were in the UK. This makes grim reading for us Brits.

Particularly badly hit, was the financial sector where firms like Barclays, Sun Alliance, The Royal Bank of Scotland and HSBC actioned swingeing job cuts and the retail sector where current forecasts indicate that there will be 139,000 empty shops by the end of this year – equivalent to 15% of the UK’s total retail floor space.

And in the next few weeks we will also learn what is to happen to Vauxhall. With 5,000 workers in its UK factories and probably three times that number employed indirectly in the UK, there’s potentially another 20,000 jobs down the drain. Let’s hope that our Government have really got guarantees from the bidders that these factories will stay open.

Somehow I have my doubts.

The British Bankers Association has announced that lending by the major UK banks in April was £2.7 billion, down from £3.4 billion the month before. But mortgage approvals in April were actually up on the previous month by 4% - but still 16% down on April last year. And perhaps not surprisingly, the average mortgage value was £129,100 having been £155,100 a year earlier.

Bank loans for car buying was £1.5 billion, the same as the previous month but still 39% down on the same month last year. And credit card spending was down 11% lower than 12 months ago.

What does all this mean?

Well, the massive stimulus injected into the UK economy by the Bank of England has stimulated nothing. What it has done, is arrest the decline. What would have happened if the Bank hadn’t injected the money, we hate to think about!

The housing market remains weak as mortgage lenders control advances through restrictive lending conditions and, whilst the numbers of house sales are marginally picking up, prices continue to fall albeit at a slower pace. Estate agents will try to talk the market up referring to higher mortgage approvals – but the fact is that the value of mortgage lending remains weak.

In our view, until consumers’ confidence returns and the banking system regains its ability to lend (is that a chicken and egg scenario?), tough times will remain. Still no “green shoots”.

Hire purchase, the original consumer credit option favoured by millions in the 50’s and 60’s before sportier credit cards and personal loans came into vogue, is back in town.

The lenders like HP because the product that has been “hired” remains the property of the finance company until the last payment has been made and this increases their security. Consumers like HP because it has traditionally been cheaper.

Figures just released by the Finance and Leasing Association show a 10% increase in HP sales in the year to March. And in March alone sales were up 25% over the previous March.

Historically, the popularity of HP rose during Harold Macmillans’ premiership (remember his phrase, “you’ve never had it so good”) on the back of household items worth up to £1,000 – items such as washing machines, fridges, TV’s and carpets. It also flourished as a way of purchasing the family car.

It now seems that the wheel is turning round again. The Association says that HP has rebuilt its market share within the car market back to 54% and it’s increasing. And within Britain’s shops HP is now being used to support promotions such as “nothing to pay for a year plus 2 years interest free credit”.

Will HP pull us out of our recession? I don’t think so, but perhaps we’ll be a little more comfortable!

During the last 25 years the number of working mums with children under 5 has doubled. Now 62% of married or co-habiting women bring up a toddler whilst working. Back in the 80’s it was only 31%.

And 75% of women with children under 10 go out to work. But it is single mums who have been the main beneficiary of the tax credits system and they are less likely to work than married or co-habiting women.

The general trend shows that financial penalties and incentives are presuading many women into work. Despite many working mums wishing that they did not have to work, the financial pressures on the family have driven them to work.

The right of centre think tank, the Centre for Policy Studies says that there must be more support for mothers who want to stay at home beleiving that this is better for their children. But the Government has swung the other way.

Ministers have recently announced a scheme to offer subsidised child care which will further encourage mothers to work. The scheme pays £175 towards day care for a child under 14 for parents who train for a job. The payments are paid so long as the families earn less than £20,000 a year and have one partner who is in work.

Beverley Hughes, the Children’s Minister said, “We know that for those that can work, work remains the best way to take families and children out of poverty”.

If your house won’t sell in this difficult market and you need more space, consider extending. Would a loft conversion or an extension suit the bill?

As the credit crunch has knoched the stuffing out of the building industry, builders are more interested in taking on smaller domestic jobs. And a change in Planning Law for England and Wales came into affect at the back end of 2008. The change makes it much easier to get approval for smaller projects. (For more information about the changes, go to www.planningportal.gov.uk)

If you have a secure job and a few pennies in the bank, an extention could bag you a bargain. But be careful. It matters what you spend your money on. Some projects do not necessarily increase the value of your home and some increase it but by less than the money you spend.

New kitchens, loft conversions, conservatories and extensions seem to be the best investments. On average building an extra room increases the value of your house by £13,285 and a loft conversion by £13,567. On the other hand, recarpeting or redocorating has only a marginal affect on the value with almost half of surveyors reporting that these made no differnce whatsoever.

After three months of figures indicating improvements in the housing market, the latest statistics showed renewed falls in the number of approved new mortgages.

Approvals in March fell 6.8% from the previous month to 26,097. This also represented a fall of 25% over the figures from March last year. In terms of the value of mortgage approvale, £8.9 billion was approved but this still represents a 47% drop from March last year and is the lowest value of approvals since April 2001.

These figures also show that the size of the average mortgage has fallen considerably. Whilst first time buyers largely remain frozen out of a market which is frequently demanding deposits of 20 or 25%, it is clear that mortgages for the upper end of the market are also in very short supply. At one time bankers would hand out £500,000 mortgages like bags of sweeties – but no longer. And at the moment, apart from preditory purchases from distressed sellers, the buy to let market is dead in the water and this further hits the lower end of the market.

By a simple deduction, the overall picture suggests that the housing market is likely to move better in the middle price ranges and stagnation will continue at the top and bottom of the market. Properties will just stick on the estate agents books.

So how will house prices move? The British Bankers Association still believes that house prices will fall quite a lot further. “We have some way to go”, their spokesman commented.

I’m afraid we agree.

After it was handed a multi-billion bail out by UK tax payers, the Northern Rock continued to grant 125% mortgages. A hard hitting report from the National Audit Office suggests that the bank lent 1.8 billion though high risk mortgages between September 2007 (the time when the Government had to step in) and February 2009.

In housing market where house prices were falling at about 20% per year, such massive mortgages start borrowers off in negative equity and market forces make that situation even worse.

Even just 5 months ago mortgages of up to 125% represented 30% of Northern Rock’s mortgage loan book. And 70% of the repossessions it made came from the same group of borrowers.

That means that whilst depositors were queuing up to get their money out and the government were pouring money in, the bank was still agreeing mortgages up to 125% of the property value.

And it is no as if the Government didn’t know! The Chancellor, Alistair Darling was challenged about the banks lending policies as late as February 2008 but nothing was done.

Thousands more borrowers may now be facing repossession because they were given excessive mortgages. But we should remember it takes two to tango. A person applied for the excessive mortgage and an irresponsible bank granted it.

It seems to me that whilst the banks were in the controlling seat by promoting these mortgages, the homeowners that took the mortgages must also bear some responsibility. What did they do with the “spare” 25% of the mortgage?

I presume they spent it.