Mean Business

Wait Off Your mind – More Help for Home Borrowers in Difficulty
Most home-owners currently have to wait 39 weeks before they can get social security payments to help cover interest charges on their mortgage or essential secured loan borrowing. This waiting period is about to change to 13 weeks as of January 2009. To qualify, you must receive either income support, income-based jobseekers allowance, guaranteed pension credit or have a sufficiently low income – from work or other state benefits – that you would qualify for the additional assistance if you applied.

It pays to check your benefits entitlement and your local authority should provide a service to advise on all benefits and housing issues. Alternatively, you could phone 0845 345 4 345 to speak to Community Legal Advice (see my “Links” page for further contact information).

Still on the Home Front
Despite the Bank of England’s cut in base-rate borrowing interest to 3% last week, Abbey, Lloyds TSB and Alliance & Leicester are reintroducing tracker mortgages (where repayment rates are pegged to the fluctuating base rate) that will not reflect the 1.5% reduction from the previous 4.5% level.

With an anticipated further reduction in the Bank of England base rate to below 2%, such mortgage lenders will surely be set to profit more from the Bank of England’s attempts to rescue us from recession.

And the mortgage industry generally cannot see that the above behaviour relates in any way 70% plummet in mortgage arrangements notified by Nationwide Building Society this week. The estimate is a downturn figure of 80% by the end of this year.

Nor does this week’s research findings of the Royal Institute of Chartered Surveyors that estate agents have sold on average less than one property a week in the 12 weeks up to the start of November indicate to mortgage lenders that just as the taxpayer is having to bail out their entire monetary system, so the lenders need also to sacrifice some of their thirst for profit …

House of Cards
Indeed, the 16 credit card companies who have hiked their own APR rates on purchase transactions since August show no signs of making reductions in response to the shrinking Bank of England base rate.

The card companies cite an increasing risk of repayment defaults by borrowers as justification for their high purchase APR figures – averaging 17.2% at the moment.

Apparently, Gordon Brown PM is “appalled” at the credit companies.

Fuel Me Once …
The Consumer Price Index is down from 5.2% to 4.5%. The drop in oil prices is apparently the main contributor to this reduction in inflation. For those worried about the environmental implications … remember Homer Simpson when he asked: “What’s future generations ever done for us?”

… Won’t Get Fuelled Again
It seems domestic energy prices are set to freeze and perhaps even fall from January 2009. This will be welcome news, especially after the unjustifiably huge charges increases in August this year.

Pity those who were panicked into signing up for “capped deals” where they will be stuck with the higher rates of payment unless they pay a penalty fee to transfer to another provider when prices drop.

I was personally alarmed when a trainee doorstep salesman from an energy provider – that shall remain nameless but who spent what seemed like an eon at the gates to my impressive driveway – tried to get me to sign up a few weeks ago for a “capped deal”. He seemed a genuinely nice chap but when he asked my usual quarterly bill figure – “£75” I told him – worked out an entirely incorrect annual equivalent of £250! Indeed, when he showed me his impressive A4 handheld computer spreadsheet, the various computation results always amounted to a projected saving for me – inexplicably as some had a minus sign in from of the numbers and others didn’t. Add to this the lug of a supervisor who accompanied him and who became annoyed with me when I gently made light of the arithmetical inaccuracies of his ward, the indecipherable and unbelievable explanations of the spreadsheet “savings” figures and my stated decision to consult U-Switch for competitive quotes instead …..

The Insolvency Service – a Government agency overseeing bankruptcy in England and Wales – has rolled over to credit industry pressure against the interests of the public. The IS quietly announced this week that it will no longer organise Simple Individual Voluntary Arrangements designed to help individuals just after they are declared bankrupt.

Unlike SIVAs, normal Individual Voluntary Arrangements require 75% (by value owed) of a debtor’s creditors to agree and ratify through the county courts a reduced recovery of outstanding debts - usually repaid over a period of up to five years. The SIVA relaxed the 75% rule and the Official Receiver – effectively the legal head of the Insolvency Service – would have a greater say in forcing creditors to accept SIVA repayment proposals in simpler, non-contentious bankruptcy cases. IVAs and, until now, SIVAs are considered a last-resort alternative to full-blown bankruptcy for many for whom losing a house, business or other asset would be just too disastrous.

