Wednesday, November 29, 2006

Barclaycard To Write Off £1.5BN

Britain's burgeoning debt crisis was highlighted by Barclaycard yesterday, when it announced that it expected its customers to default on £1.5BN of debt this year.

Seemingly the blame is being placed by Barclays (the parent company) on the rising number of personal insolvencies, eg individual voluntary arrangements (IVAs). A cynic might argue that had the bank been a little more careful with whom it lent money to, then it might not have found itself in this mess.

Barclaycard's write-off rate for bad debt is now a staggering £26.8M a week.

Barclaycard has 11.2M cardholders, and has outstanding at any one time around £25BN.

The write off represents a 37% rise in Barclaycard bad debts, compared with the previous year.

A Citizens Advice spokeswoman said:

"It doesn't surprise us, because all banks are reporting increasing levels of debt. It does, however, mean that lenders should always make sure that people are able to repay the money before they agree to loans. At the same time, people should be wary of borrowing more than they can realistically afford."

Barclays has tightened up its lending criteria in recent months. It now rejects 57% of credit card applicants.

Shutting the stable door maybe?

Tuesday, November 28, 2006

Nationwide Reneges on Mortgage Deal

Nationwide has announced that it is to scrap its highly publicised guarantee that new and existing customers will receive the mortgage same deals.

As from December 1st, existing Nationwide customers who want to change deals, borrow more or remortgage will be penalised by higher rates.

Mortgage brokers claim that Nationwide had reneged on its principles.

In the recent Nationwide advertising campaign (Nationwide's slogan is "proud to be different"), the society promotes its promise to offer all customers the same rates.

The advertisements also criticise other lenders that offer better deals to new clients, but fail to reward the loyalty of existing customers.

Melanie Bien, of Savills Private Finance, the mortgage broker, said:

"This is a real shame. Nationwide made a principled stand, promising existing and new customers that no one would receive preferential rates. This guarantee no longer stands."

The new policy favours first time buyers and people moving house.

On a two-year tracker deal, remortgagers on a rate of 4.99% will pay £21 a month more than homebuyers, who will receive a rate of 4.73%.

Ms Bien added:

"Translated, Nationwide's change of policy means it can now offer more competitive rates for first-time buyers by charging others a higher rate."

Northern Rock and Alliance & Leicester still offer the same rates to all customers.

Stuart Bernau, an executive director of Nationwide, said:

"By making these changes, we will achieve greater flexibility and will be better placed to offer all our mortgage customers what they want."

Ray Boulger, technical director at John Charcol, said:

"This U-turn hurts the building society movement because Nationwide has been the most vocal in making claims about the benefits of mutuality. These claims now look rather hollow.

A large part of Nationwide's advertising was based around how good it was that they were a mutual. Now it seems that they are doing the same as what they criticise others for doing. It is hypocritical


"Nationwide claimed to pride itself on not discriminating against loyal customers. There can't be much pride left after today."

Money is the prime motivator here, customer care comes second.

Monday, November 27, 2006

The British Bankers' Association have reported that home purchase loans have reached the highest level in four months in October.

Lenders have approved 74,997 mortgages for home purchase, an increase from 72,155 in September and 4% higher than a year earlier.

The average value of loans has risen by 11% (in the year to October) to £114K, a total of £18.9BN was lent in October (8% higher than the previous year).

The UK housing market underpins the British economy, and as such any increase in lending is taken by financial pundits as being good news for the economy.

Needless to say, house prices are also rising. Property research group Hometrack report that house prices rose 0.6% in November, pushing the annual rate to the highest since August 2004.

So long as the market keeps rising, then there will be no problems......the question is, can it keep rising?

Friday, November 24, 2006

The Great Travel Insurance Rip Off

As we all know, Britain's financial services industry has something of a poor reputation.

The long suffering British public have, over the past few years, had to endure; the endowment loans mis-selling scandal, unjustifiably high banks charges, extortionate interest rates on unsecured loans and credit card debts and the mis-selling of insurance policies to cover these debts.

