Money Magic

Despite more rigid enforcement against the practice by industry monitors, some mortgage providers are still assessing an exit fee against borrowers who change lenders. 

Online search engine mform.co.uk, a mortgage website which provides information to help borrowers make better decisions has done research which shows that, despite efforts in August by the Financial Services Authority to make the process clearer, borrowers still pay an average fee of £150 when they change lenders. 

Some major lenders, including the Royal Bank of Scotland Group companies, Standard Life Bank, Cheltenham & Gloucester, and Lloyds TSB have dropped the fee, but most firms continue to charge in excess of £100. 

The FSA has ruled that customers who are charged a higher fee than what is set out in the terms of their loan documents can reclaim the fee. The agency has urged lenders to make borrowers more aware of the terms of their loan agreements. 

The report by mform suggests that some lenders are not including information about the fees in their online information.

The FSA’s actions seem to be curbing rising redemption charges. Some lenders are putting an end to the fees altogether, according to Francis Ghiloni of mform. 

He believes that borrowers are beginning to understand the fees do not cover administrative costs involved in completing a loan; rather, they are part of the price of doing business with the mortgage bank. For that reason, the fees should be imposed at the front end of the loan, rather than at the end. 

Ghiloni warns borrowers to consider the impact of going from lender to lender, as application fees, exit fees and other costs add to the cost of the loan.

A report released yesterday by online banking giant Egg suggests that again this year, million of Britons will leave their holiday shopping until the last minute.  Their delay will cause them to overspend by an estimated £594 million. 

Nearly 4 million consumers will fritter away cash and credit needlessly, waiting until the week before Christmas to make gifting decisions.  The toughest 800,000 among them will shop on Christmas Eve. 

The research indicates that these procrastinating shoppers have set themselves up to go over budget by an average of 39 percent, or approximately £150 each. 

Egg’s Chief Marketing Officer, Alison Wright, recommends that shoppers consider ways to reduce the cost of the holidays.  In particular, she warns that anxious last-minute treks, coupled with the lack of purchasing options in the final days before the holiday, drive up spending levels. She reminds us that, “Each year we get 12 months advance warning that Christmas is coming.” 

 The study also revealed that women are just as likely as men to put off their holiday shopping, contrary to popular stereotypes.

It appears that fewer consumers are using credit cards to pay for their Christmas purchases this year, relying instead on cash. 

According to figures released yesterday by LINK, operator of the cash machine network in the UK, daily ATM withdrawals increased 7.1 percent for the first ten days of December over the same period in November.  Over the past four years, the rate of increase has hovered around 5 percent. 

In a report released last month, APACS, the trade association which represents the UK payments industry, speculated that cash spending during the holiday buying season would decline from £19.8 billion in 2006 to £18.9 billion this year, a drop of 5 percent.

APACS forecast an increase in seasonal spending of 4 percent over last year’s figures, to £53 billion.  The agency expected the additional spending to be supported by credit card expenditures. 

In response to concerns surrounding the current credit crunch, however, consumers appear to be putting their credit cards away and making their purchases with cash.

Yesterday’s overall retail spending figures add substance to this premise.  The annual retail sales growth sales slowed from 4 percent to 4.5 percent, fueled in part by weak sales in shops in November, according to credit card giant MasterCard.

A survey conducted by Your Money Matters Show reveals that twenty percent of Britons will still be paying for their Christmas purchases next June. Ten percent will continue to pay in September, and nearly four percent will be paying bill for this Christmas next December. 

Cesarina Holm-Kander of Channel 4’s “Your Money or Your Wife” spoke at the Your Money Matters Show, expressing amazement that people are not better prepared financially for the Christmas spending season, apparently letting it sneak up on them. 

Holm-Kander urges Christmas shoppers to consider the bigger picture when making their credit card purchases: that a hefty credit card bill will follow them into the new year.

The Money Matters Show survey indicates that Christmas shoppers in East Anglia will show the most restraint, accumulating debt of about £500, while shoppers in London expect to spend nearly £1000. 

About half of those surveyed reported that they anticipate the high cost of Christmas and save accordingly. 

Although shoppers in the north-east of England are the most likely to save, they are also the most likely to go into debt spending. 

The results of the Your Money Matters Show survey supports findings by MoneyExpert.com which indicates that 4.4 million Brits are still paying off credit card debt they accumulated shopping for last Christmas. 

Brits will probably spend £53 billion during the upcoming Christmas season, adding £11.7 billion their credit card debt.

Travelers planning to celebrate the holidays abroad could find an unpleasant surprise awaiting them when they open next month’s bill-a hidden credit card charge. 

Most consumers are unaware that many credit card providers charge a 2.75 percent fee for overseas transactions, according to the Post Office.

Many of the 2.4 million Britons traveling abroad this season will remain blissfully unaware of the surcharge until they see it on their credit card bills. 

According to Gary Litton, Post Office Director of Lending, many people who left the country to relax and escape the rigors of entertaining during the holidays may return from their festivities with much more than “memories and mementos.”  They may in fact return with significant hidden card charges. 

Litton urged holiday revelers traveling out of country to take precautions to avoid unnecessary card charges so that “the only baggage they return with is the luggage they are traveling with.” 

The majority of holiday travelers will visit Spain, the US or France (17 percent, 8 percent, and 6 percent respectively).  The Post Office estimates that nearly half of them will use their credit cards to pay for purchases and services.

Older Britons seeking credit from banks often encounter problems as banks weigh whether they will live long enough to repay the debt.  The BBC reports that the right of banks to consider age in offering loans has been upheld. 

