Family Finance Weblog

Author: Dot Piper

There has been a tremendous boom in overseas property ownership. Whether for personal use as a family, holiday or retirement property or as an investment property, the market shows no sign of slowing down.

In the excitement of making the decision to go ahead, it’s easy to overlook the importance of taking professional advice with regards to the legal situation.

The law in respect of property and mortgages abroad is very different from that in the UK. Local practices, customs and regulations are very different and vary from country to country. One of the most common mistakes made by people purchasing overseas property is to assume that everything will be similar to the UK and there can be nasty shocks in store when the reality of the very different legal system strikes them. Television programmes have highlighted problems in proving ownership, lack of planning permission or plans for three lane highways cutting virtually cutting through the garden.

It needn’t be like this. Expert advisers are in a position to guide buyers through the maze of foreign property purchase and to help them to get independent and specialized advice from professional people such as surveyors, architects and the all-important solicitors.

As far as financing the purchase, it is usual to think about either raising the money on existing UK property or alternatively to arrange a mortgage using the foreign property as security, via an overseas lender.

Assuming you own property in the UK and are buying your overseas property as a holiday home or investment, the easiest route to take would be to arrange a loan on the equity in your home. By releasing this equity you would be able to complete any deal without undue delay.

Alternatively, it may be possible to get an improved interest rate by raising a mortgage on the overseas property you plan to buy. There is an added advantage in this option, in that the legal title of the property would be checked by the lender, who would ensure that all other aspects of the purchase would be in order, such as registration in the buyer’s name, valuation and checking of any building certificates, regulations and planning permissions.

European interest rates are generally lower than those in the UK. Because of this, with Spanish property, most buyers are advised to take out a Euro mortgage, although technically you could choose all major currencies. If buying property in France or Italy then a Euro mortgage is required.

Euro mortgage repayments must be in euros. There will be some currency fluctuations and this should be taken into account when planning your monthly repayments.

Your adviser will be able to help you with the choice of which mortgage is for you. For instance, if you intend to rent out your Spanish property via a Spanish agent, any income will be in euros. Rental received can be paid into a Spanish bank account to help to fund the mortgage repayments, thus avoiding any fluctuation in currency when transferring money each month. Obviously in this case a Euro mortgage makes sense.

A sterling mortgage would avoid the fluctuating currency problem if the property is purely for personal use and there is no foreign income. However, the savings on interest rates still make a Euro mortgage an attractive proposition.

For help on overseas mortgages, we strongly advise you to take some guidance from the experts. This can be found by going on-line to find a broker, where you’ll find their knowledge of the whole foreign property market invaluable.

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Author: Catriona Singfield

Searching for mortgage information these days has never been easier – if all you are looking for is another advert promising you the best, simplest, cheapest, most wonderful product ever! How do you unravel the meaning from all these fantastic claims?

Not to worry – help is at hand! Here we sort out the different mortgage types from each other, and offer some advice on choosing the best one for your needs.

We begin with that first-time favourite, the discount variable rate deal. The good side is that this mortgage has an interest rate tied to follow the company’s standard variable rate, and also offers a cost reduction. The downside of this particular variable version is just that: it varies and may therefore rise unexpectedly.

A slightly different type, the tracker variable rate, is also tied in but this time to the base rate. Tracker rates change only when the base rate changes – and this rate is set by the Bank of England, which may give more stability. Trackers are a friendly face in the mortgage jungle, being simple in concept and easy to understand. They are also available in two variants, short term and lifetime.

A common way to try to make sure you stay with the best rate out there is to re-mortgage after a favourable deal ends. This is a sound idea, as long as you manage the all-important timing just right. You also need to find a new deal that matches (or betters) your old one. If you don’t make the change fast enough, you can end up paying the lender’s standard variable rate instead. It can be a useful strategy, but you’ll want to remain open to switching to a good longer term deal if one comes around.

Speaking of long term, it isn’t necessarily the case that a longer duration means a worse rate. Look into your options carefully. Additionally, some borrowers actually prefer to have a longer term plan in place, especially if they were used to making regular rent payments of a fixed amount.

Longer term mortgages can be worthwhile too if you are considering a repayment mortgage. This type reduces the capital you owe over time, as you make payments. If you find the inconvenience of searching around for a good mortgage deal every couple of years troublesome, then investing in a sound long term package could be your answer. And the amount you’d save by changing is often not that large.

Another mortgage sweetener often used to attract new buyers is the cashback mortgage. It can seem tempting to have a cash-in-hand sum, especially when there are a host of things you’d like to do to get your new home just as you’d like it. But beware! Just like many welcome gifts, it often comes with a less impressive interest rate attached. There is a longer tie-in period too – the length of time before you can change to another mortgage without paying a fee. Worst of all, if you do switch, your cashback may have to be repaid!

There are low-fee deals on offer. These may come with no arrangement fee, but with a correspondingly higher interest rate. Consider if over time, it would work out cheaper for you to pay the fee. Remember: there are no free features with a mortgage! It’s also quite possible that the fee can be added to the mortgage total anyway, softening the blow.

It’s a slightly different case if you are offered a free valuation, or free legal work, as these are incentives which will actually reduce costs you’d otherwise have to pay. But as always, check the interest rates carefully. These are the main feature of any mortgage.

So what’s your best avenue for up to date market advice and tips? An online broker is trained to look for exactly what you need, and can match your requirements with the very latest and most economical deals. They can also sometimes find special discount mortgages that are only available via the Internet.

It makes sense to look at the ever-changing mortgage market from all angles. Your knowledgeable broker is your best ally, so make sure they work for you and find that fantastic new deal!

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Author: Richard Norfolk

The time was when you started to pay your mortgage off whilst relatively young, perhaps 25 or 30. This meant that with the usual 25 year mortgage it was fully paid up at 50 or 55, and the problems of old age could be approached without the distraction of those monthly payments.

O.K., you now owned your own house and had to face the cost of maintenance, but somehow it was easier to bear. You also had a fairly accurate idea of what your pension would be worth, and if you had also paid for a company pension you had a reasonable idea of what your retirement income would be.

Sadly that accuracy is now largely a thing of the past. Government pension increases have fallen well short of matching inflation for a long time now, so the value of that pension has been steadily eroded. Many company pensions have hit difficulties and in some cases they have vanished altogether. And then there is your house – at what age will you cease to pay for it?

Currently, well over half a million pensioners still have outstanding amounts to pay on their mortgages, and it is not always the last few payments which are facing them. Figures indicate that over 20,000 of those still paying are over the age of 80; in terms of monthly payments, that is 180 or more made since they became pensioners, and they are still paying.

This situation has arisen because some have gone in for improvements to their home, or have decided to move house as retirement approaches, or in too many cases because of an endowment mortgage shortfall.

Prudential have researched the situation, and they reveal that almost 25% of pensioners are not in a position to find the funds necessary for a worry-free retirement. There is a major problem here which needs to be faced, and the fixed income which most pensioners have to cope with is only likely to exacerbate the difficulty of finding a solution.

