Research from Alliance and Leicester shows that 75 per cent of potential first time buyers still have outstanding debts while they are saving for a deposit on their first home. Most people who hope to buy a home within two years have £5,860 in debt. Potential homeowners in the East of England have the lowest amount of debt, at £4,210, while the most indebted region is the West Midlands, with an average of £6,870 per potential homeowner.
The research found that only 24 per cent of future homeowner are completely debt free and 30 per cent of those surveyed had not managed to save a penny towards their deposit. Instead, they were repaying debt at the rate of £200 a month. Meanwhile, more prudent potential homeowners are saving £270 a month.
Stephen Leonard, director of mortgages at Alliance and Leicester, commented: ‘Our research reveals that while many first time buyers are diligently saving for their deposit, some are not being as financially frugal as they could be. Whilst buying a house can seem like a top priority, those looking to buy for the first time will find it worthwhile to pay off their outstanding debts first.’
New research from USwitch has brought packaged accounts under the spotlight. It seems that 1.3 million people believe their current account has been automatically upgraded, while one third of consumers upgraded their current accounts on the bank’s advice. These ‘upgraded’ accounts generate fees of £530 million each year and allow banks to cross-sell other financial products, such as overdrafts, savings accounts and credit cards.
One in four packaged account holders do not use the perks as they already have them with another account. And many of the perks are not free, so account holder have to pay extra for the privilege of being upgraded.
Nick White of USwitch said that effectively customers are paying to have more products sold to them. He added: ‘From a consumer’s perspective, it’s all too tempting to have several financial products with the same provider and as a result of this, banks are profiting from people’s inertia and lack of time to shop around for the best deal. Just because banks claim to offer customers a discount if they take out additional financial products it doesn’t mean it’s a best buy deal or the best option for the individual.’
He added that while persuading customers to upgrade might be acceptable ‘but if banks really are automatically upgrading people to a fee paying account it could be described as unethical.’
Britannia Building Society has removed the £399 arrangement fee from its remortgage packages. The £100 administration fee, £150 standard valuation fee and £180 conveyancing fee have also been removed. This means most customers will save £829 on a remortgage package. The building society’s remortgage range includes fixed rate mortgages, tracker mortgages, offset mortgages and flexible mortgages.
Britannia’s marketing manager, Mike Sims, commented: ‘With Britannia covering the cost of switching, customers are saving hundreds of pounds on their mortgage. In addition, the offer applies to our entire remortgage range, so customers can choose the product that best suits their needs.’
APACS, the UK’s payments service, has released a guide to the card payment process. The consumer advice guide, titled The Card Transaction Process, provides a step by step explanation of the flow of funds from the time the consumer makes a plastic card payment to the moment when it reaches the retailers account. The launch of the guide coincides with the installation of Britain’s one millionth point of sale card terminal, at the Duke of Uke in London.
APACS director of communications Sandra Quinn said: ‘Paying by plastic is now part of everyday life. When the first plastic cards appeared in Britain in June 1966, only a handful of retailers accepted them, typically a paper-based system using so-called zip-zap machines. In less than 40 years, plastic has become our most popular way to pay in ever-more varied locations.’
There are now more than 140 million plastic cards in use in the UK. Most of the spending (68 per cent) is on debit cards. The value of spending on plastic this year is expected to exceed £320 billion, compared to an anticipated £277 billion of cash payments.
ICAEW, and Personal Finance Education Group, (PFEG) is an education charity that works to teach financial responsibility to school children. They work to improve financial literacy. One project they are building is a database of consultants and individuals from the finance industry who will volunteer to offer financially solid advice to school aged children.
Alastair Mathews, the director of policy at PFEG, claims the schools are more concerned with student’s exam grades than teaching them how to cope with life and to understand ‘what is useful in life’.
The government’s new proposal to integrate financial studies into the mathematics curriculum by 2008 is a positive step forward. The government is currently consulting with PFEG and making plans to implement a working solution at the grade school level.
Recent events in the financial industry have made the government and watchdog companies aware of the need for consumer education. Consumers can no longer trust the person representing the financial institution to respect their best intentions. The high debt opens up the industry to unscrupulous companies in the doorstep loan, AVI, insolvency firms, and quick cash industry.
This new project should have a positive effect on reputable lending companies that handle mortgages, secured loans, and credit by reducing the competition. When consumers understand what they are buying, they will be more open to solid financial services, and less likely to fall for a slick sale’s pitch. They should also be less likely to use high interest credit cards as indiscriminately as many UK debtors are.
This is the goal PFEG, ICAEW and the government are working toward
Indebted consumers are constantly looking for solutions to their financial problems. The current financial crisis has given birth to a new type of financial repair company that preys on consumer’s ignorance. Consumers can protect themselves.
It is essential to check the fine print. A 0% interest rate may jump to 19% after the first six months. A store card offering 15% off with the first purchase may be carrying a prohibitive 29% plus interest rate. A doorstep loan, or a debt consolidation loan, my reduce the monthly payments, but dramatically increase the interest payment, forcing the consumer to endure a high debt load for months longer than they should
The consumer should consider the fees next. What fees are attached? Is there an annual fee? Is there a sign-up fee? Many sales representatives do not reveal fees until the credit papers are ready to sign. Asking the sales representative about additional fees, and then watching to see if any are added, is a great way to test a company’s ethics.