Earlier this year, Mike Young, a banking consultant and former executive with the Bank of England, reviewed possible revisions to the Banking Code and recommended putting a stop to age discrimination. 

He suggested that guidelines should be rewritten to reject discrimination against borrowers simply on the basis of age. 

A representative of the British Banking Association disagreed, saying that this provision in the code should remain as it is. 

According to Eric Leenders, Director of Retail Banking at the BBA, bankers want to be able to consider any factor that might make a difference, including the age of the borrower.

Consumer groups criticized Mr. Young’s review of the Code, which was published last month, urging a tougher stance on measures such as bank charges.  Mr. Young recommended greater clarity on loans and savings accounts and greater accountability on the part of banks for customers who represent a credit risk.

The Monetary Policy Committee will hold its regular monthly meeting today and experts predict the cost of borrowing will drop from the current level of 5.75 percent to 5.5 percent.

The Bank of England has been under increasing pressure to cut rates, which have risen five times since August 2006. Since July of this year, rates have held steady.

The LIBOR, the base lending rate that banks charge each other, has gone up dramatically, a factor which may influence any decision to cut rates. The increase in LIBOR is adding to the current difficulty in the credit market.

The MPC must determine how to balance a slowing economy with rising prices, so the decision could go either way, according to Reuters.

This month’s decision whether to cut the rate is “one of the tightest calls ever,” according to Howard Archer of Global Insight.

Bankers and credit providers working together have developed a new set of standards to help people with high levels of debt.  Individual Voluntary Arrangements (IVAs) will give them access to tools to help them manage their finances, according to the British Bankers’ Association (BBA). 

Providers that offer IVAs will be subject to industry-wide standards governing advertising, advice, information and documentation. The BBA explains that the standards, which should be in place by February 2008, will streamline the application process for IVAs. 

Angela Knight, Chief Executive of BBA, wants borrowers and creditors to understand that an IVA recommendation is the best way to resolve debt problems. 

The standards should give borrowers more confidence as they make decisions about their financial futures, according to Knight. 

The Government’s Insolvency Service reported 26,956 people in England and Wales were declared insolvent in the second quarter of 2007.

Many Britons will endure the headaches of holiday spending after the new year, according to Citizens Advice. Slowing wage growth, rising interest rates and high prices will contribute to their maladies. 

Citizens Advice is a free service that offers confidential advising to people facing financial and legal problems. The firm is encouraging Brits to plan carefully and be more thoughtful when making holiday purchases. 

The service answered many questions related to credit card debt, bank overdrafts and late payments following last Christmas. 

Teresa Perchard, director of policy at Citizens Advice, warns that people who get caught up in the moment often overspend. The service sees a huge increase in consumer debt right after the holidays. 

This does not need to be the case, according to Perchard.  People who go into the holiday spending season with a plan are more likely to avoid high levels of debt afterwards.  She urges people to consider the following tips, offered by Citizens Advice and Barclaycard, to help people contain spending during the festive season. 

Plan for Christmas spending in advance.

Make a budget, determine what to spend for each person, and be firm. 

Keep in mind daily living expenses.

You must continue to pay your rent, mortgage payments, money for food, money for utilities, taxes and other regular expenses. There can be serious consequences for missing payments. 

Do not bank on an overdraft.

If you must spend on an overdraft, speak with your bank first. Unauthorized overdrafts can be costly. 

Stay away from shop credit offers.

“Buy now, pay later,” offers can be costly, so avoid them unless you know they are cheap. In most cases, you will be better to pay with cash, cheque or debit card. 

Make certain you understand all the terms of any credit offer to determine if you can afford the minimum payments in your budget. Credit at zero percent interest seems attractive, but it can be very expensive if you do not pay it off entirely on time. 

Comparison shop.

Several price comparison websites let you shop for the best deals. Many shops will be cutting prices during the holiday season, so shop around before you buy. 

Do not jump into an extended warranty.

According to Citizens Advice, you can sometimes repair or replace the item at less than the cost of the warranty. And consumers have protections when they purchase faulty items.

Britons may find it impossible to secure a mortgage or personal loan after the holidays, reports Moneyfacts.co.uk. 

As the effects of the credit crisis become more widespread, loans are becoming harder to get. 

Ten percent of lenders have left the market.  This week, Hanley Economic Building Society and Eskimo Loans joined GE Money and Leeds BS and LV in withdrawing from the unsecured loan market. 

The number of firms leaving the market in the past month is a worry for Esther James, personal finance manager at Moneyfacts.co.uk. 

James does not see evidence that the increase in interest rates is slowing and she fears that credit issues will have a negative impact on the personal loan market. 

She encourages anyone seeking a personal loan to “act sooner rather than later.” 

She points to several factors which could lead to a very different and unsettled lending environment in 2008, including fewer choices for borrowers, a more conservative lending strategy on the part of lending institutions, and the pending decision regarding payment protection insurance. 

It is becoming more difficult for Brits to secure a loan and lenders are extending the wait period, so those who want to borrow should begin the process as soon as possible. 

According to Katie Tucker, technical manager at mortgage broker John Charcol, the credit crunch favors lenders.  Even those with money to lend are pulling back in an effort to keep business at a manageable level and provide excellent service to their current customers. 

The current wait for an update call at the Woolwich, for example, is one hour. The wait to have an application reviewed is one week. The message here is to act early. 

Ms. Tucker urges borrowers to allow extra time for the application process. Customers planning to refinance their mortgages after Christmas may find themselves paying an additional month on a high rate if they revert to their lender’s SVR while they are waiting.