Some people are now planning their lifestyle to ensure that property ownership will fund a part of their pension, with 13 million intending to take that route. Over 1½ million are banking on it providing in excess of half their retirement income. This is perhaps a reasonable approach if you have been able to plan for this nest egg, but if you are approaching retirement with only your home as security, you will need to hold off booking that world cruise for the foreseeable future.

Equity release is one possible solution, making use of your home’s locked in value. It is possible to obtain equity release on a home which still has a small outstanding mortgage balance, but expect to be required to use the funds released to pay this off. You will find that you must exceed a minimum age and your house must meet a minimum value before you can be accepted – the older you are, the larger the sum which you may borrow. Repayment of the loan plus interest charges will be required when the last occupier (of a maximum of 2) leaves the property, if necessary this repayment will be funded by the sale of the property.

Another approach which 1 in 6 pensioners are prepared to consider is to rent a room to a lodger. This is not a route to be taken lightly. Adapting to having a stranger moving in could be very difficult for many people, and in addition the financial implications need to be examined.

First you must get approval for the idea from anyone who has a financial interest in your home. Your insurer and any mortgage provider must give it their blessing, and it would be wise to talk to your tax office; they will give you a clear picture of what you need to consider from an earnings point of view. In this context you need to check the possible effect on any benefits which you currently receive.

Another route is to look at a the possibility of a re-mortgage but you are unlikely to obtain this if you are over 75, and the interest rates may be prohibitive. You would almost certainly have to use your home for security on the loan which, to put it simply, means that if anything goes wrong you could lose your home.

If you feel that you are too young for this situation to concern you, think again. The younger you are when you make your pension arrangements, the cheaper they will be. Wait 10 years and you may find that the payments for the pension you want have moved beyond your ability to pay

Shakespeare said ‘all the world’s a stage’, so act now!

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By Richard Norfolk

In our present consumer driven society, problem debts give many people sleepless nights. Worrying day after day about whether you will be able to meet your commitments is no way to ensure a peaceful life. Lenders abound of course, offering loans at varying rates and in some cases making the problem more acute by charging interest at very high levels. Is there any way out of continually paying more but getting less because interest costs pile up and have to be repaid?

The answer is yes, in the form of credit unions. You have probably never heard of them but they are well worth investigating if you are in need of financial help. You are likely to be very pleasantly surprised.

Credit Unions, under the umbrella of ABCUL (Association of British Credit Unions), are best described as financial co-operatives, working on a non-profit basis on behalf of groups of members who have a common ‘bond’. This bond may be where they live or work, or membership of a church or trade union – something which ties them together as a recognisable group.

The members own and control the credit union, working within laws laid down to protect them all. They are responsible for the election of a board of volunteer directors who run the union for their benefit.

They will offer savings facilities which are very flexible, allowing members to save as much as they wish whenever they want to. This can be paid in via designated local places such as shops or even direct from wages. An annual dividend will be paid on the amount saved; this is usually around 2-3% but can be anything up to 8%. Child Trust Fund vouchers can also be used, through an arrangement with the Scottish Friendly Society.

Loans are made available to members at very reasonable rates, usually for up to 5 years unsecured or 10 years secured. The charge can be expected to be around 1% per month on the reducing balance of the loan, rather than on the total loan taken out. This gives an APR of 12.7%, which in much simpler terms means that for £1000 borrowed over 1 year, the total repayment would be £1067. You are unlikely to get a rate anywhere near this from the usual ‘high street’ lenders. Life insurance is provided free of charge to cover the outstanding loan if you reach your ‘best before date’ with payments still to be made!

The loan charges are such that you may well find that it would pay to borrow from the credit union to pay off an existing debt, and then repay the loan at the union’s much lower rate. Note also that there are no additional charges if you are able to pay off the loan early.

Another not so obvious advantage of the credit union is that the operation is totally local, so that the money is kept within the local community. This is better than if the funds are whisked away to a relatively anonymous ‘head office’ which is probably located in a city at the other end of the country.

Details of credit union operations and on how to start a credit union in your area, can be obtained on www.abcul.org, email at info@abcul.org or telephone 0161 832 3694.To reassure you about the status of this organisation, many facts are provided at this website which serve to show its international coverage.

A listing of existing credit unions is given and you may be disappointed to find that there is not one in your area, but don’t despair – there are answers. In the first place you should check if the union nearest to you is not fully subscribed and that you do qualify under the ‘common bond’ requirement. Also, you may well find that the ‘boundaries’ of
common bonds are being extended to cover larger numbers: an expansion could be in line for your area, or you may be able to convince an existing union to do so.

Failing this, why not consider starting your own credit union. You can make a start by going to the ABCUL website and that of the Financial Services Authority at www.fsa.gov.uk and noting the requirements for starting a new Credit Union. These are quite detailed and cover a broad area but don’t panic. Plenty of people have been here before you, to start up their own.

Very briefly, to start your own credit union you need to know that to establish your union is likely to take 1 to 3 years and within the common bond you have decided upon, you initially need a minimum of 21 members. Then you will have to arrange and follow up your publicity drive to establish the demand in your area.

You would be wise to join ABCUL once you have enough backing to ensure that the project is going ahead. This will give you access to a large amount of very relevant information from ABCUL information services as well as a full manual providing guidance on how to progress. Also see the FSA website mentioned above to find out what you need for FSA approval before you can proceed further.

Members will have to choose the directors, who will require training to enable them to run the union. They will need to investigate sponsorship and obtain promises from local organisations to provide funds to cover the early years of the operation. These costs can be as high as £70,000 in the first 3 years. This could be a daunting sum, but ABCUL make the point that one of their objectives is the education of their members in the wise use of money – surely a very worthy aim. Membership in the UK (where the association started in 1979) is given as 600,000; worldwide there are said to be 40,258 credit unions in 79 countries with 118 million members in total. In Ireland (founded 1958) the coverage is given as 50% of the population and in the USA and Australia as 25%.

You can certainly proceed with confidence in the organisation!

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By Bridget Carter

So you’re serious about buying a home and you think you have enough money together to take the plunge into the property market?
One of the things you are undoubtedly going to need is a mortgage. It might be that you go straight to your bank and make an inquiry about how to obtain one.

But what you need to remember when it comes to borrowing money is that there are many different money lenders to choose from and many different types of mortgages you can obtain.

This is why you really need to shop around to make sure that you are getting yourself the best deal. On offer is such a wide variety of loans, including special mortgages for graduates and mortgages for professionals. There are guarantor mortgages, joint mortgages with your parents and the list goes on.

It is even more important than ever to make sure you are paying out the least amount of interest as possible on your loan. That is because the costs connected to making your first home purchase have rocketed by 94% in six years. They are increases have had a large impact on those trying to get their foot on the property ladder.

Consider these numbers. In the year 2000 people only needed an average of £4,698 to pay for things like stamp duty, mortgage fees and solicitors’ bills. But in 2006, the costs almost doubled to become £9113. So when it comes to raising a deposit on your home you can see how much more difficult it has become.

And for this reason, some wanting to purchase their first property might not even have enough money to pay for the deposit on their house.
There are some money leaders out there willing to loan money for people to pay for their deposit.

Your money lender may offer you a mortgage package that includes the deposit as part of the overall package, but be careful of this.
A major disadvantage is that if there’s a crash in the property market you could wind up owing more than you borrowed, often known as negative equity.