The IVA industry was always very badly regulated and built up a notoriously impressive record for getting debtors further into financial difficulty after they had actually sought help. It did this mainly by using debtors’ money to cover exorbitant fees before making any repayments at all to creditors. Authorised firms of solicitors or accountants – whose quality and integrity still vary wildly - usually carry out IVA arrangements that are rarely far from being unaffordable.

Eventually, fee-capping regulation in 2007 led to a substantial fall in the number of IVAs being arranged – particularly by the cattle rustling elements of the industry. However, the Official Receiver rarely carried out SIVAs in any event, due mainly to workload pressure on the IS in the continuing aftermath of the Enterprise Act 2002 that made bankruptcy an easier option for “entrepreneurial risk-takers” (and subsequently invited endless floods of bankruptcy petitions by debtors themselves).

The Enterprise Act 2002 was as unpopular with the credit industry as the SIVAs that came alongside it. Credit sector lobbying on SIVAs now pulls sufficient strings that the IS says the (still largely discredited) Individual Voluntary Arrangement industry is set to retain effective control of deciding how and when debtors can avoid bankruptcy and set up alternatives for dealing with insolvency. The credit sector and “more streamlined” - or should that be “lean and very hungry”? - IVA industry haven’t always seen eye-to-eye but neither of them want the Government involved in facilitating protective measures for individuals whose lives have come unstuck due to debt.

Add to all of this that if an IVA fails, the Supervisor of the IVA or any creditor (owed at least £750) can then petition for the debtor’s bankruptcy ……

Currently in the UK, one person is declared insolvent or bankrupt every five minutes.

It’s funny how some people get back to you almost immediately when they want something but go silent when you ask them for payment after doing professional work for them. It’s also telling how others readily agree to your terms when they know you, trust you and truly value your contribution. The difference between knowing the price and appreciating the value of something.

PC now running Ubuntu (still some issues to sort out … of course!) and main machine is now Mac. Fantastic! Free of Windows!!!

After a marvelously long week in Provence - supporting the local vineyards and driving on the other side of the road - I’m back. Money News Round-Up on main site - www.russellcavanagh.com - will be updated later this week.

Just as Microsoft unveils Windows 7, I am about to switch to Mac. If all goes well, I’ll get my existing PC running Linux … I really can’t wait!

Well, not such a great Xmas for the 11,000+ facing mortgage repossession this quarter - up 71% on the same period last year. Recent new guidance to District Judges in possession proceedings and continuing interest rate cuts perhaps too late for some …

CHRISTMAS lights are already up in some towns and now is traditionally the time to plan festive spending on events, presents and entertainment. It is a difficult season financially, especially for families. So how can you minimise or avoid debt at this time of the year?

Draw up a budget now

Assess what your income will be over the coming period. Work out how much you need in order to cover essential expenses – especially priorities like council tax, housekeeping, rent or mortgage, water and fuel.

Get a sheet of paper and put your income details in one column and the expenditure in another. Remember also to put your regular credit repayments with your expenses. Any amount you have left is what you can realistically afford to spend without getting into financial difficulty.

Do you really have to buy expensive presents? Maybe a small thoughtful gift would be appreciated rather than the latest gizmo seen on TV and soon discarded. Budget according to how much you have spare and decide how many people you need to cater for.

Credit temptation

Remember that many household bills arrive all at once in January. One money headache follows another just as surely as Christmas comes.

If you really have to take out credit to buy presents, etc, make sure you shop around for the cheapest deals and avoid more expensive items (e.g., store cards carrying high charges and interest). Also resist promises of “easy credit” as there may be less obvious costs written into the contractual details that you skip in your enthusiasm to borrow. Check exactly what the total cost of taking out any item of credit will be before signing anything.

Some credit cards offer repayment periods that do not carry interest specifically on purchases for several months and there are loans that can be paid off over time. Websites like www.choosemoney.co.uk or www.credit-card-comparison-online.co.uk carry good advice articles on credit products as well as comprehensive “at a glance” comparison tables that are easy to follow.

