Friday, 21 September 2012

iPhone users more likely to be in debt

The debt advisers at the free advice organisation Payplan claim to have unearthed an odd fact about iPhone users.

It's that there are more likely to be in debt and need help with financial problems than users of other mobiles - that's according to Payplan.

They can't resist new technology, they're vulnerable to internet marketing on smart phones and they have lower incomes.

Interesting, YouGov made a similar claim last year, suggesting that iPhone users were more likely to be overdrawn.

So it might be a good idea to have a quick look at the state of your bank account before looking at the new iPhone 5.

Thursday, 20 September 2012

Workplace pension -- who's for it?

How many people will start saving in pensions because of the new policy of auto-enrolment which kicks off on 1st October?

And how many will exit the scheme as soon as they have the chance?

Remember, it's a staggered start. Only companies with over 120,000 staff have to sign up their staff from that date. Other firms will be included, gradually, over the next 5 years.

Steve Webb, the Pensions Minister, expects that 600,000 employees will be on board by Christmas. That's after at least 200,000 have opted out.

His department, the DWP, projects that 4.3m more people will be saving by May 2015, just before the next election.

Eventually, 11m will be auto-enrolled. Mr Webb thinks between 6m and 9m will stick with it and carry on saving for a workplace pension.

In percentage terms, those figures imply that between 18% and 45% might withdraw, which is a big range.

The point is that everyone who is forcibly enrolled in a workplace pension from next month has the right to opt out. They stop building up the pension, but they don't have to make the monthly payments.

And one of the big questions hanging over auto-enrolment is how many will do just that. If it's too many, the policy will look like a failure.

Which is why it makes good political sense for Mr Webb to talk conservatively about a fairly large opt out rate of 33%, when he is asked what will happen. It reduces the scope for disappointment.

What does he think would be a good overall outcome?

The Pensions Minister responds that if 7.5m stay enrolled, or just over two thirds, he'd be happy.

Tuesday, 18 September 2012

Ration mortgages to stop booms

The Chancellor is looking at giving the new City regulator, The Financial Policy Committee (FPC), the power to restrict how much you can borrow to buy a home.

The reason? To stop booms and busts.

As it says in a Treasury consultation today, the idea would be to deal with...

"over-exuberance in the upturn of the economic cycle being exacerbated by systematic under-pricing of risk, leading to asset bubbles, stretched balance sheets and other unsustainable expansionary trends. When the bubble bursts, this effect is switched around, with generalised pessimism leading the financial sector to over-price risk and be reluctant to lend, which can slow the economy’s recovery. This underlines the importance of containing the upswing."

In other words, house prices going mad and then crashing. It's too easy to get a loan, then it's too hard.

The answer is to impose "loan to value (LTV) and loan to income (LTI) restrictions," when the property shows signs of getting out of control.

These are "restrictions on mortgage financing based on the ratio of the size of the loan to the value of the property or the borrower’s income."

It would be up to the FPC to set the limits of what you can borrow. Here are the arguments:

"5.10 The Government notes that other countries’ experiences of tightening mortgage terms and conditions (including setting maximum LTV/LTI ratios) suggest this had been a somewhat effective way to limit financial instability. However, this tool has rarely been implemented in isolation from other measures, such as mortgage insurance. The Government also notes that this type of requirement can prevent borrowers who would otherwise be considered creditworthy from receiving mortgage financing."

So, in a worrying boom, you might suddenly be told that you can't have the mortgage you expected to be offered, just in case there's a bust.

Monday, 17 September 2012

Treasury fails taxpayer over Northern Rock

Treasury "slow off the mark" in nationalising Northern Rock.

The most senior civil servant at the Treasury has told MPs that the government should have acted more quickly to take Northern Rock into public hands after the run on the bank in 2007.

Sir Nicholas Macpherson was answering questions from the Public Accounts Committee, which is investigating claims that taxpayers will end up losing £2bn from the collapse and rescue of Northern Rock.

Customers started queueing in large numbers to pull out their money in mid-September, 2007, but it was not until the following February that the Chancellor Alistair Darling nationalised the stricken bank.

Sir Nicholas said that the Treasury was "slow off the mark in addressing the problem" and "we should have nationalised it earlier".

"There was a five month period of drift," he added, "And that made it quite likely that we would lose money on Northern Rock."

Officials spent the time assessing the state of Northern Rock and looking at the possibility of a rescue from one of several potential bidders, including Sir Richard Branson's Virgin Group.

After nationalisation Northern Rock was spilt into a so-called Good Bank, including customer deposits, branches and some mortgages, and a Bad Bank with billions pounds of problem mortgages.

Virgin Money ended up buying the Good Bank from the government last November.

A National Audit Office report earlier this year suggested that the taxpayer would lose £2bn once all the mortgages were paid back.

The chair of the Public Accounts Committee, the Labour MP Margaret Hodge, said there was "A big question mark" over whether the public had received the best value .

Sir Nicholas explained that estimates of the scale of the losses depended on forecasts of interest rates over a number of years, but that Northern Rock's borrowers were proving more reliable.

"These people are generally paying their mortgages and the money's coming in," he said.

Sir Nicholas Macpherson was already Permanent Secretary to the Treasury during the financial crisis. The role makes him, effectively, the Chancellor's chief policy adviser.

He admitted to MPs that officials had failed to anticipate the seriousness of Northern Rock's crisis in the summer of 2007.

