This year one in four homeowners will see the value of their home fall so dramatically that it will be worth less than their outstanding mortgage. That’s the stark prediction from the Financial Services Authority. They expect 2 million homeowners and 500,000 buy to let properties to fall into negative equity.

These warnings were released as reports showed that mortgage lending had slumped to an 8 year low. The report from the Council of Mortgage Lenders shows how the UK’s housing market is stagnating as banks hold back mortgage lending despite lower prices and the lowest interest rates for more than a generation.

And at the same time the magazine Which? Warns that 35% of homeowners are worried about repossession. But despite these worries, relatively few homeowners have taken out insurance to cover their mortgage repayments in the event of redundancy. With unemployment predicted to rise by 50% this year to 3 million, surely more should take out this insurance?

And whilst writing about the curse of negative equity, we think it best to clarify one commonly held misconception. If your home is sold for less than its outstanding mortgage, you are still personally liable to repay the shortfall. The lender will chase you for the shortfall money. This applies even if the lender had forced you to accept a “Higher Lending Charge” when you arranged the mortgage.

Higher Lending Charges are in effect an insurance policy owned by the lender, which guarantees to the lender that if the sale proceeds of a property do not fully repay the mortgage, the insurance will repay the shortfall to the lender. You will note that the policy belongs to the lender – it eliminates the risk that the lender will not be repaid. Please note that the policy does not belong to you the person who paid for the insurance.

The hard fact is that if there is a repayment shortfall, you are still legally bound to repay that money to your lender and the lender then forwards that money on to the insurance company which underwrote the Higher Lending Charge policy.

Keeping your money safe seems to be the theme at present – rather than the “borrow and be blowed” culture we’ve become used to.
Some things are worth spending your money on though and department store Debenhams has reported an unprecedented run on … of all things … piggy banks. Sales have rocketed by an amazing150 per cent.

Many people are failing to see the point in keeping their money in the bank, given the abysmal interest rates and are keeping it safely at home instead.

Another turn on the “keep your money under the bed” appeared in the news. There’s a bed firm selling beds with built in safes. Apparently it started a bit of a tongue-in-cheek publicity stunt but there’s been lots of interest.

As far as the piggy-banks go – the top sellers are labelled “Handbag Fund”, “Shoe Fund” and “Shopping Fund”. It seems the women are the savers.
Maybe men just aim higher – there’s still a demand for the “Ferrari Fund”!

From 6 May, Nationwide are planning to impose charges on their credit cards and from 1 June on their debit cards when they’re used abroad.

I’m disappointed about this, I must admit. I’ve always been the one to brag that it doesn’t cost me any commission when I use my card whilst we’re on holiday – wherever we go. When I opened my “Nationwide” account, some years ago, it wasn’t one of the major factors – but it was there none the less. Had I opened that account recently, with the commission-free deal in mind, I would most definitely not be amused.

In actual fact, having read further, it’s not all of “abroad” they’re referring to and there will be no changes if I’m travelling within Europe.

Nationwide are not alone – Saga are another company that make no commission charge within Europe, but do charge on world wide usage of their card. Thomas Cook is making changes from next month, too.

The winners, at present, in offering free-charge card use world-wide, are the Post Office. They don’t charge commission on either their Classic MasterCard or their Platinum MasterCard.

Nationwide say that the credit crisis is to blame. They can no longer absorb the fee which Visa charges them for each transaction.
Another credit crunch victim.

Here’s a nice fresh cheque book, all ready for you to use. No need for a new account – it’s linked to your credit card. Watch out – there’s a catch about.

The vast majority of these cheque books are sent out unsolicited and a third of the people that make use of them do so without checking the charge there will be on them. Typically this is the normal interest rate for your particular card account plus two per cent.

If you’ve been tempted by the “blurb” that comes with the cheque book package, inviting you to swim in clear blue seas, with a deserted beach and palm trees in the background, or that flight to New York to shop ‘til you drop – right up to solving the second car problem – stop and think. You’d hardly use a credit card to pay for debts that are going to take an extended time to pay off – or would you?

Even if you were treating yourself to something that you can pay off in a few months, why use a piece of paper that costs two percent more in interest than the credit card you already have?

As you’ll have gathered, I’m not impressed very much with this expensive way of borrowing. It would be very much better to take out a straightforward loan if you need to borrow money.

So, what to do with these cheque books? Surely you have a paper re-cycling bin? Shred the cheques and bin them. If you find that you need to borrow money, there are far better and more sensible ways to go about it.

Gordon Brown is just a sweet old fashioned man after all! He would like to see a new age of sobriety in British banking and is calling for a return of prudency in old-fashioned High Street banks.

He’d like a return to people saving longer before investing in their first home and an end to low or no deposit mortgages.

“We want to see the reinvention of the traditional savings and mortgage bank in Britain,” wrote Mr Brown in the Observer. He envisages a future where bankers will be the servants, rather than the masters of Britain’s current critically-ill economy. More caution in the mortgage market would reduce the chances of problems in the future, he says.

Well, it may come as a revelation to Mr Brown but there are many thousands of hard working (well they would be if they could find any) and now extremely worried ordinary people who came to this conclusion a long time ago.