Also be wary about over committing to a mortgage. If you cannot keep up your mortgage repayments you may wind up in court trying to fight to keep your house so that the banks or the money lenders do not take it from under your feet.
This may happen if you have a credit history is not that positive in the first place because money lenders will make you pay more on your interest rates than others if, in fact, they loan you money at all.

If you are in the fortunate position where you have the money to put down a large deposit, it might be worth baring in mind that the more money you put down on a house as a deposit, the less interest you may pay on your mortgage.
Usually people pay up to 10% of the total cost of the property as a deposit. For example, if you were to purchase a £100,000 house, you would pay £10,000 up front.

When you go to your bank or money lender, they will consider things like your disposable income and existing loans before deciding whether or not to give you a mortgage.

Whatever your decision, make sure you shop around and take the right advice. Factor in fees for your mortgage interest rates because while a company may quote ‘typical rates’ for a mortgage, the exact rate that you pay will depend on your personal circumstances.

There may be many routes available for you. More and more lenders are launching mortgages specifically designed to help out first-time buyers. The possibilities are almost unlimited.

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Author: Bridget Carter

So you think it is impossible to get enough money together to convince the banks to offer you a mortgage on your first home? You are still renting and have given up getting your first foot on the property ladder?

It can be soul destroying for those trying to acquire their own piece of property, especially for those trying to go it alone with respect to buying a house. You can see how easy it can be for people to just give up.

Well, it actually does not need to be as difficult to buy a house as the headlines and statistics suggest. Ask yourself this question. Have I really, I mean really tried hard to save the money for the deposit on my first home?

Building up money reserves does not have to mean skipping a holiday or trying to go without any rewards. What it does require is making small daily changes to your everyday life then routinely putting an amount of money aside week after week.

You need to change your lifestyle – buying coffee for example can cost £15 a week and £720 a year. So do you really need it? And what about lunch? Do you buy your sandwiches each day or do you make your lunch? Health benefits aside, bringing your own lunch to work each day stops you spending more money or something that turns out to be of a higher cost than you thought. If you do the calculations in your head, by the time you have spent £2 on a coffee, perhaps up to £3 on a sandwich and a further £2 on snacks, you can see how easy it could be easy to spend £70 a week on daily food and more than £3000 a year.

Why don’t you get a credit card with zero interest? If you are in debt, you would end up spending the money on reducing the balance rather than paying the interest. Likewise, shop around for the best deal on a savings account. There are high interest saving accounts or you could try a tax-free Investment Savings Account. Cancel extra memberships and subscriptions that you just do not need.

Of course people become despondent with the house market with headlines like ‘House Prices Continue to Rise’ and ‘First Time Buyers Continue To Struggle’.

After all, ten years ago people only need to get together £4000 for a deposit on a house. These days you pay closer to £12,000, so naturally, the age of your average house buyer is now early to mid thirties.

But if you can work out how much you can commit to with respect to your mortgage you are half way there. You can then establish the amount of the deposit and the monthly payments. This can be done by simply having a look on the internet. Once you have a goal to work towards, the saving part is easy. It’s all about making small changes and getting into a saving routine – and sticking to it!

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Author: Dot Piper

The buy-to-let market is buoyant, with buy-to-let mortgages up by over 475% in five years. As falls in share prices dent the confidence in the stock market, many buyers have moved to this more “hands on” type of investment, and most are very happy to have done so. Typically you may get a couple who already have a property each deciding to move in together, and they may decide to rent out one or both of their properties to fund their new start.

Failure to “cross the t’s and dot the I’s” at this stage can lead to problems later and as a new television series, entitled, rather worryingly, “Tenants from Hell” shows us, it may not all be plain sailing in your new life as a landlord.

Tales of cannabis farms being set up in a London property, expensive homes being wrecked by a revenge-seeking unhappy tenant or finding you’ve let a home, lovingly refurbished maybe, to a convicted criminal are featured in the programme.

There are steps that you can take to lessen the risk of nightmare tenants. Two of the most important things are to ensure the tenant signs a contract and pays at least a month’s deposit before being given the key. Also, always obtain and follow up, references, including that of their employer. It’s also a good idea to check with the employer just how long the tenant has been employed. References from previous landlords are invaluable, try to speak to them personally if possible. It is also possible to use a credit referencing service, at a cost of around £25.

It may be possible to secure a guarantor for the tenant, which would be an excellent move. No matter how pleasant and easy to get on with the prospective tenant appears to be, it’s easier at this stage to ask for a copy of their passport and make a note of their national insurance number. If it comes to tracing them later, you’ll be glad you took this step.

If you do, unfortunately, find yourself lumbered with a bad tenant, despite all the precautions, the courts are busy and understaffed and you may find yourself waiting five months to obtain a repossession order, which is frustrating and costly.

We heard of a case recently where someone rented out a terraced house with a value of just under £120.000 to a single woman on housing benefit. The first month’s rent and a further month’s deposit were paid, but no more money was received. By the time the tenant was evicted, the house was in a total mess and in addition to the almost £5,000 rent owed, there was £2,000 needed to redecorate and rubbish removal costs.

To avoid getting into this situation it might be as well to consider employing an agent. They will thoroughly vet any prospective tenants and are experienced in spotting potential problems and acting quickly to minimise the consequences. They are there to protect your interests.

An agent who is registered with the Association of Residential Lettings Agents, otherwise known as ARLA, or the National Association of Estate Agents (NAEA) is a good choice. Both stick to good codes of practice.

So, take care when choosing your tenants. Buy-to-let continues to be a sound investment if you can avoid the, fortunately rare, tenants-from-hell.

For details and quotes on buy-to-let mortgages, search the internet for a broker. You’ll then be offered details of what’s on offer, but remember to follow all the rules for a good relationship with your tenant.

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Blogg entry for Wed 9th Aug

By Melinda Varley

Over 200,000 homebuyers in London during 2005 took out an interest-only loan according to the Council of Mortgage Lenders (CML). None of whom had a repayment vehicle in place and of these, 60,900 were first-time buyers.

There are no figures available for the total number of homebuyers with interest-only loans. However, figures for new interest-only house purchase loans have been running at between 10 and 20 per cent for all new first-time buyers over the past 10 years, and roughly the same for other homebuyers.

With more than half of all mortgages now arranged through an intermediary, mortgage brokers could be in the firing line for claims of mis-selling if the homebuyer’s loan reaches maturity and there is not enough cash to pay off the loan.

The CML is keeping close tabs on the situation and has set up a shortfalls working group to look into ways of encouraging consumers to act now to address any shortfall on interest-only mortgages.

“We are suggesting that when a mortgage comes up for review, for example, when it reaches the end of a concessionary rate, then it would be prudent to check on how the borrower intends to repay the loan,” said a spokesperson for the CML.

Using an interest-only mortgage will keep your monthly payments down until you can afford the higher monthly payments of a repayment mortgage.

But because you’re not paying anything off the amount you owe, you will probably end up paying more interest in the long run.

Interest only mortgages are a high-risk strategy that could come back to haunt advisers that set up the arrangement. An increase in interest rates could also hit these clients hard as they would have no fall-back option of reverting to an interest-only mortgage.

