More leeway on overdrafts

Banks have promised to give customers more leeway when they slip into overdraft, in response to a government review of consumer credit.

From next April, all current account holders with leading High Street banks will have the option of a receiving an alert by text, phone or email if they get close to becoming overdrawn.

A year after that they will benefit from a buffer zone of £5 to £10 beyond their overdraft limits. They won't incur zone charges if they stray into the buffer zone for a short period.

And they will be warned at what time of day charges will be imposed, giving them time to top up their accounts to avoid having to pay a penalty.

The new commitments apply to 85% of current account customers who use the top five banks But smaller banks expected are expected to follow suit when they can.

As part of the review, ministers have ruled out imposing a cap on interest rates for credit and store cards.

But retailers have agreed to stop tempting customers into expensive credit by offering discounts on purchases at the time they take out a store card.

Taxpayer in hock to First Time Buyers

Today's promise from the government that it will guarantee the mortgages of First Time Buyers raises the question : at what point would taxpayer money be lost?

By the way, remember this Mortgage Indemnity Guarantee, masterminded by the Home Builders Federation and the Council of Mortgage Lenders, will also be open to existing owners who want to move but can't afford more than a 5% deposit.

Here are the details, but in summary the...

Homebuyer can get a 95% mortgage on a new home, because...
Housebuilder guarantees 3.5% of the price,
Taxpayer guarantees 5.5%,
Buyer puts up a 5% deposit.

For there to be a call on the taxpayer guarantee, first there has to be a default.

Plenty of people carry on servicing their mortgages, even though the value of the home has fallen and put them in negative equity. If there is negative equity, the taxpayer is in danger, but doesn't have to stump up any cash.

Next, the deposit has to be eliminated - a 5% shortfall in the price.

Then, the builder's stake of 3.5%, before there is a call on the taxpayer.

So what you'd need, in theory, would be a default and drop in value of more than 8.5%.

Of course, if the price of one home falls, others will drop as well. So if one buyer defaults it's likely that many others will be in the same dire position. The cost for the taxpayer would multiply.

Silver lining for savers

Today's grim news about the economy from the Bank of England has a silver lining for savers.

Cash in savings accounts has been shrinking in value, because virtually all interest rates are less than the rate of inflation.

But the Bank's Inflation Report suggests that Consumer Price Inflation (CPI), currently 5%, will drop to 2% and below in the second half of next year and to 1.3% in early 2013.

For savers, this means light at the end of a very dark tunnel.

Take two top-of-the-table accounts on Moneyfacts today, accounts which aren't distorted by bonus payments which get removed after a year.

West Brom Building Society has an internet account paying 2.8%, a money-shrinker at the moment. But potentially a money-grower if inflation does fall sharply next year.

Even with 20% tax taken off, the rate equates to 2.24%.

And you can get a similar return, tax-free, from Northern Rock's E-ISA.

For those prepared to lock their money away for 3 years, much higher rates are available: 4.3% from Yorkshire Bank, for instance, and 4.15% from the AA.

Don't expect fireworks from interest rates. Most pundits think the Bank of England's base rate will stay at 0.5% until 2013 and possibly beyond.

But at least the pain for savers could start to ease.

Jump in smartphone frauds

There has been a surge in frauds committed to get hold of the latest smartphones and high value mobile phone contracts, with a 93% rise since last year in fraudsters using someone else's identity to sign on with providers.

One explanation for the increase is the tough economic climate, according to the fraud prevention service, CIFAS, which works on behalf of banks, retail credit firms and telephone companies.

The 93% year-on-year jump was in cases of "impersonation of the victim", when the perpetrator sets up the account using someone else's name and current address, with 10,572 cases in the first nine months of 2011.

Fraudsters have been known to ask Royal Mail to redirect the resulting correspondence to their own homes, or to rifle through letters arriving at buildings with several flats.

There was an 85% increase in the use of completely fictitious details to get hold of phones or sign up for accounts, with 4,789 confirmed cases up to the end of September.

Often fraudulent Direct Debit details are supplied, in order to avoid paying any bills.

CIFAS says that sophisticated phones have "become so embedded in our lives that many of us seem unable to do without them".

Used car clampdown

A company which describes itself as the Uk's leading car supermarket has been forced to give undertakings to the Office of Fair Trading not to breach consumer law.

The OFT says customers complained that Carcraft, which has 11 car supermarkets across England and Wales, did not carry out the pre-sale inspections it advertised, resulting in significant problems after purchase.

The watchdog found that the company did not repair or replace some cars which were unsatisfactory and misled customers about the scope of its after-sales guarantee.

Last year the OFT warned used car dealers they must comply with the law or face enforcement action, after receiving high levels of complaints.

Carcraft has outlets in Rochdale, Newport, Sheffield, Merseyside, West Midlands, Leeds, North East, Lakeside, Trafford, Enfield and Chertsey.

It co-operated with the investigation and says it has changed its business practices.

House prices up 450%

The average house price in October was £163,311, according to the Halifax, up 1% on the previous month.

That is 18% down from the peak in 2007, but still 74% higher than 2001, 141% higher than 1991 and 450% higher than 1983 which is as far back as their published figures go.

Average House Price

10/2011  £163,311
08/2007  £199,612 (peak)
10/2001   £93,610
10/1991   £67,585
01/1983   £29,696

Source: Halifax

Surge in Debt relief Orders

The Insolvency Service has reported a sharp rise in the number of people seeking Debt Relief Orders, a cheap form of bankruptcy for people with few assets. They reached a record level of 7,600 in the three months to September.

Debt Relief Orders or DROs were brought in two years ago to provide a route out of debt for the poorest people in financial trouble.

The process costs just £90, much cheaper for the debtor than bankruptcy, and is only open to those with less than £300 in assets as well as a low value car.

While bankruptcies have fallen sharply as families batten down the hatches and cut spending, the numbers at the bottom of the pile seeking protection from creditors is on the rise.

Mark Sands, from insolvency experts, RSM Tenon, said, "It shows how many people are so desperately short of money that they qualify for DROs."

The total figure for individual insolvencies was down 11 per cent compared with the thrid quarter of 2010.

But with financial pressures building, the Consumer Credit Counselling Service (CCCS) fears there will be a surge in insolvencies next year.