His comments were in relation to the UK’s new Banking Act, which gives greater powers of intervention to the Bank of England. The act should enable the Bank to act more speedily to help troubled banks and protect investors. By giving hidden support to stricken banks, the aim is to maintain financial stability.

Not everyone agrees. Critics consider that it will create an air of secrecy around the banking world, which could not be in the consumer’s interest.
Back to the pipe, the slippers and the fairy tales. A “Dad’s Army” style bank could save us all.

Latest figures show that the tax revenue from January’s “big reckoning” is down.

We are told that data shows that “The recession led to a £7bn fall in the amount of tax paid by individuals and businesses in January.”

Public finances are typically boosted by annual tax receipts in January, but these have fallen as unemployment rises and company profits decline.
It’s true that annual tax receipts in January generally boost the public finances, but the fact that these have fallen is nothing to do with the very recent bad news on the financial front. In actual fact the money received by the taxman in January 2009 is from more than 9 months ago and for the tax year April 2007/8. In actual fact this is before anyone admitted to a recession.

Can you even imagine what they’re going to be like NEXT January?

Results of a poll of more than 1,400 people, on behalf of personal finance pfeg, show that British children are more financially aware than their parents were at their age.

It showed that even 10 year olds were using their parent’s debit or credit cards to make purchases on-line. The average age for owning their first mobile phone is just eight and their weekly pocket money now averages 6 pounds and 32 pence.
Contrast this to their parents, who received the equivalent of 3 pounds and 77 pence, but weren’t expected to help out with household chores until they were ten or older.

It seems that today’s youngsters are realising a few facts about the value of money, with seven year olds offering to carry out chores to earn pocket money.

They’re fully conversant with the internet and two out of five children between the ages of seven and 15 were likely to use it to buy computer games, music or books. 40 per cent had bought games and ringtones for their mobiles.

The online survey, carried out by Populus in January, involved 1,435 people, including 546 children aged seven to 15, 676 parents and 759 grandparents in England, Wales and Scotland.

It seems that making financial decisions helps some children to feel more in control of their lives and it’s felt that this will help them to be more responsible with their money and better at managing their finances as they reach the age where it matters and before they get credit cards of their own.

The sun’s shining today. The cold snap may have come to an end. There are signs of life in the garden. Could we forget Lloyds, HSBC and bankers bonus questions for a while and look back at how things used to be?

There seems to be some better news and the hint of hope that the property market is improving. Asking prices were up in the four weeks up to February 7th by 1.2 per cent, or just over 2,500 pounds according to one well-known website.

Low interest rates and sellers reducing their prices could tempt buyers back into the property market at what has always been the house hunting time of the year.

This follows the mortgage lender, Halifax, reporting that house prices increased by almost 2 per cent during January and some helpful reports from both the National Association of Estate Agents and the Royal Institution of Chartered Surveyors that there was more interest from would-be buyers.

For sellers, this is good news. They’re not necessarily looking for increases in values; just a buyer would be the answer to their prayers.
Maybe the record low interest rates and recent price falls are winkling out the buyers. Let’s hope so, it’s surely time to get moving again. Literally.

It goes back years. First of all, it was convenient. They had a branch in a large supermarket near to where we lived. With the coming of the debit card and eventually on-line banking it became irrelevant where the actual bank was situated.

It’s been a good relationship really. Until now. Everything’s changed due to a break in at our village supermarket. The thieves broke in and stole the in-store cash machine. I went in to use the cash point and there it was – gone. In its place was a large stack of family packs of crisps. Not to worry, it would be replaced – or wouldn’t it?

A day or so later my husband needed to speak to a customer accounts adviser at the same bank (they don’t seem to have bank clerks any more) and mentioned the problem– she assured him that to their knowledge the cash point was still there, in store.

We looked. It wasn’t there and still isn’t. I miss it being in its place in a well lit store which opens until late every single night. The girl at the till says it might come back, but probably not.

And the point of all this?

The Office of Fair Trading report into personal current accounts says that only 6 per cent of bank customers switched accounts in the past year, even though they could probably find accounts at other banks that are better suited to their needs and possibly would charge them less.
At the same time, it’s estimated that around twenty per cent of energy customers changed providers in one 12 month period. Mind you, I did that once, and never again.

The general view is that customer inertia is the main reason behind customers staying put - with some staying at the same bank where they opened their first account.

Maybe the time has come to shop around?

The bidding started at just 5,000 pounds and rose to 9,000 before the hammer fell on an end of terrace house in Teesside.

A house for just 9,000 pounds clearly has to be a bargain, although admittedly it’s in a rundown state and slightly lacking in a roof. However the estate agent reckoned the house should be renovated for around 27,000 pounds and have a finished value of somewhere around 45,000 pounds.

Properties in the North East don’t appear to have fallen too sharply recently, so the state of the economy doesn’t seem to be blamed for the low price – rather the lack of roof!

As for the rest of the UK, it’s reported that the average cost of a house is now 25 per cent lower than a year ago – standing at 180,000 pounds.