Simply enough, to combat the issue clients must be told that if they can not afford to pay for a mortgage, don’t take one out.

Here’s what you need to know. With an interest-only mortgage your monthly payments only cover the interest on the loan and do not actually pay off the loan itself.

If you take this option you will need to make separate arrangements to pay off the loan when the mortgage ends. You can make your arrangements through your lender – but it isn’t compulsory.

If you don’t arrange the funds at the end of the mortgage you may very well lose your home. Essentially, the money you pay to the interest only mortgage goes no where – you may as well rent.

You will have a substantial amount of time (depending on the actual agreement) to save regularly in order to make payments into a savings or investment scheme in order to build up a lump sum to pay off the mortgage when the time comes.

However, the returns offered by banking or building society accounts are usually too low to be used to pay off the amount borrowed.

Instead, it is common to accept some risk in the hope of a higher return by choosing schemes where returns are linked to the stock market. Although the risk is with these stock market linked schemes, there is no guarantee that your money will grow enough to pay off the mortgage in full by the end of the mortgage term.

Another option is to change to a repayment mortgage later. This might be a suitable option if your earnings are low now but are expected to be much higher in future.

Using a lump sum from somewhere else such as an inheritance or selling something such as another property or a business is another option and is also a risky one. You need to be sure that the inheritance will materialize and think about what would happen if your business was to fail.

Selling the property to pay off the loan is probably your last option. This is suitable only if you won’t need to live in the property such as if it is a buy-to-let property or a second home, or you are buying something cheaper.

Whatever plans you make to repay your mortgage, remember to review them from time to time to make sure that they are still on track. In the first place, interest only loans should be a last resort and should always only borrow what you are guaranteed to be able to pay back.

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Author: Bridget Carter

This year the Financial Services Authority revealed the extreme lengths some mortgage brokers will go to in an effort to secure a loan in the sub prime mortgage market. Sub prime customers range from those who have been declared bankrupt right down to those who might have missed just one credit card payment. But because the customers are considered risky, money lending companies use this to justify charging them higher-than-normal interest rates. As part of a probe into the sub prime money lending business this year, the FSA found three cases where brokers lied about an applicant’s income to secure the deal on the loan. As an outcome of this discovery, the firms involved have been referred to enforcement agencies for further investigation. And the FSA is not leaving it alone there. It plans to do more digging to see what else it can find going on in the highly lucrative business.

The three cases involving the mortgage brokers is a classic example of the desire within this part of the money lending industry to sign up sub prime customers into an agreement for more debt. These days, the sub prime market is worth £30bn a year. The money is too big to resist for both large finance institutions and smaller companies, which is why a growing number of big players in the finance industry want a slice of it.

The new players area banks like Deutsche, West LB and Investec. Lehman, GMAC and Merill Lynch have been lending to sub prime customers for some time.

It is estimated that the amount of UK sub prime residential mortgage backed securities issued rocketed from £5.9bn in 2003 to £12.1bn in 2005. It is expected that the number will continue to rise.

So what exactly is the FSA doing about it?

A spokesperson says it is taking a closer look at the advisers working on the scene to make sure they are collecting the right information to decide whether someone is adequately capable of taking on the burden of a mortgage.

“We want to assess whether mortgage advisers are taking reasonable steps to ensure that personal recommendations to enter into sub prime mortgage products are appropriate to the needs and circumstances of consumers. We also want to ensure that mortgage advisers are gathering all information likely to be relevant for the purpose of establishing the suitability of these products.”

In a recent investigation, the FSA examined 31 small mortgage firms and 210 customers who had borrowed with these firms.

It found that six in ten companies had not collected the information they should have to determine whether the applicant could pay back the loan and a further six in ten signed up customers who already had existing debts. Almost seven in ten were unable to prove they had considered an applicant’s previous situation when it came to their debts. Most companies could not justify how the mortgage met the applicant’s needs.

So don’t think that the authority is done with the matter. Another investigation is underway this summer. And there are bound to be more.

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Author: Dot Piper

In the forty years since Barclaycard introduced the first credit card to Britain, there have been many changes. From being something to be regarded with suspicion they’ve changed into something we don’t appear to be able to live without.

The British seem to have taken to these cards like ducks to water and now 3.7 million people are claimed be in possession of 6.7million cards. Some people use their cards to switch balances between accounts and therefore save money and some simply sign on to new credit cards which have opening offers attached to them and, in reality, make little use of them. If you travel abroad regularly, it’s a good idea to cover both Visa and MasterCard in case of difficulties.

For the first five years, until 1971, Barclaycard retained its exclusivity but now there are 1300 different sorts of credit cards available across Britain. On average, card holders spend £60 per transaction and the amount spent in a year comes out at around £4,600.

Probably the most famous credit card in the world, American Express, was established in 1995. American Express was around before then, but as a charge card, the balance of which had to cleared monthly.

From the introduction of the Barclaycard in 1966 with its £100 credit limit, the average credit limit has now risen to £1,500 per card. Not everyone is successful with their credit card application though, as last year there were 1.7 million credit card rejections. There is around £1.4 million a year lost in fraudulent transactions. The recent introduction of the chip and pin should, hopefully, reduce these figures and new methods of card protection are being developed all the time.

The “flexible friend” has changed the face of shopping in the UK. Practically all retailers welcome credit card transactions. They can be used for shopping on the internet, booking holidays and an added bonus is the insurance which is included when paying with your card. It’s easier to use your card for everyday transactions, such as re-fuelling you car and it’s easy to keep track of payments with your monthly statement. If you pay your bills on time and avoid stretching yourself too far financially, your card really is your friend.

On the minus side, for someone who struggles to organise their finances, credit cards offer a temporary escape route and can create debt problems. Care is needed to avoid this, but if problems develop, our advice is to seek help before a molehill becomes a mountain!

A few more facts for you –

There is an Arab oil magnate who has a higher than normal credit limit on his Barclaycard – supposedly £1million

You may have heard of an American man nicknamed Mr Plastic Fantastic. His real name is Walter Cavanagh. He is reported to hold 1397 credit cards, with a maximum spend of $1.65million. We won’t even think what the repayment would be!

There’s a UK credit card which charges 46.19%. This tops the most expensive list! Interest rates average a more affordable 15.5% at present.

Competition in the credit card market has resulted in some excellent introductory deals at present. Applying for them is simple and the best way to discover them is on the internet.

Used wisely, they really do make life easier. Happy Birthday, Credit Cards.

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Author: Richard Norfolk

Student life is usually gregarious, with plenty of like-minded company to relieve the possible tedium of study. However, when it comes to dealing with debt, each student has to sort out his own salvation. The theory says that after graduation, the students of today will be the high earners of tomorrow. Doubtless in some cases this is correct but……..

The unavoidable expenditure on student loans to cope with day to day living costs, plus the credit card bills and overdrafts which occur when those costs become too great, have a way of accumulating. This results in students leaving university with, on average, debts reaching £10,000 or more. This is the current debt level. Expectations are that this will increase threefold within a very few years.

