Swift Money

One in ten people who are planning on buying a house are bringing forward their plans according to a survey by fool.co.uk. According to the survey 38% of potential house buyers want to buy this year and 34% in 2009.

David Kuo, head of personal finance at fool.co.uk said:

“The long overdue correction in the property market will allow many people who have been waiting to move house to finally realise their dream.  Quite often people will ask how much they can borrow when they want to buy a property. But that is altogether the wrong question. Instead, they should ask themselves how much they can afford to repay.”

Fool.co.uk found that in the next five years there will be more sellers than buyers; for every four people looking to buy there will be five sellers.

According to the Home Builders Federation (HBF), environmental issues could affect house buying in the future.  Each new house will need an Energy Performance Certificate (EPC) to ensure the house is well insulated and energy efficient.  On top of this the government is offering stamp duty exemptions for carbon neutral homes as part of its “Building a Greener Future” policy.

John Slaughter, direct of external affairs at the HBF said:

“I think that [the EPC] will have some influence on perceptions of purchases. And obviously, if you go back to point about hiking energy prices at the moment, then people will always take more notice things in that climate. The benefit of the EPC is that it will actually raise awareness of the benefits of good levels of energy efficiency and insulation would have – not just running costs but [for the] comfort of the house and so forth.”

Cuts to the base rate of interest may not lead to lower repayments for mortgage holders. Speaking after the Monetary Policy Committee’s (MPC) decision to hold the base rate in January, Motley Fool’s David Kuo said:

“The link between the MPC’s decisions and mortgage payments is by no means certain.”

Despite Chancellor Alistair Darling urging mortgage lenders to pass the December cut on to consumers, there is no obligation for them to do so.  Following the credit crunch, the main aim for many financial services organisations is to stabilise their business.  On this, David Kho added:

“Many homeowners are unlikely to reap the benefits, even though there are indications that the Bank of England may continue to cut interest rates to stimulate the flagging British economy.” 

Experts predict that personal insolvencies are set to increase this year. KPMG forecast a 30% rise in the number of personal insolvencies in 2008. Remarking on the wide reporting of rising debt, James Falla, director of advice service Thomas Charles said:

“Predictions of an increase in the number of people declaring themselves insolvent are likely to prove correct as 2008 progresses. However, it should be acknowledged that personal insolvency can be either bankruptcy, individual voluntary arrangements (IVA) or informal debt management plans.”

While the amount of bankruptcy and IVAs can be accounted for, there is no formal way to measure the levels of debt management plans undertaken.

Price comparison website uSwitch recently suggested debt consolidation as a solution for consumers looking to pay off their debts this year.

The availability of self-cert mortgages has been largely unchanged by the credit crunch, despite the wide reporting of tightening lending conditions in the mortgage market. The credit crunch has affected the sub-prime sector and non-conforming lenders, with mainstream lenders mainly unaffected. 

Andy Pratt of mortgage brokers Alexander Hall stated that borrowers with good credit records should have few problems being approved for a loan:

“All those clients who would have been able to get them even with the credit crunch.”

According to the Economic and Social Research Council 13% of Britain’s 29million workforce are self employed and therefore eligible for a self-cert mortgage.

Research shows that UK families are failing to control their spending.  A report by uSwitch, accredited by the Financial Services Authority, found that a quarter of 16 to 44 year olds are worried about bills in the New Year and that more over 50% of people do not know how much they spent over Christmas.

uSwitch discovered that nearly a quarter of adults are struggling to manage their debts, with 9.5 million people have reached their limit on one form of credit in the past 6 months.  Interest repayments in Britain have increased by £12.7 billion to an all time high of £93 billion.

Nearly a quarter of adults say they are struggling to manage their debts – many being put under pressure by rising interest rates and subsequently mortgage rates. The average estimated annual interest bill is £3,744 per household, including mortgages.  This is an increase of £517 compared with 12 months ago.