However, if you are already struggling to pay for your regular household expenses, acquiring more debt is best avoided. If your money problem is short-term, moving existing credit balances onto a “balance transfer” credit card with a long 0% APR period may be a consideration. (The APR figure includes some charges and the applied interest.) Be careful not to use the card for anything else (as interest will apply on most transactions) and make sure you repay regularly within the stated interest-free term to avoid penalty charges and default interest.

Work from your budget sheet. Make sure you can pay off you priorities first if you want to avoid bailiffs, losing your home or fuel supplies being disconnected.

Other forms of credit

If you plan to go into overdraft on a current account, make sure this is agreed with the bank. Check what charges may apply and look for a deal that does not penalise you if you stay within your allocated limit.

Doorstep credit is very easy to obtain. But be aware that the interest rate is usually very high and so you would owe a lot more than you actually borrow. If you do use this form of credit, make sure the lender is licensed by the Office of Fair Trading - if not, you will be dealing with an illegal, expensive and possibly violent loan shark!

Mail order catalogues are also easy to get goods on credit. The downside is that items tend to be notably dearer than in the shops. Watch out for “Xmas Hamper” offers as they are often unjustifiably expensive.

Many stores will promote special purchase offers linked to store cards. Store cards seem like credit cards at first but the interest charged is often much higher and you are very limited as to where you can use the card.

“Buy now pay later” deals will also increase during the run up to the festive season. If you consider such a deal, make sure you will be able to afford repayments when they are eventually due to start and ask what penalty charges or interest will apply in the event of missed payments.

Contact your local Citizens Advice Bureau or local authority to see if there are any credit unions they can point you to. Credit unions should charge very low interest on loans but you have to join the union first and there may be a waiting period before you can borrow.

In an ideal world …

Ideally, we would all be saving up during the year and putting money aside regularly into cash ISAs, savings accounts or the aforementioned credit union.

If you really cannot afford Christmas, be honest with yourself. Also explain to your loved ones that you can’t afford expensive presents this year. It is amazing how particularly understanding children can be and they sometimes even take satisfaction out of your straightforward honesty and that you consider them mature enough to understand. To do otherwise is to invite financial disaster later that may be harder to admit or explain.

Christmas should perhaps be more a celebration of family and friends than a spending frenzy. You may find that friends and family are in a similar boat – there is currently a credit crunch after all! - and will be happy to exchange meaningful token gifts instead of unaffordable gadgets. If you are alone at Christmas, take some consolation in the fact that your spending need not be too high.

Finally

If you have an existing debt problem, don’t worry and suffer alone. You may wish to contact either of the following agencies for advice and help:

• Community Legal Advice provides telephone advice and casework. Call 0845 345 4 345
• Look under “Citizens Advice Bureau” in the phone directory for your nearest CAB office

Avoid paying for debt advice if you can! Avoid debt if possible!

Mortgage approvals are starting to rise and some lenders are cutting interest rates. New guidance to District Judges in repossession hearings at court reflect fairer guidance to mortgage lenders considering possession proceedings. The Government is making money available to help struggling mortgage borrowers facing repossession and homelessness.

There are imperfections with all of the above - see my “Money News Round-Up” on http://www.russellcavanagh.com - but at least it is a number of steps in the right direction. Good news for a change. Maybe even good news for change …

“Two million face trap of negative equity” says a financial website that must remain nameless for the purposes of this post.

Not unreasonably, the feature points to the problem that 60,000 people apparently join the estimated 350,000 households already facing that problem each month. Can’t really argue there and one’s heart goes out to anyone caused genuine hardship by negative equity.

However, the website adds “human interest” to the story with one - and only one - case study. The subject in question had bought a flat in a Regency stucco-fronted terrace in a fashionable area within the City of Westminster “as an investment” but has seen its value plunge by 50%. Oh, and he is a “full-time property investor, who owns a string of buy-to-let flats”. He fears he will now “have to rent it out”.

I mean … come on! What a difficulty to be in …