Unfortunately no-one can bank on a highly paid job to clear their debts immediately on leaving university. Even if such a job is ‘in the offing’ there is likely to be a significant delay before the actual earning power comes to fruition. In the meantime, i.e. when first starting at university, it is necessary to evaluate the costs you will be facing and plan how best to cope with them.

First – the cost of the course itself, that is the tuition fees. Below a certain level of family income there will be nothing to pay; above this level there is a sliding scale. In earlier years the total cost was paid by the government but this had to be altered when increasing numbers attending university pushed the total costs upwards. It was also claimed that increased earnings as a result of gaining a degree would leave ex-students better able to pay their costs during their working years.

Currently there is however a ceiling on payments, which restricts the value of same to 25% of the cost of the course. This is still a significant sum at around £4,000 but thankfully any balance will be paid by the government.

Don’t forget that this cost is purely to pay for your proportion of the course work – day to day living costs have still to be covered. This and any other needs should be discussed with your Local Education Authority as soon as you know what your tuition fees will be.

The LEA will then calculate the value of loans available to you. You then contact the student loans company and arrange for the necessary funds to be paid into your account ready for the start of the new student year. These are unsecured and will be provided at an interest rate which ties in with inflation, and will not be repayable until the end of the tax year after you graduate.

At this point the repayment threshold comes into operation, so that no repayment will be required until your earnings reach the specified level. Even then your repayments will not (under present legislation) exceed the actual amount borrowed, and will be set at a value that is suitable for your earnings level. If you should decide that despite your educational achievements, the life of an impoverished artist (or other poorly paid artisan) would best suit you and your earnings never reach the threshold figure, then, if you reach the age of 65 without starving to death, your debt will be written off!

So much for student loans – what else is available to you? Credit cards are an obvious source of credit (otherwise they would be called by a different name) but they really should be avoided if possible. With no special terms for students in most cases, the interest rates are high and the amount of credit available to students is low. A lot of money can easily be spent paying interest charges whilst having a maximum debit balance, which makes you pay out regularly but allows you to spend nothing.

A bank loan is another possibility but this too is dangerous ground. The possibility of an interest free student overdraft of £2000 is very attractive, but go just over the limit and the rules will be applied rigorously. This means you are likely to be hit by a very high interest rate PLUS charges for an unauthorised overdraft. The whole of any overdraft will have to be paid off as soon as you leave university, otherwise the entire sum will attract interest charges.

You are going to have to exist without real income for quite some time. Arrange your finances to the best of your ability for the avoidance of interest charges and your lifestyle for the avoidance of unnecessary expenditure. It will seem like a long drag but well worth the effort in the long run.

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By Dot Piper

According to the consumer watchdog, Which, about 5 million of the 28 million of us who have been targeted by fraudsters, have lost money as a result. Someone is clearly finding fraud highly profitable.

So what are the most common scams and how do you avoid them? Here are five to be thinking about.

The “Money locked up in an account” scam.

This is a really common fraud. It normally starts with an e mail giving a long and involved sob story about someone or some business, which has a very large amount of money tied up in an account and, through the most unfortunate of circumstances, they cannot get the money out. To do so, they need a UK bank account to have the money paid into. Of course, if you help them they will give you a big slice of the money. And the money is always held in a some obscure country, often in Africa.

Once you have replied and taken the bait, they come up with a story that for the money to be transferred to your account, they need you to send a payment, often thousands, to cover the administration or legal costs of enabling the money transfer. The actual details always change but the essence of the story remains remarkably consistent.

Will the payment arrive and will you ever get your money back? Of course not! In fact after you’ve made a first payment, they’ll ask for more! The up front payment needs to be increased and unless the extra is sent, the money you’ve already sent will be lost. You think you’re now in a catch 22 situation. But if you send more money, we can guarantee you’ll never see it again.

Millions of these emails go out each month, so if you get one delete it.

Boiler Room scams
This is a hard-selling technique to persuade you to buy investments on the promise of great returns that turn out to be worthless. Others sell shares in companies that don’t even exist. There are also related scams which involve investment currency or futures or options.

More often than not the initial contact is by telephone and a typical target will be a middle aged professional man ho has some investment experience. They often trace their targets by examining the share registers of UK quoted companies.

If you receive a cold call from a company trying to sell you investments, ask for their registration number with the Financial Services Authority. If they won’t supply the number, put the phone down. If they give you a number call the FSA’s helpline and check out that the firm is indeed registered (0845 606 1234). Never commit yourself until you are absolutely sure that the company selling the investments is reputable. 9 times out of 10 it will not be – so you have been warned!

Credit Card Fraud
The requirement to use PIN numbers will greatly reduce card fraud. But purchases through the Internet use the “card holder not present”, not PIN numbers.

That means that if a fraudster gets your card details he can happily buy on the Internet and fade into the mist with the goods he has purchased and sell them for cash.

To reduce your chances of being caught by this sort of fraud, you should sign up with Verified by Visa or Mastercard Secure Code. You’ll find further advice on www.getsafeonline.org and www.cardwatch.org.uk.

Phishing
Fraudsters are also very active on the Internet trying to persuade you to divulge details of your bank accounts, PIN numbers and security codes.

The fraud starts with a bogus e mail supposedly from your Bank. The e-mail normally asks to you confirm your account details for security purposes. Sometimes it says that unless you complete the confirmation, your account will be frozen. But security is the least of their aims – once they have your details, they’ll simple empty your account!

Be aware that Banks will never ask you to send details of your accounts etc to them by e-mail. If for any obscure reason they did need some confidential information, they would ask you to visit a Branch.

Identity Theft
It has been estimated that an identity theft takes place in the UK every four minutes.

If fraudsters can pretend to be you, they can apply for credit and open bank accounts in your name. This inevitably leaves a trail of debt and criminal activity all conducted in your name.

All they need is a credit card statement and a utility bill in your name. Watch out for the bin men! Better still, buy a shredding machine and shred any personal letters, bills and documents you want to dispose of.

Author: Anna Mayo

The mortgage lenders have been playing a dirty, but totally legal, game on exit fees. In reaction to the amount of people that now choose to switch mortgages to make the most of competitive interest rates, they have been responding by raising exit fees by as much as 450% in the last 3-5 years – what’s worse is, they haven’t bothered to tell the borrowers.

An exit fee is a charge that the mortgage lender enforces if a borrower leaves their mortgage before the end of the term. It’s also known as a redemption penalty. Now the Financial Services Authority (FSA) has seen what they’re up to, it’s making a move to end these practices.

When people sign up for a mortgage in the first place, the lender has to stipulate exactly how much it will cost to leave the mortgage early. That’s a legal requirement. However a loophole leaves the way open for lenders to increase that charge without informing the borrower, so they can decide to remortgage after five years and find they have to pay a lot more than they thought.

The Cheltenham & Gloucester are one of the culprits – their exit fee has risen from £50 to £225 over the last few years, and the Woolwich have done something similar, increasing the fee from £95 to £275. It’s the lenders’ way of cashing in on the activities of the ‘rate tarts’ i.e. people that switch mortgages regularly to make savings on their mortgages. They don’t charge enough to stop the rate tarts, but they do at least get a small portion of the proceeds.