It is hardly surprising that the British public are fed up with the financial services industry, and have lost their trust in it. Therefore it should come as no surprise to learn that the Treasury have found yet another area of shameful conduct, that of travel insurance policies.

Travel insurance policies, sold with package holidays, brings in the insurance companies £1BN per annum.

A "nice little earner" by anyones standards!

The Treasury has decided to probe this area after complaints that the policies are over-priced, and contain too many get-out clauses. Travel agents could face regulation by the financial services watchdog, if they are found to be mis-selling insurance policies.

By way of example, over 50% of policies sold don't cover terrorist attacks.

As is usual with the financial services industry, nothing is ever quite what it seems. Stand-alone travel insurance is regulated by the Financial Services Authority (FSA). However, policies sold as a holiday add on are not.

Ed Balls, Treasury Minister, who launched a public consultation yesterday said:

"We need to find out whether travel insurance sold with a holiday is being mis-sold and if we need to educate consumers to consider the cover they want and ensure they are properly informed."

A Which? survey of travel agents found that many policies were mis-sold, with customers not told what policies do and don't cover and not warned that pre-existing medical conditions are excluded.

Which? spokeswoman Emma Bundy said:

"Many policies are sold by travel firms which are not regulated so policyholders have no right of redress."

The common thread to the problems of Britain's financial services industry is that of "mis-selling"; whether it is the mis-selling of endowments, debt insurance, debt or travel insurance.

A cynic might argue that all the banks, insurance companies and other money men want to do is to get their hands on people's money; without giving a damn for the suitablility of the product, or the client profile.

Whilst banks and insurance companies might argue that this is not so, an ever growing number of people in Britain are now taking this to be the case.

The financial services industry needs to learn that a reputation once damaged is very hard to restore. Whilst the money men in the City will be enjoying exceptionally large bonuses this year, they may care to think on that once people finally lose confidence in the system they will stop buying the products. As such, the bonuses in future years will be very spartan indeed.

What goes around, comes around!

Thursday, November 23, 2006

The Pensions Time Bomb

The Association of British Insurers (ABI), in its annual State of the Nation's Savings survey, is warning that almost 33% of working adults are not saving for retirement and that another 16% are not saving enough to provide them with an adequate income.

ABI also noted that 25% of employers would consider "levelling down" their current pension contributions, when personal accounts are introduced.

Chris Kenny, director of life and pensions at the ABI, said:

"The broad direction of travel on pension reform is right. Bit there is still a long way to go both to encourage more saving and to get the details of personal accounts right.

In this context, it is even more vital that the Government takes action to ensure that existing private pension provision is allowed to prosper and grow

However, as I have already noted on this site, given the lousy reputation of the British financial services industry (excessive bank charges, mis-selling of insurance and the endowment loans scandal) it is hardly surprising that people have lost confidence in it and are not saving.

My opinion is shared by others, Doug Taylor, personal finance campaigner at Which?, said:

"It is staggering that the industry responsible for endowment and pension misselling, which so undermined the confidence of the British consumer, is now trying to undermine a Government scheme to protect the interests of the 10 million people who currently have no provision for their retirement.

For the ABI to cast doubt over these landmark pension reforms will do nothing but feed a consumer confidence crisis. We need to move the debate on from points scoring and really focus on how the industry plans to instil trust to encourage consumers to save now for their retirement

Until the financial services industry smartens up it act, and restores people's confidence in it there will be little that the government and other bodies can do to persuade people to save more.

Quite simply people do no think that there is any point in saving, as they have seen their money wasted on endowment policies, insurance policies and how they are being screwed by the banks and credit card companies.

Wednesday, November 22, 2006

House Price Slow Down

It seems that finally the long bull run of house prices in the UK may be coming to an end. That at least is the view of a former government economic adviser, David Miles, the Morgan Stanley chief UK economist.

UK house prices have risen more than twice as much as general inflation in the past 10 years.