"There was a monumental collective failure of which the Treasury was part," he told the committee.

Wonga payday loans soar

Whatever you think about payday lenders, the latest figures from Wonga show how this new method of lending, often over the internet, is catching on.

Wonga's loans quadrupled last year to nearly 2.5 million, despite the fact that it turns down most applications.

And its profits soared at a similar rate, to £46m.

Yet Wonga is just one player, albeit a big one, in a burgeoning industry.

Just to remind you, it lends small amounts, with a £400 maximum, for a few weeks at rates which can be made to look sky high if they are annualised.

The official APR or Annual Percentage Rate which Wonga has to show on its website is 4,214%.

(Wonga "explains" that it doesn't lend for 12 months and , even if it did, the true rate would be more like 360% - though that still sounds like a lot to me.)

So why the success?

People like the convenience and simplicity of payday loans, despite the cost. Many can pay it back easily, others are desperate.

Some are finding it harder to get short-term money elsewhere. Credit card providers and lenders are more choosy.

And new technology, along with the internet, means that the loans can be made available almost instantly - and customers can be assessed ultra-quick.

No business can carry on growing at these rates forever, but there's no sign yet of the payday lending boom coming to an end.

Thursday, 13 September 2012

Boost for property websites

Property websites which help people sell their homes privately could be given a boost at the expense of traditional estate agents, after the government confirmed proposals to exempt them from a raft of regulations.

The Department for Business said it would repeal the Property Misdescriptions Act and allow agents to bypass rules in the Estate Agents Act if they simply put buyers and sellers in touch with other .

The Consumers Affairs Minister Jo Swinson said removing the "red tape" would "cut through bureaucracy and allow people to buy and sell more easily".

However, the Royal Institution of Chartered Surveyors (RICS) warned that home buyers could lose out from the change.

"Consumers could, perhaps unknowingly, be left responsible for undertaking their own detailed sale negotiations without the advice and guidance of a property professional," warned Peter Bolton King from RICS.

He said that buyers and sellers would find it tricky to tell the difference between genuine estate agents and websites which simply offer a list of homes, putting them at significant risk.

To fill the gap left once the Property Misdescriptions Act has been axed, the Office of Fair Trading has issued new guidance laying down how estate agents should behave.

Drawing on the Consumer Protection from Unfair Trading Regulations, the guidance explains how property details should be accurate, how agents should include important information to help buyers make decisions and how consumers should not be put under undue pressure to complete a transaction.

Wednesday, 12 September 2012

Commission culture at banks

The incoming chairman of Barclays has told MPs that banks must jettison the "commission culture" which has led to sales of inappropriate products.

Barclays and other banks are beset by scandals including the mis-selling of Payment Protection Insurance, sales of unsuitable add-ons to small business accounts and the attempted rigging of a key market interest rate called LIBOR.

Sir David Walker, who will occupy the chairman's seat at Barclays from November, said that bankers "must get away from remuneration linked to revenue sales" and that boardrooms must be readier to intervene to prevent managers from putting their banks' reputations at risk.

He told the committee that "making quick returns...overtook old fashioned concerns about standards" and he lamented the fact that cashiers in branches had been tainted because of the way pay and commissions were structured.

Sir David is giving evidence to the Banking Standards Committee, set up to report on the industry in the wake of the LIBOR affair.

Monday, 10 September 2012

New £5, £10 and £20 notes

In a few days, the Bank of England will start issuing fresh £5, £10 and £20 notes, with the new Chief Cashier Chris Salmon's signature on them.

You can see Chris signing his name in my report on last November's new £50, the first note featuring his signature.

Incidentally, you'll see he's left handed like the previous Cashier, Andrew Bailey.

Chris Salmon's job goes back to 1694, when the Bank of England was founded and the first Chief Cashier, John Kendrick, was appointed.

In the early years, cashiers had to write out the notes entirely and sign them by hand. Even after notes were fully printed, from 1855, the signature had to be added by hand.

But here's an interesting £5 note, from 1871, up for sale at Spinks:

It shows the name of the then Chief Cashier, George Forbes, after the practice of printing the signature itself had started in the previous year:

So, luckily for Chris Salmon, he doesn't have to sign all of the millions of notes which are to be put into circulation with his name on them.

Old notes, with Andrew Bailey's name of them will still be valid, of course.

If you're worried about counterfeits, here's a tour of our banknotes, to help you check the key features.

And, just for good measure, here's my guide to spotting fake £1 coins.

Monday, 3 September 2012

The annuity trap

Just look at what terrible value you get when you buy your pension annuity. It's the income for life you buy using the funds in a personal pension plan.

Say you have saved up a pension pot of £100,000.

A single 65 year old man would get £6,035 a year for that, with no annual increases.*

Or a couple, wanting a 3% increase each year would get £3,698. If one dies, the survivor carries on receiving half the money.

BUT all the original fund is spent. The £100,000 is gone.

Compare that with today's best fixed rate savings accounts.

They pay over 4%, according to Moneyfacts.

So you would get £4,000 a year for £100,000. You'd still be able to get your original savings back. And you'd be able to move the money from time to time to take advantage of higher rates.

You don't have to buy an annuity any more.

But there are complicated rules about how you can use your pension pot, so most people end up buying annuities anyway.

And they end up losing out.

*Figures from Hargreaves Lansdown.