The FSA is currently talking to the lenders to reach an agreement on this issue, which will hopefully be enforced and become practice by June 2006. The ideal outcome will be for exit fees quoted at the beginning to be fixed for the mortgage term, so whether you stay in the same mortgage for two or ten years, the exit fee will be the same as you were quoted.

This is a good opportunity to remind you that when you get a mortgage, you need to look at all the costs, charges and sometimes incentives relating to the deal, not just the interest rate. We have compared two similar looking deals from Northern Rock and Halifax to show you that the interest rate does not tell the whole story.

We have compared the two companies based on a 2-year fixed rate repayment mortgage for 25 years, exiting the mortgage at the end of the 2 year fixed period.

Northern Rock charges interest at 4.19%, has a 1.5% arrangement fee, £250 exit fee and no incentives.

Halifax charges interest at 4.39%, has a £499 arrangement fee, £175 exit fee and the incentive of free valuation and solicitors fees.

Ignoring the incentives available on the Halifax mortgage, it still works out a lot cheaper over the two years. Northern Rock costs a total of £14,671 and Halifax costs £13,864, so you will pay £807 less over two years with Halifax. This case shows that the interest rate is not the only thing you need to consider, you must calculate all the costs to get a true comparison.

You also need to consider how the interest works because that will also affect how much you pay. Mortgages that charge their interest on an annual basis cost more because you are paying interest, for 11 months of the year, on a balance that has already been reduced by your monthly payments over the year. If your interest is calculated daily then you are always seeing the benefit of these payments, and will pay a lot less.

When choosing a mortgage, it is essential that you look at the bigger picture, and a specialist mortgage broker can be invaluable to help you sort through the many variables you will come across. Read the small print and all the information they provide, charges are hidden within complicated terms and are usually associated with the following words: completion, reservation, application, booking, arrangement and early redemption – so make sure you take a proper look at the charges especially when you see these terms mentioned.

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Author: Bridget Carter

One of the more popular options for investors these days is to purchase larger properties that can be let out as multi-occupancy units. These properties can be lucrative, particularly in university towns, where they are especially suitable for students.

And a new rule introduced on 6th January could make it easier to invest in these properties. The new rule will mean that landlords have to get a building licence if they want to rent one out to at least three unrelated people who all chose to live there, and if the building is on at least three floors.

The reason the rule will help you? Because it will help to convince finance companies that these properties can be divided up to rent out and thus become a viable option for a mortgage.

The Licence for Multiple Occupation was brought into force as part of an attempt to up the housing standards in the United Kingdom. The cost of the licences is understood to be almost £100 for each occupant and the licence lasts five years. Before this, however, you need to get a property inspection conducted to check the situation of the property. For example, things such as the fire regulations and the facilities and room size etc. You, as the landlord, might also be asked questions about your plans for the premises. Dodge these rules and you may have to fork out fines worth up to £20,000.

Other rules came in at the same time as this one – and if you are considering investing for a buy-to-let situation, you might need to know them.

The Housing Health and Safety Rating System means your tenants can call in the inspectors if they feel that repairs are not being conducted. As a consequence, you as the landlord are liable for a £5000 fine if you do not carry out the work that is needed to keep the building up to scratch.

You might also want to think about the Tenancy Deposit Scheme – a rule that swings into force in October that will deal with the handling of a deposit on a property.

What it basically means is this. A tenant’s deposit on a house gets kept with an official Tenancy Deposit Scheme, administered by a person who is seen to be neutral. There can no longer be a situation where you can fail to hand over a deposit, as some landlords have done in the past, for petty reasons. When the tenant moves out, the scheme administrator gets told and the deposit is given back to either the tenant, or if they feel it is just to do so, the landlord. In a situation where there is a dispute, the matter might wind up in court.

But the important part of this is that when the deposit gets returned, it gets returned with interested added and just what that interest rate will be is something yet to be decided on by the government.

You think these new rules sound expensive? Maybe they are, but what is expected is that rents will go up to counteract all the new charges. And the up side is maybe this will play favour with the banks. More rent, and more paper work to prove that you are able to rent out your property to various people…it really might just play in your favour.

Landlords will find more information about this at: www.propertylicensing.gov.uk

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Author: Catriona Singfield

With such a wide range of mortgage choices out there, it comes as no surprise that there are a whole raft of ways to make up the payments on each of them, too. And although a low percentage is often the most obvious feature, there’s much more to your mortgage than the interest rate – how it is calculated could be crucial for determining exactly how much you will pay.

For example, if your mortgage is an interest-only one with no payments on your capital, the date your interest is calculated makes no real difference. For other methods, however, that timing could be very important.

On some loans, the building society works out the figure on which repayments are based annually. This means that even when you pay money back over the course of the year, thus reducing the amount you owe, you are still charged as if the total had not changed – until the end of the repayment year. The net result is that you end up paying interest for money you have already paid back!

Because of their attractively low headline rates, the building societies using this annual method are often the ones at the top of the mortgage tables. High street firms such as the Bristol and West, Leeds, Portman, and Alliance and Leicester Building Society offer mortgages at 4.19%. But when you consider that they also calculate interest on these loans annually, the real rate you pay becomes higher. Over the year, the amount you pay works out at 0.13% more, so the total charge is actually 4.32%. Not quite so attractive!

Just to add to the mix, not all companies use the same methods on all of their mortgages. The Portman use a different method entirely, whereas the Alliance and Leicester use the per annum charge for some products, depending on whether you deal with them directly or through a broker. The Bank of Ireland uses another system on their own direct loans, but returns to the annual interest calculation for the Bristol and West, a building society owned by the bank. And to further complicate the situation, many of the smaller building societies – like the Nottingham, Dunfermline and West Bromwich - use an annual rate too, although they are likely to be updating in the future as systems and equipment change.

So what other way can these companies use? The other method of interest calculation is a daily rate. Every time you make a payment, the interest is updated on the same day, and your final balance is updated too.

Here’s an example to illustrate the difference this could make. Take a mortgage of £100,000 with the Portman, with a two-year discount and a headline rate of 4.19%. With annual interest rate calculation, the money you repay is effectively at a cost of 4.32%. Your monthly repayment would be £544.20.

Now take a look at a mortgage offered for the same requirements from the Natwest. This time the rate is worked out daily, and is slightly higher at first glance – 4.29%. But your monthly repayments with this option would only be £538.98.

So which is the best for you? As always, it depends on your individual needs: for an interest only mortgage, the Portman’s annually-calculated scheme would be the most economical.

So why don’t all lenders use the daily system? Some think that existing users on the yearly rate would feel unfairly discriminated against. And being charged interest every day can look daunting at first sight.

There are so many variations of mortgage, with new ones being offered daily. It can be hard to keep up with all the choices available. So we suggest consulting a mortgage broker, who will be able to find a tailor-made deal that fits what you need in all respects, including of course price.

After all, it’s your mortgage, and it’s that final monthly figure you pay that counts!

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Author: Andrew Tuthill

The government predicts an increase of more than 2 million UK households over the next 10 years, due mainly to an increase in EU immigrants and a trend of smaller households. This obviously leaves a good opportunity for would be buy to let landlords, especially with the better buy to let rates we are currently experiencing and the extra tenants wanting accommodation.

