Tempted to withdraw cash on your credit card? DON’T!

As the credit crunch continues, credit card companies are heavily promoting cash withdrawals from your credit card but they do not make it clear how expensive this will be.

If you withdraw cash on your credit card you could be charged an interest rate in excess of 24% and also a withdrawal fee.

Even if you are someone who pays off your balance every month you will still be charged interest. This is because the interest starts to accrue from the day you withdraw the cash.

Many companies are also sending their customers blank cheques – with their names already printed on them. This is to entice you to fill in your own amounts and pay them into your bank account – very tempting if you are short of cash. What the credit card company does not tell you is that these cheques are treated the same as a cash withdrawal. Therefore you will be charged a fee and the extortionate interest rate. There is usually a fee of 3% of the amount of each cheque presented and the interest rate will be in excess of 24%.

Nowhere on the covering letter is the interest rate mentioned, just a note asking the borrower to refer to their statement for the interest rate charged.

Using a credit card sensibly is a good way of managing your finances and there are some very good deals out there – however, using them for cash withdrawals or funding your bank account in a great big no no !

Not many people benefit from the credit crunch; the pawnbrokers do

You would be excused for thinking that while the nation is hit by the credit crunch, everyone in the country is struggling. A fair assumption it may be, but an incorrect one it is.

While hard working Mr and Mrs Smith are struggling to pay their bills each month, their mortgage payments continue to creep up and finding money becomes harder and harder. Enter the pawnbroker. More and more of us are turning to the pawn shops as a method of supplementing our incomes.

For years credit has been freely available and we have accepted it without a second thought. We have taken out loans to buy TVs, DVD players, jewellery, games and other goods with value that we simply would not be able to buy today. So it makes sense that in times of hardship, we turn these goods into cash and short of selling them, pawning them is the next best thing.

Another industry which is booming at present is that of pay day loans but if you consider the cost of borrowing on these, you will see pawning your stuff can be a lot cheaper. Most pay day loan firms charge in the region of £20 for every £100 borrowed. In contrast, you could easily find a pawnbroker who would offer you a loan against your goods for somewhere in the region 8% or £8 for every £100 borrowed. Talking of pawn broking as a means to raise funds, Chris Tapp, director of debt charity Credit Action said “If you need a small amount of cash for a short time, like if your boiler breaks down, it can be a decent option”.

As with all credit, you should think seriously before entering into any agreement and if you cannot afford to buy the goods back in the short term, this probably isn’t for you as the fees will continue to build each month and the debt can escalate.

Before pawning, consider the alternatives. It is still an expensive way to borrow and if you find yourself pawning things on a regular basis, you need to find a more workable solution to your financial situation because it can be a vicious cycle that gets harder and harder to break.

OFT to act on bank charges, but not until July at the earliest

Millions of UK customers have been charged up to £40 a time for going over their overdraft. Is this charge fair? Personally, I think not, but I am not the law. Everyone bar the banks seem to think the charge imposed is too high and it is thanks to the pressure from thousands of consumers which brought the banks to their knees. Finally, after months of dragging their heels, they agreed to a High Court test case which would be carried out in two parts.

Last month saw the initial hearing in which Mr Justice Andrew Smith said the OFT had a legal right to investigate whether or not the charges levied by banks were fair. He also said that if the OFC considered the charges to be unfair that it should look at how the banks can compensate their customers. At the same time, he also gave the banks the right to appeal that decision.

Since the decision last month, the OFC have been unable to reach a decision on the case leaving hundreds of thousands people with court claims still unheard having no idea when things will change.

“We are facing a lot of litigants who have not had their claims struck out and who should be in a position to pursue their claim” Mr Justice Smith said, “ How long should we hold up the county court litigation? Are we talking months, years or weeks?”

The banking sector reportedly makes about £3.5 billion from charges levied onto customers and you can bet they don’t want to lose this income.

The judge has indicated he would like things wrapped up quickly which is seen as a positive move for consumers by Chris Warner, a lawyer for the consumers’ association Which? But he went on to warn “the banks are appealing and it will be some time before a judgement is issued in that hearing and so consumers are still some way away from getting their money back”.

It is unclear at this time when the OFC will report it’s findings but yesterday it gave a planned timescale of mid/late July to releases their initial findings. The banks have agreed with the regulator that if no agreement on what is a “fair charge” is reached by Christmas this year, the decision will be made my the courts.

Until then any case brought before a county court will remain on hold.

Rates are rising, this time its Credit Cards

If you have a credit card, chances are you have seen your interest rate rise recently. The average interest rates for purchases have risen over the last two years from 14.9% to 16.4%.

Borrowing on a credit card has always been considered an expensive way to borrow and as the banks try desperately to claw back the money they leant out, many hard up families will feel the burden of these rate hikes. Of course, the banks will always tell you borrowing on a credit card should be considered for the short term only and if you pay your balance each and every month you won’t notice any difference. This is all well and good but this is the real world and we cant all do that. The banks are not the only ones who are feeling the pinch of our recent economic downturn. Instead of reaching out a hand to fellow sufferers they just want more of your money. Once again it will be those that are already struggling that will be hit the worst, if you can only just afford to make the minimum payment, your debt is growing.

On top of that, the interest rates for cash advances have rocketed in this period from 18.1% to a massive 24.3%. And if that wasn’t enough the fee for taking a cash advance will most likely have increased too. Previously the majority charged a 2% fee with a minimum of £2, nowadays however the majority charge 3%, with a minimum of £3.