Mr Miles predicts that the rate of house price inflation will slow down. However, he is cautious about predicting exactly when the prices may fall.


"A substantial fall in real house prices is likely at some point in the relatively near future, though it could yet be one or two years away."

Mr Miles issued his warning in a report, entitled "UK Housing: How did we get here".

PricewaterhouseCoopers have also predicted that there is a one-in-three chance of UK house prices falling by 2010.

That being said, past reports of the death of the UK house market have been premature. This year prices have started to accelerate again, and are now running about 8% higher than a year ago.

The main driver behind the price rise is speculation that they will continue to rise, in other words it has become self fulfilling prophecy.

Therefore once the confidence in the system is knocked, we may expect a price slow down or even a collapse.

However, it is unclear as to when this will happen. Prospective home owners should take note in the old saying, "timing is everything".

Tuesday, November 21, 2006

Lessons in Finance

George Osborne, the Shadow Chancellor, is calling for children to be given lessons in finance and money management.

The lessons would include life relevant areas such as, how to calculate rates of interest and how to balance a budget to prevent levels of debt from worsening.

The lessons are, in the opinion of the Conservatives, necessary in order to address the spiraling level of indebtedness of the British public.

Mr Osborne presented his suggestion during the third "debt summit" held by the Tories this year. The summit was attended by leading figures from the financial services industry, consumer protection bodies and charities.

The Tories have quite a challenge ahead of them, whilst it is true that people should take responsibility for their own finances, they are faced with the aggressive marketing of all manner of financial products. It is not unreasonable to call on the financial services industry, which has sullied its reputation over the last few years (with its appalling response to the endowment mortgage crisis), to act in a responsible manner when lending money.

Citizens Advice has agreed to work with the Tories to help people achieve a better grasp of financial matters.

The Conservatives have also asked the Advertising Standards Authority to investigate whether some companies, encouraging people struggling with debts to sign IVAs, were in breach of its advertising code.

Mr Osborne said:

"Like many consumer groups and banks, I am concerned that people may be being encouraged by unscrupulous IVA companies to commit to IVAs, even where this may not be the right course of action.

And I'm also concerned that companies aren't always properly informing their customers about the fees they charge for arranging an IVA, or about the adverse effects of IVAs on credit ratings

The trouble that all the politicians face, whatever party they belong to, is that Britain relies on the debt burdened consumer to fuel the economy. Unnerve the consumer too much, and you have a recession. It is a delicate balancing act.

Monday, November 20, 2006

Nigerian Scams Costing UK Billions

The Chatham House group has issued a report today, that states that financial crime in the UK stemming from Nigeria involves "billions of pounds".

However, not nearly enough is being done to stop it.

The commonly termed "Nigerian Scams" (419 scams) involve internet scams, credit card fraud and money laundering. All of these, according to Chatham House, are going unchecked by governments in both countries.

The scam usually involves an email/fax offering the naive and gullible a highly attractive but fake financial deal, the scammer then steals money and personal information from the gullible victim.

These scams are costing the UK economy £150m a year, with the average victim losing £31K.


"Criminal activity is carried out by a small minority of Nigerians, relative to the size of the country and the number of nationals resident in Britain or visiting it.

But the numbers of people involved are still significant and their successes reflect wider political and logistical shortcomings with the way the British authorities deal with financial crime

The costs "have almost certainly run into billions of pounds over the past 10 years".

Report author Michael Peel said:

"The scale and scope of Nigeria-related financial crime highlights critical wider failures in the way the British authorities tackle fraud, corruption and money laundering.

Despite important, but limited reforms, criminal networks and corporate bribery still flourish.

This raises questions about how sincere the governments in both countries are in their talk of change, particularly when significant political, commercial or energy interests are at stake

The report urges law enforcement agencies and the Financial Services Authority to build better links with counterparts in Nigeria, to cooperate in fraud and corruption cases.

As ever, it is also down to the individual to remain forever vigilant.