So, what are the requirements of buying to let? Well, the main requirement of a buy to let mortgage is that the rent value of the property can cover costs of purchasing and maintaining the household. This can include mortgage payments, letting agency fees, building maintenance, building insurance, advertising, accountancy fees, management charges and any other associated costs. For example, licenses will be required for houses with more than 3 stories and more than 5 occupants. In fact, a general requirement is that rent covers 130% of the mortgage payments.

For example, a £100,000 mortgage will require potential rent of £520 per month. This is calculated from an £80,000 mortgage (after a £20,000 deposit payment) with an assumed rate of 6%. This example would command mortgage payments of £400 per month, so add your 30% to this and you come to the previously stated £520 rent. This appears to be a fair assessment when you consider the possible periods of time without tenants on top of all the previously mentioned house costs.

Fortunately for you, Council Tax is the responsibility of the tenants once they are occupying the house. However, you will be responsible for a percentage of the area rate if the house is unoccupied for more than 6 months. This will be a smaller percentage if the house is unfurnished.

Once paying tenants are in place, you will need to inform HM Customs and Excise of your new source of income. Expect a fine of £100 if you’ve not spoken to them within a month. Once you are making money from the house then taxes of 22 to 40% will be charged on any profit. Remember this is profit and not rent received so be sure to subtract mortgage payments that don’t cover the part paying the principle (this does incur tax unfortunately), and other related outgoings from this amount.

So, with all this information at hand you have decided to go ahead and purchase your buy to let household. The next question is where to buy this house. Obviously, if you want to manage repairs and any other issues with the house yourself, it makes sense to purchase close to your home town. However, if you are using an agent then this isn’t so important and you can buy in one of the more profitable areas.

According to UCB home loans (these are the buy to let division of the Nationwide building society), the better performing areas for property investment are Colchester, Rugby, Peterborough, Swansea, Belfast and Glasgow. Also worth noting is that East London, having been less desirable of late, is now making a comeback due to the current regeneration of the area (London having secured the 2012 Olympic games).

If you decide to sell the property, then capital gains tax (CGT) will be payable, assuming the value of your household has increased. You do have an annual allowance of £8,800 (couples can both claim this amount) and Taper relief which allows for inflation. Taper relief is a discount of 5% after the 1st 2 years and continues to be applicable up to year 10.

With buy to let mortgages on the market for as little as 5% and more specialist buy to let lenders around, this really is a good time to consider this investment. I would suggest you search the internet to find yourself a good broker and get all the information to hand if you decide to go ahead.

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Author: Dot Piper

From June 2007, homeowners wishing to put their house on the market will be obliged to provide a “sellers’ pack”. In theory this pack will give full information on every aspect of the house and the reasoning behind this new requirement was that it was intended to speed and improve the selling process.

Things may not be so simple, however, and now that more comprehensive details of the scheme have been released, they seem to indicate that there are some points which are not covered.

The packs must contain:

A description of the property being sold, in the form of a Sale Statement.

Copies of the property deeds, or evidence of title from the Land Registry.

Standard searches regarding planning permissions and services such as water and drainage and any road schemes.

Guarantees and warranties for any building work carried out on the property.

Energy efficiency ratings.

In order to give more information on fixtures and fittings included in the sale, forms will be provided which the seller has to complete.

All the above seem to be fair and reasonable. The new energy efficient ratings don’t create any problems. They are simply an explanation of what standard the current insulation values etc., are and they give a buyer the chance to evaluate what can be done to improve the situation, if necessary.

It’s what the packs don’t contain which may create problems

There’s no requirement for reports on ground stability, natural subsidence or effects of mining in the area. They don’t take account of the possibility of contamination from any substances, including radon gas, or the risk of flooding. There’s no information on rights of access or details of telecommunications links.

The cost of the sellers’ pack is claimed by the government to be around £776 for the average semi-detached house, but it is thought by the experts that £1000 is the more likely figure. There is talk of a fine of £200 per day if an owner offers a property for sale without a HIP. This applies even if you market the property on a private web site.

There’s a sell-by date too. It is believed that mortgage lenders will not advance buyers the money to complete the purchase if the report is more than three months old. The up-dated regulations suggest that if you remove your house from the market for over 28 days and then decide to put it on sale again, you will need to pay for a whole new pack.

A spokesman for the Communities and Local Government Department made the statement that the 28 day rules would not affect people taking their homes off the market whilst a sale was being negotiated. If this sale subsequently fell through and the pack was more than three months old then the whole thing would have to start again with a fresh HIP and another £1000 or so.

This, then, is the up to date position on HIP’s. The question seems to be -Is it the answer to all the property markets’ problems or just another stealth tax?

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Author: Adrian Taylor

Forget life’s luxuries, with the cost of even the bare essentials spiralling ever upwards, credit cards and loans are now the preferred option to cover day-to-day expenses. But with ever increasing interest rates, credit unions offer a real alternative – especially if your credit rating is too low to obtain credit via the ‘normal’ means.

Credit unions are controlled by their members and by operating as financial co-operatives, provide low-cost loans and attractive flexible financial products to their members by combining savings.

To become a member of a credit union, you have to fulfil the criteria of what is known as a ‘common bond’. Simply put, a ‘common bond’ is having something in common with the existing members of the union and that could be living in the same area as existing members, belonging to the same organisation/association or being a work colleague of an existing member.

As such, even if you have poor credit rating or are not a regular saver, a credit union may accept you as a member whereas a larger financial institution may not.

Both regular and irregular savers are welcomed by credit unions and the aim is that all savers – whether regular savers or not, are paid the same percentage on their savings as a yearly dividend. Typical this is 2 to 3% but as the rate paid is dependent on profits, this can be as much as 8%.

There are no restrictions on the amount you save and as such, you can pay as little or as much as you like. The frequency at which you make payments is also flexible and whether you pay in weekly or monthly or whenever you can, payments can be made at your convenience – whether at local shops or handy collection points. Payments can also be taken directly from your wages.

As long as you can prove you are able to save you can borrow money based on the amount you are able to repay comfortably and all services can be tailored to your circumstances and requirements.

In keeping with all mutual societies, although each credit union must ensure that enough money is available to ensure financial stability, the credit union itself is a non-profit organisation. Any profits made are used to reduce the rates of interest at which money can be borrowed and to increase the rates of interest paid on savings.

For loan repayments, the typical interest rate is only 6% with interest rates capped to 1% per month. So this means that a loan of £1000 can incur no more than £10 of interest per month. Members can also benefit from free life insurance.

Credit unions are governed by various legislation, most notably the Credit Unions Act 1979. This specifies that their accounts must by audited on an annual basis by a qualified auditor, that adequate insurance is in place against theft and fraud and sets out the objectives of the credit union.

Also to safeguard the future of the credit union and the member’s savings, all savings cannot be lent out and the remaining money must not be invested in high-risk ventures. Any residual money must be invested in government or similar reliable investments or must be put into bank deposit accounts. This also ensures that the money can be returned as and when needed.

Key points to bear in mind when considering joining a credit union

· You must meet the common bond requirements – either yourself or be closely related to an existing member that meets the requirements. You cannot therefore join whichever credit union you feel is most suitable for you.