Despite increasing debts and interest rates, uSwitch found that 26% of people are more likely to take up new hobby or book holiday in 2008, whereas only 13% would make an effort to get their finances in order. Mike Naylor of uSwitch said that people with debts need to take steps to better manage their finances:

“People have enjoyed easy access to cheap credit for a long time. The recent reduction in interest rates is a step in the right direction, however, it could be too late for those in severe difficulties.”

Credit consumers are being warned that the credit boom is coming to an end and lenders are becoming more prudent; market research shows that 38% of those who applied for a credit card in the past 6 months have been rejected.

The Bank of England decided to hold base rates in January 2008, a decision that could prove more expensive for mortgage owners. Many industry experts believed a base rate cut to be justifiable this month, moreover, due to negative economic statistics most expected a rate cut.  John Charcol’s Ray Boulger said:

“Homeowners could find themselves paying £105 more in interest than they would if a 0.25% cut had been implemented.”

Inflationary pressures such as Npower’s 17% price increase could prove financially difficult for Britons. However, inflation is under control with the consumer price index inflation just above the 2%, with the global economic slowdown likely to bring it down further.  With regards to further rate cuts, Boulger added:

“If the monetary policy committee delays the next cut too long, Bank rate may have to fall further than would have been the case with an earlier cut.”

KPMG estimate that a record 130,000 Britons will file for bankruptcy in 2008, an increase of more than 20,000 compared to 2007. Huge festive period overspending, rising mortgage payments and high credit bills are believed to be the main factors in the problem.

These people will either declare bankruptcy or take out Individual Voluntary Arrangements (IVAs), which allow people to repay part pf their debts to credit provider s and start again.  Those in difficulties, who struggle financially without consolidating their debt or move debts from one low credit product to another, may find themselves closer to insolvency due to tightening lending practices.  

Previously, easy credit helped people already debt; with credit cards second mortgages and consolidated loans available. With stricter lending policies, these lifelines are no longer available to indebted people. KPMG found that half of new credit cards applications are being rejected, up from 30% prior to the credit squeeze.

Mark Sands of KPMG said:

“High interest rates are also responsible for people spiralling towards debt and homeowners [facing difficulties] whose fixed rate-mortgages expire.  This group of people face soaring repayments, for example, around an additional £400 a month to £1390 on a £150,000 mortgage.

According to new research by MoneyExpert.com 2.6 million Britons will switch credit cards in 2008.  7% of all customers will switch cards, with consumers being urged to take advantage of interest free periods to pay off their debts. Egg and Virgin currently offer the longest interest free periods at 15 months.

Consumers between 15 and 34 are the most likely to switch provider. Geographically 15% of Scottish credit card holders plan to switch compared with 7% in the south-east.

Despite many shopping for the best deal, 6.6 million credit card holders will stay with their credit card provider, paying an average of 16.82%. Sean Gardner of MoneyExpert said:

  “Credit card companies can expect a busy transfer season in January as millions of us wake up to the cost of Christmas before the New Year financial hangover sets in. It is goof to hear people are taking action but worrying that millions will simply add their Christmas debt to their existing debt. Piling on debt is simply adding to the spiral of increasing financial trouble.  People should be taking action to get their debt under control and the first step towards that is to cut borrowing costs.  The next important step is then of course to pay the debt off but transferring a balance is at least a start.”

Some credit card companies are offering 0% rates; however, consumers should be aware of the large balance transfer fees, which at 3% could cost £60 on a £2000 debt.

Dogs are expensive and a financial commitment owners should be prepared for. Tesco Pet Insurance believe that 5.2million dog owners need to better manage their finances in order to handle the cost of their dogs.  According to the insurance provider just 12% of owners insure their dogs against potentially large vet bills. This is despite 38% of pet owners polled by Mintel stating that they felt they could not afford veterinary treatment for their animal. Allan Burn of Tesco Pet Insurance said:

“The price for treating an uninsured dog can be hefty, with the incidence of such lack of preparation saddening.”

Tesco Pet Insurance is offering discounts of 20% to customers who buy online and 10% to those who buy over the phone. According to the company this will help those pet owners who believe veterinary bills may be beyond their means.