Thursday, November 16, 2006

UK Government Must Knock Heads Together

The Parliamentary Treasury Committee inquiry into banking services for the poor has noted that the UK government needs to clamp down on illegal money lending, raise competition in home credit markets and improve access to financial advice for millions of poorer people.

John McFall MP, who headed the inquiry, said:

"Many of the financial services that most people take for granted are either not available to many of the most vulnerable in our society or are only available at a premium."

The committee noted that financial advice was not widely available, and that 8 million people earning between £10K and £22K found it difficult to get advice that wasn't linked to commissions and the sales process.

Mr McFall recommended that the Treasury should take the lead in brokering an agreement with the Financial Services Authority and the financial industry, to organise a framework for a national financial advice network.

The committee also stated that it expected the government to take a tougher line against illegal lenders.

McFall said it was for the government to "knock heads together" to ensure that there is progress among lenders in sharing data.

Wednesday, November 15, 2006

The End of Free Banking

Those of you who already feel that UK banks are making more than enough money, may be a tad "annoyed" to learn that there are plans to make even more money; by charging customers for the privilege of placing their money in a bank account.

The rot has started with First Direct, part of HSBC, which plans to charge £10 per month to customers who run current accounts. Only those who deposit £1,500 a month or who maintain an average balance of £1,500 will escape the fee.

In other words, a large number of their customers will have to pay £120 per year for the "privilege" of holding a First Direct account.

Needless to say, where one bank goes, others will follow.

Alan Duncan, Shadow Trade and Industry Secretary, said:

"This is an irrational basis for charging. This is simply a tax on the lower-paid which will prevent access to bank accounts. I cannot see any way in which this is fair or justified."

The Office of Fair Trading (OFT) recently said that it would investigate current account charges, prompting some to predict an end to free banking as a "tit for tat" move by the banks.

Banks already do rather well for themselves via charging for unauthorised overdrafts and other transactions, such as foreign currency transmission. Indeed they make around £5BN a year from unauthorised overdraft charges. The OFT investigation on capping these fees is clearly the trigger for banks to look for other ways of charging their customers.

Meanwhile, the long suffering customer gets screwed by the banks whatever happens.

Pathetic isn't it?

Tuesday, November 14, 2006

Pensions in Terminal Decline

Approximately half of the UK's defined benefit (DB) pension schemes, where the recipient receives a pension based on a percentage of his termination salary, will close within five years.

That is the finding of the Alexander Forbes Financial Services' second pension confidence survey.

Approximately 46% of employers, who currently provide final salary schemes, do not expect to be able to afford to provide them within the next five years. The DB pensions will morph into defined contribution schemes.

The respondents cited the cost of meeting the requirements of the Pension Act 2004, including making provisions for Pension Protection Fund (PPF) levies to cover final salary schemes at companies that have gone bust, and Scheme Specific Funding which introduced tiered contributions to meet deficits.

Less than half of the schemes surveyed believed that the introduction of the PPF and Scheme Specific Funding had greatly increased pension security for members of their company's DB pension scheme.

Robert Macgregor, corporate development director at Alexander Forbes Financial Services, said:

"It's quite clear from the survey that businesses are struggling with their defined benefit pensions.

A very high proportion of employers expect to end all defined benefit pension provision within the next five years building on the already strong trend to switch from defined benefit to defined contribution

He laid the blame squarely at the door of the government, saying:

"Government action to protect members of final salary schemes through the introduction of the PPF and Scheme Specific Funding has also had the perverse effect of hastening the end of defined benefit provision.

Employers have seen their costs soar with some seeing their costs rise by an alarming 30 pct just to comply with the terms of the Pensions Act 2004

Link this with the appallingly low level of savings being laid down by the average British citizen, and the endowment mortgage crisis, and you can see a picture developing of a very miserable and impoverished old age for many.

Monday, November 13, 2006

Annual Credit Card Fees To Return

A recent study by PricewaterhouseCoopers (PWC) says that annual fees for having a credit card could be making an unwelcome return.