· Although rules vary from credit union to credit union, you generally have to save money before obtaining a loan so a credit union is not a simple cheaper alternative to a bank loan etc.

· Regardless of whether you need money for your business, all saving or borrowing with a credit union must be done by an individual member and not in the name of the business.

· Cancelled checks are not retuned to you by some credit unions.

· As a rule, credit unions have few branches and very rarely any ATMs.

· The services offered by your credit union may be limited when compared to your local bank so ensure you know what is on offer. It may be more advantageous to maintain accounts at both your credit union and your bank.

To prevent the credit union movement within the UK from growing in size or competing with the products offered by the various banks or profit making organizations, restrictions are imposed by law to ensure that the movement remains relatively small scale.

To obtain a list of credit unions in your area, contact your local council or citizen’s advice bureau who should be able to provide the necessary information. Alternatively if you or your partner are employed, there may be credit unions that cover your industry. If so, your trade union representative or payroll department should be your first port of call.

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Author: Richard Norfolk

Read the title again and then keep it firmly in mind. Do not rush into owning a store card. Consider your decision very carefully, and always bear in mind that the use of any credit card is quite likely to have cost implications for you.

First of all we should be clear about what we mean by ‘store cards’. There are two main types – the usually innocuous type most often called Loyalty cards, and the far more ‘dangerous’ credit style card. The loyalty card is not being considered here because it does not normally act as a means of separating a customer from their hard earned cash.

This is the card where typically you get points based on the amount you have spent and can let these points build up. Then, when you have sufficient you can then use them for an in store purchase or discount. This is a harmless little perk which rewards you for repeatedly shopping in the store.

The credit style of card is a very different kettle of fish. Often they are afforded some camouflage by having loyalty card type benefits included in their system of operation. Thus the store may make a big point out of the fact that using their card will get you a discount on your purchases ‘today’, ‘this week’ or even ‘this month’. They are unlikely however to have anything approaching the same level of publicity regarding the potential costs to you should you fail to meet their payment dates.

The cost of late payment can be horrendous – the Annual Percentage Rate (or APR) can be as high as almost 30% on some store cards, which does not compare well with the usual credit card rate of 15% to 20%.

However, credit cards are now most definitely a way of life and it cannot be denied that they are very convenient. They can enable purchases which would otherwise have involved drawing the requisite amount of cash from the bank – although some husbands may say that this can be a bit too convenient at Sales times! The disappearance of so many bank branches will have given an added attraction to the credit card.

How does this affect store cards? Where once debt was regarded as shameful and to be concealed, the increased use of credit cards has got people used to the idea. Many people run into the red on their card and have to pay interest on top of their repayments.
This procedure then ‘rolls over’ into their use of store cards, and they find to their dismay that their payments are now being hit by the high interest rates. If they then find it impossible to pay the outstanding balance in full at the month end, the interest charges can accumulate and extremely serious problems can result.

Don’t forget that the inability to pay can hit you like a bolt from the blue. You may be jogging along happily, buying the items that you feel that you need and paying off your store card at the due time – then WHAM – redundancy, illness, family problems, loss of earnings. Through no fault of your own you cannot pay the amount due.

It all sounds like terrible ‘doom and gloom’, but treat it as a warning not to go in for any financial commitment until you have thoroughly studied your options.

Don’t be swayed by short-term benefits which lead you into long term problems. Are they really benefits, or is the store price higher than the price charged by their competitors? Ignore ‘pie in the sky’ rewards which you may never qualify for.

Unless you have reserve ‘rainy day’ money which can be accessed instantly to cover payments due, you may well have to face interest charges if you fall behind with payments because your income drops – just the time when extra costs are the last thing you need.

However, be prepared to sign up to a store card which offers a good discount on an item which you were going to buy anyway, but control the situation. If necessary you must take your discount and ensure that you make all your payments when due. Then cut your store card up, to avoid being dragged into the deep water of debt.

If you want to have credit then look closely at conventional credit cards and especially at the interest charges they make.

Consider, consider, consider. It’s your money – use it wisely.

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Author: Emma Mayo

The mortgage lenders have been playing a dirty, but totally legal, game on exit fees. In reaction to the amount of people that now choose to switch mortgages to make the most of competitive interest rates, they have been responding by raising exit fees by as much as 450% in the last 3-5 years – what’s worse is, they haven’t bothered to tell the borrowers.

An exit fee is a charge that the mortgage lender enforces if a borrower leaves their mortgage before the end of the term. It’s also known as a redemption penalty. Now the Financial Services Authority (FSA) has seen what they’re up to, it’s making a move to end these practices.

When people sign up for a mortgage in the first place, the lender has to stipulate exactly how much it will cost to leave the mortgage early. That’s a legal requirement. However a loophole leaves the way open for lenders to increase that charge without informing the borrower, so they can decide to remortgage after five years and find they have to pay a lot more than they thought.

The Cheltenham & Gloucester are one of the culprits – their exit fee has risen from £50 to £225 over the last few years, and the Woolwich have done something similar, increasing the fee from £95 to £275. It’s the lenders’ way of cashing in on the activities of the ‘rate tarts’ i.e. people that switch mortgages regularly to make savings on their mortgages. They don’t charge enough to stop the rate tarts, but they do at least get a small portion of the proceeds.

The FSA is currently talking to the lenders to reach an agreement on this issue, which will hopefully be enforced and become practice by June 2006. The ideal outcome will be for exit fees quoted at the beginning to be fixed for the mortgage term, so whether you stay in the same mortgage for two or ten years, the exit fee will be the same as you were quoted.

This is a good opportunity to remind you that when you get a mortgage, you need to look at all the costs, charges and sometimes incentives relating to the deal, not just the interest rate. We have compared two similar looking deals from Northern Rock and Halifax to show you that the interest rate does not tell the whole story.

We have compared the two companies based on a 2-year fixed rate repayment mortgage for 25 years, exiting the mortgage at the end of the 2 year fixed period.

Northern Rock charges interest at 4.19%, has a 1.5% arrangement fee, £250 exit fee and no incentives.

Halifax charges interest at 4.39%, has a £499 arrangement fee, £175 exit fee and the incentive of free valuation and solicitors fees.

Ignoring the incentives available on the Halifax mortgage, it still works out a lot cheaper over the two years. Northern Rock costs a total of £14,671 and Halifax costs £13,864, so you will pay £807 less over two years with Halifax. This case shows that the interest rate is not the only thing you need to consider, you must calculate all the costs to get a true comparison.

You also need to consider how the interest works because that will also affect how much you pay. Mortgages that charge their interest on an annual basis cost more because you are paying interest, for 11 months of the year, on a balance that has already been reduced by your monthly payments over the year. If your interest is calculated daily then you are always seeing the benefit of these payments, and will pay a lot less.

When choosing a mortgage, it is essential that you look at the bigger picture, and a specialist mortgage broker can be invaluable to help you sort through the many variables you will come across. Read the small print and all the information they provide, charges are hidden within complicated terms and are usually associated with the following words: completion, reservation, application, booking, arrangement and early redemption – so make sure you take a proper look at the charges especially when you see these terms mentioned.

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