The last thing watch dog groups tell consumers to check is the penalties. Take time to make sure you understand all the penalties. No one assumes that something will happen, but it is better to ask questions. One important question to ask is whether there is an early payout fee. Many consumers are alarmed to learn the high early payout levies. A consumer who needs a debt consolidation loan can find themselves with a debt several hundreds of pounds higher, just because they try to find some debt relief.
The government is educating consumers on alternative methods of financing to handle debt problems. The a proposed launch date is set for early 2007.
There was general approval by the Council of Mortgage(CML) lenders in response to the recent announcement made by housing minister Yvette Cooper. CML head of policy Jackie Bennett said:
“We are happy to discuss with the government its ideas for a framework in which mortgage funding could contribute further to making homes more energy efficient. ”
“It is clearly a fundamental requirement that any successful measures must be attractive to borrowers, as well as being able to work within the confines of what mortgage finance is capable of delivering. As the minister acknowledges, there is also a role here for other stakeholders, including energy companies, local authorities and landlords in the social and private sectors.”
The Council of Mortgage Lenders’ members include banks, building societies and other lenders who undertake 98% of all residential mortgage lending in the UK. currently there are 11.6 million mortgages in the UK, with a total net worth over £1 trillion.
This is good news for homeowners who are looking for a second mortgage. While some lenders are already taking the high price of utilities into consideration, the proposal will force all lenders to consider utilities. This will make it easier for the homeowner and the lender to determine the ‘real’ level of mortgage a consumer can afford.
The government proposal is still sketchy, but it will draw a lot of interest from homeowners who hope to make their homes energy efficient, maybe with the help of utility companies, and protect themselves from future spikes in utility bills. Even if the government has not finalized a plan, lenders will start making plans to implement the new program.
The Department for Work and Pensions (DWP) has praised the work done by credit unions to combat financial exclusion. At a recent conference, Minister James Plaskitt said that the DWP had committed £34 million of the £36 million Growth Fund to 80 credit unions and other organizations. He added: ‘I have taken a close interest in the new initiatives and approaches we are here to learn about and discuss today. I am pleased and proud to be able to say that my department is working more closely than ever with yourselves as partners, and as a champion of what you are striving to achieve for people who are excluded.’
He said the effect of this investment would be to make £100 million of credit available to the financially excluded. ‘That’s a £100 million worth of new - affordable credit that should result in thousands of excluded people not having to pay exorbitant interest rates to doorstep lending companies and loan sharks,’ he added.
The minister concluded: ‘I am absolutely convinced that we can do more than is currently provided. We need to apply a good deal of imagination and innovation to working out the best way of achieving our aspiration of seeing far fewer people excluded and far more included in financial opportunity in its most basic forms.’
The Financial Services Authority (FSA) has fined Langtons (IFA) £63,000 for not having systems in place to make sure its advisers were trained and competent. The FSA also found that Langtons failed to properly allocate roles and responsibilities to its senior management. As a result of these failings, the FSA found that customers were put at risk, as systems and controls were inadequate.
According to the FSA, Langtons did not determine the training needs of its investment advisers and did not properly record and monitor any training that took place. Margaret Cole, FSA Director of Enforcement, said: ‘Langtons’ senior management could not show that they understood or even knew their responsibilities as a regulated business and thereby the firm unnecessarily exposed its consumers to potential risk.’
The failings also meant that Langtons’ complaints handling procedures were inadequate and it failed to ensure complaints were dealt with independently. Additionally, the approval of its financial promotions was not carried out by a person with appropriate expertise to ensure that they were clear, fair and not misleading.
Langtons has engaged an independent consultant to review its compliance procedures and has agreed to an early settlement. The FSA took this into account when issuing the fine, which otherwise would have been £90,000.
There is relief on the horizon for consumers and a leveler playing ground for scrupulous lending companies. The Consumer Credit Act 2006 is the largest overhaul of consumer credit legislation since 1974. Millions of consumers will find a more open market, and more protection from unfair treatment by some types of lending companies. The Consumer Credit Bill is hailed as a boost to consumer rights where money lending is involved.
The Act introduces major changes to the licensing of consumer credit businesses and gives authorities new powers to deal with complaints and violations of the law.
The Office of Fair Trading (OFT) regulates the consumer credit industry. They will receive the power to deal with violators quickly.
Lord Whitty, Chairman of the National Consumer Council, said: “We’re delighted that the millions of people who use credit will now be better protected. The Consumer Credit Act will mean a clampdown on bad business practice, ensure fair lending and provide an easy-to-use, free credit complaints service.”
Ian Mullen, Chief Executive Officer, British Bankers Association, said; ” We are pleased with the consultative approach that the DTI has taken during its thorough and far reaching review of the retail credit market, culminating in this new Act.
This will make it easier for financial institutions that offer a reasonable service to reach the people who need it. While the act will not illuminate shady practices in the financial industry, it will give people a chance to challenge the lenders. The long term effects could include a greater awareness of the benefits of short term loans over long term mortgages, choosing a long instead of an AVI, and even improve consumer debt management practices.