The fees were dropped in the 1990s. However, seemingly the credit card companies and banks are simply not making enough money out of their customers; and want to make even more, by charging people for the privilege of owning a credit card.

This is somewhat ironic, given that retailers are charged a percentage for every credit card transaction they make. In effect the consumer is being hit by a double "whammy".

The excuse that our much "respected" banks and credit card companies are making for this extra fee is that new consumer protection measures are costing them money.

The Office of Fair Trading's (OFT) cap on credit card default charges, and its payment-protection insurance probe, has hit card providers' incomes.

PWC say that we can expect annual fees of around £35 per card.

An OFT spokesman is quoted as saying:

"If we find any evidence of collusion (over the re-introduction of annual fees) that will be very serious indeed.

We are likely to see a 'waterbed effect', whereby charges pushed down in one area pop up somewhere else

Moneyfacts claim that card providers are already getting ready to impose fees.

Michelle Slate, Moneyfacts senior researcher, said:

"Last week Co-op imposed an annual charge and some premium credit cards - with added benefits such as travel insurance - already charge hefty fees.

All it will take is for one of the big providers Barclaycard, MBNA or Capital One to introduce a fee and the rest will follow

The OFT are working under the misguided belief that if banks tried to recoup their losses, through the re-introduction of annual card fees, consumers would "vote with their feet" and cut up their cards.

That's fine if you don't have any debt. However, a very large number of Britons have credit card debts and cannot end their agreement with the companies until that is paid off.

In effect they are a captive market, ripe for the "plucking".

The OFT seems to be a tad naive in its view of how the market works.

It is hardly surprising that people have little respect for the financial services industry or its regulators.

Friday, November 10, 2006

Phish Warning

Heise Security, a German computer security publisher has warned that the websites of three UK banks remain vulnerable to phishing attacks despite the banks being warned about a potential loophole recently.

This September Heise published a report warning that five banks had serious security weaknesses on their home pages. Heise explained how the bank websites could be exploited by Internet fraudsters. Its security experts inserted a false page on to the websites, exploiting a loophole on the sites.

Heise claims that customers of the banks would have almost no chance of detecting such a fraudulent page. They could then be tricked into entering their logon information which would then be captured by the scammers.

The banks named in the September report were:

-Bank of Ireland
-First Direct
-Bank of Scotland

Heise has subsequently said that the Bank of Ireland had fixed the vulnerability on its website and that NatWest was taking to steps to do so as well. However, as at the 23rd of October, it said that the other three banks were still vulnerable.

The BBC on October 23rd quoted spokespersons from Bank of Scotland, Cahoot and First Direct as saying that the three banks aim to have fixed the flaws on their website "very shortly".

UK banking organisation APACS says the number of phishing incidents in the UK rose by 800% in the year to August 2006.

Financial Services Authority Heavily Criticised

The Treasury committee has criticised the Financial Services Authority's (FSA) regulation of financial advertising, and said that the FSA should copy the policy of the Advertising Standards Authority (ASA) and make its findings public.

Committee chairman John McFall MP has written to the FSA chairman, Sir Callum McCarthy, complaining about its methods.

The FSA said:

"As a regulator we have a formal procedure we have to go through - we can't just issue a formal censure of a firm."

In contrast, the ASA publishes its rulings on its web site.

McFall said that the financial regulator should follow suit:

"The FSA has, at the moment, a seemingly far less transparent system in regard to financial advertisements, with no publication of complaints, and little public record of which companies have broken the rules.

This means consumers seem to get a worse deal, with the FSA offering no public scrutiny and little incentive for advertisers to keep to the rules.

The FSA needs to take a far more robust approach by highlighting poor practice

Thursday, November 09, 2006

Bank of England Raises Rates to 5%

The Bank of England raised interest rates by a quarter of a percent, to 5%, today.

Needless to say this will negatively impact mortgages and credit card debts.