Retail spending down again as house prices plummet at record speed

If you’re starting to think the economy couldn’t get any worse I have some bad news for you, it is getting worse every day. For the second month in a row, retail spending is down and house prices across the country dropped at a rate greater than at any other time in the last 30 years.

The Royal Institute of Chartered Surveyors (RICS) has warned of further drops in house prices claiming the shortage of houses on the market is slowing down the drop in house prices. If the economy problems cause people to sell their homes out of necessity, much larger drops would be probable. A reduction of 10% in house prices by the end of the year is not unlikely.

Will a cut in interest rates help lesser then impact of this so called global credit crunch? Most economists believe the Bank of England will cut rates next month. I guess we can only sit tight and wait and see.

Reports: The Guardian, The Independent, Reuters

Banks admit it is time to make changes

The Chief Executive of the British Bankers’ Association, Angela Knight, stood in front of the Treasury Select Committee and claimed the banks are ready for change. She said: “We have not run away or hidden from the need for reform or the need for review”.

The British Banking Association (BBA) is the leading UK banking and financial services trade association. It has over 250 members worldwide and acts on behalf of its members on domestic and international issues. All the big UK banks are members, you can see a full list here.

Although the BBA acknowledge the need for reform, Angela Knight had one or two warnings of her own. She made it clear that although reform was required, getting rid of existing pratices that worked was not an option:

“What we have to be careful about is not throwing out the good, not bringing in regulations that are inessential or that don’t fit.” She went on to warn that any reforms should be tackled on a global level, insisting that singing out the UK in this time of regression would harm the UK’s global reputation.

Monetary Policy Committee have a lot to discuss

The Bank of England’s Monetary Policy Committee (MPC) is currently undergoing 2 days of talks over interest rates, falling house prices and our ever weaker economy. The MPC is made up of nine members, four of which are external members appointed by the Chancellor.

A cut in Interest Rates?

As it stands the MPC is split, with three members calling for a quarter point drop, one for a half point reduction and five calling for no change. It is a difficult choice to make, what is worse; increasing inflation or an economic slowdown? With five members voting to hold and an unliklihood of anyone changing their mind, Interest Rates look set to hold. Still no good news for homeowners.

One of the members who voted to hold said: “The MPC has to remember its mandate which is to control inflation, not to spare the real economy or the financial system from necessary adjustments”.

Insolvency figures up slightly in first quarter of 2008

The number of people being declared insolvent has risen slightly in the first quater of 2008. It is the first time the figures have risen in a year. Despite the rise, it is worth noting that the numbers in this report are still over 13% lower than those of the first quarter in 2007.

Despite the contrast to last year, many experts believe the numbers will escalate as we contiune to see the effects of the credit crunch. Speaking of the figures, Capital Economics said they are likely to be the tip of the iceberg.

15,651 people were declared bankrupt in England and Wales in the same period, a 6.8% drop from the first quarter of 2007.

Sources: The Guardian, The Press Association, BBC

Annual House Price fall for first time in 12 years

The average house price in the UK has made it’s first year on year drop since March 1996. After 12 years of inflating house prices, the average house is now 1% cheaper than it was a year ago standing at £178,555.

Could this just be the start?

David Blanchflower, a member of the Bank’s Monetary Policy Committee, said recently that house prices could fall by up to 30% over the next few years if interest rates were not cut to keep control.

Reports: BBC, Times Online, Business Week

Mortgage charges are still rising

The credit crunch has led some big mortgage lenders to announce another round of price rises for new customers.

Cheltenham & Gloucester has put up its fixed rate deals by up to 0.6%, and raised its tracker rates by up to 0.4%.

And Abbey, the UK’s third biggest lender, is levying higher initial fees and demanding larger deposits for some of its key deals.

Lenders are continuing to ration their funds for new customers as a result of the credit squeeze.

Most banks and building societies, however, have cut their standard variable rates in line with recent interest rate cuts by the Bank of England.

Tracker rates

Abbey has reduced the interest rate on its two-year tracker deal from 6.37% to 6.12% but is now asking for a minimum 25% deposit instead of the usual 10%.

Some of its two-year fixed mortgages are now also priced at slightly lower interest rates, but now require either higher set-up fees of £999, and in some cases 30% deposits instead of 20%.

Britannia building society has raised all of its interest rates by up to 0.75% for new customers.

The increase across the whole range of its mortgages means that the building society’s cheapest two-year fixed rate - one of the most popular types of deal among new borrowers - is now priced at a minimum of 7.29%.

The crisis in the mortgage market, with lenders being deprived of funds by the credit crunch, has seen lenders change their deals almost weekly.

Since the start of the year Abbey has revamped its mortgage range 11 times, Britannia eight times, and Cheltenham & Gloucester has done so on 15 occasions.

In most cases this has meant putting up the cost of borrowing by changing interest rates, raising the minimum deposit, restricting income multiples or charging higher set-up fees.

The existing mortgage customers of all lenders who are benefiting most from cheaper loans are those whose deals tied directly to the Bank of England’s base rate.

It has cut the cost of borrowing three times since December.

According to the financial information service Moneyfacts: “35% of existing borrowers are on variable tracker rate mortgages, they will have seen rates drop by 0.50% in the last three months.”

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