Interest rates are now at levels not seen since August 2001.

The move does not come as a surprise. However, it will not be welcomed by many mortgage and credit card holders who are already heavily in debt.

It will be interesting to see if banks and building societies, who will most assuredly raise borrowing costs, also pass on the full rate increase to their savers.

ICAS Warns of The Dangers of Debt

The Institute of Chartered Accountants of Scotland (ICAS) has warned of the dangerous rise in debt and bankruptcy.

In England and Wales there has been a 55% increase in personal bankruptcy from last year, and a 118% increase in the number of people taking out IVAs (individual voluntary arrangements).

Part of the problem, according to ICAS, is that in England and Wales debt consolidators are allowed to aggressively advertise and market debt relief products.

To read the full article visit ICAS.

Tuesday, November 07, 2006

The Ties That Bind

Estranged couples with joint accounts such as; mortgages, credit cards and loans to mobile phone and television rental accounts should immediately tell their lenders of their new single status.

Otherwise there is a risk that they might be refused credit if their ex partner incurs financial penalties, eg defaults on a credit card.

A joint credit history means that partners are named on each other's credit reports as financial associates. Details of all financial associations stay on credit reports until notification of terminations have been sent to the relevant agencies.

Lenders check credit reports when assessing loan applications, and will check the credit reports of associates.

You have been warned!

Thursday, November 02, 2006

The Big Mortgage

It seems that in order to prevent Britain's already dangerously inflated housing bubble from bursting, mortgage lenders are creating ever more dangerous products with which to ensnare the unwary and desperate house hunters.

Abbey have created a mortgage product which people may well regret buying into. Abbey has become the first major bank to lend first-time buyers five times their salary, for their first house purchase.

Lloyds TSB's Scottish Widows Bank have also confirmed that it offers mortgages of up to five times salary, in its professional and graduate packages. However, this is only for individual borrowers, the maximum a couple can get is four times earnings.

Last week, Bank of Ireland Mortgagees and Bristol and West increased their standard lending multiples from four to 4.5 times earnings.

Abbey, will now lend £300,000 to a single customer or two people with a good credit record and a total income of at least £60,000.

Abbey is making the offer available to individuals, couples, or two people not in a relationship who have a 25% deposit.

The maximum Abbey will lend a borrower for a standard mortgage is £2M.

Not surprisingly some people are warning against this product. Malcolm Hurlston, chief executive of the Consumer Credit Counselling Service said:

"For some people this is going to look like an answer to their prayers but it risks taking them into dangerous territory.

If their salaries do not go up in the way they think, then they are going to be very stretched

An Abbey spokesman said:

"It's a real shift within the industry.

Our research shows that affordability is the biggest barrier to people's ability to get onto the property ladder.

This is very much about looking at an individual's ability to pay

Abbey's research showed that 17.3 million adults are not able to get on the property ladder with 7.4 million citing house prices as a key obstacle.

Recent house price surveys have put the inflation at between 8%-10%.

That is all very well. However, at some stage the ongoing price rises will stop and those who bought in on the expectation of being to sell at a profit, thus clearing the debt, will be in for a rude awakening.

Wednesday, November 01, 2006

Banking Fees Still Opaque

Francis Chittenden, professor of small business finance at The University of Manchester Business School, says that regulations imposed on the small business banking market four years ago have failed to improve the transparency of fees and there is little point in new measures being imposed.

A report by Chittenden, said that in the last two years it had become more difficult for business owners to find out how much they would pay in charges and interest if they changed banks.

Chittenden claims that regulations imposed by the Competition Commission in 2002, to increase transparency and limit the dominance of four major banks, had failed.


"The quality of information available has declined from two years ago. Despite regulations to make small business banking more transparent, the reverse seems to have been true."


"I don't think governments are able to influence markets in the way they thought they could four or five years ago."

Chittenden estimated it now took a business owner three days to screen banks, negotiate with them and reach a conclusion on the best bank for them.