Do you remember the far-off days when Gordon Brown the Chancellor promised us an end to the days of “Boom and Bust”, with talks of prudence and a brighter future for the families of Britain? The days when you could look forward to keeping your job, buying that new car and enjoying your well-earned leisure.

Gordon Brown the Prime Minister now sings a different tune. Things are worse than he thought and he “didn’t see it coming”. He’s referring to a recession that could be the worse since the 1930’s.

It seems that even our Polish workers are deserting us and leaving Britain’s recession behind. It’s reported that they are returning to Poland, where their treasury minister believes they are safe from recession. The opinion is that Poland should avoid a recession due to the fact that their banks are “strongly regulated”.

Let us hope that the latest plans of The Brown Government do something to ease the situation and give us something to build on. In the meantime all eyes are on Gordon the Magician as we wait for him to pull something from his hat.

It’s a lovely morning – if you’re sitting inside looking out at the sunshine – otherwise it’s still a bit chilly out there.

What a super day to be up in the Lake District, where there’s an interesting property coming under the auctioneers hammer soon. The starting price is 145,000 pounds but don’t expect to move in just yet. The property is a farmhouse has been unoccupied for several years but it idyllically situated along a dirt track and a couple of miles to the nearest public road.

It may be a bit tumbledown but it has an impressive name – Sleddale Hall, and it’s near Shap, in Cumbria. The farmhouse was used in the film Withnail and I, which starred Richard E Grant and Paul McGann and in the film the property was known as Uncle Monty’s Cottage.

The farmhouse has, as the estate agents like to put it, “many original features” and it sounds as though it’s all ready to make a really lovely family home for someone looking for a restoration project.

The agents are Savills and the auction is in Mid February – just in time to appreciate the snowdrops and daffodils in that lovely part of the country.

There’s not a great deal of good news for us today – and amongst the bad bits we learn that it’s expected that more than 600,000 UK jobs could be lost during 2009.

If you’re lucky enough to keep your job, it’s probably too much to expect a rise and the British Chambers of Commerce says companies are in “survival mode”. In actual fact, many companies are putting their workers on to a shorter working week to preserve jobs and retain skills.
Looking at the rest of the news there’s “Freak Weather hits Australia”, “Meteor Strikes Across Sweden” and a second meteor strike over in the USA. Not to mention the inauguration of their new President Barack Obama- this must be doing much to raise the spirits of the USA people. A report says that around 70 per cent of them think that Obama is going to be a great president and have confidence in him to lead them out of the bad times.

Just a glimmer of ever so slightly better news, depending how you look at it – we learn that the Council Tax payers of England are facing a lower rate rise this year. Still a rise, though. The Local Government Association said that councils were doing their best to hold down tax increases at a time of economic hardship. The opposition were not too impressed and described the rise as a “kick in the teeth” for families and pensioners at this really awful time for them.

The conservatives have criticised business minister Baroness Vadera for her comments, which she made to ITV, regarding her claim that she could see “a few green shoots” of economic recovery.

Business minister Baroness Vadera has denied she is out of touch after claiming she could see “a few green shoots” of economic recovery. She went on to say “Is this a positive straw in the wind, or should we say one swallow doesn’t make a summer? It’s too early to say.”

Now I’m all for being positive and offering encouragement, but maybe these remarks were not the most sensitive due to the fact that they were made as the job loss figures in the UK sounded like the football scores being read out. A slump in the price of shares of virtually 5 per cent didn’t do a great deal for everyone’s spirits, either.

Later the Baroness defended herself, saying she had been referring to improvements in the credit market, where one particular large company had just been successful in raising hundreds of millions of pounds. The fact that this was fresh in her mind seemed to raise her spirits – and is this a sin, at such a miserable time? It just could be, to the thousands of people who’d just heard that their jobs had been lost.

We await the good news, in the belief that it’s just around the corner - albeit a very long one. But as every gardener knows only too well, the earliest green shoots can be attacked by the frost, before they re-appear as the green leaves of summer – or not, as the case may be.

The Credit Crunch is taking its certainly taking its toll. Grown-up YTS schemes apart, (we shall see!) Stern warnings to the banks and even zero percent interest rates with all the dire warning of that eventuality are not exactly brightening the winter days.

It’s the season for your in-box to be inundated with holiday information. It’s all very well making the announcement that the family will holiday at home this year but when it comes to it, can you honestly say you meant it?

Lots of people will have no choice – shorter hours and less pay are being accepted as the price many have to pay for the hope of a job at the end of the day. For others, there are corners to cut. Why not exchange a fortnight in Florida, with a few hundred pounds “ticket money” for the privilege of queuing in the sunshine for a ride that lasts a couple of minutes for a less stressful break in one of the Spanish Costa’s maybe. The kids may even learn to amuse themselves with sandcastles and sea. Shorter travel times, too.

One thing that’s more important than ever this year is your travel insurance. Don’t ever think about a holiday abroad unless you have this in place. It’s just not worth it.

Do they do insurance against the Darling/Brown effect, I wonder? Or is it counted as an Act of God?

Just when we thought we’d got away with it, it’s finally happened. We are being told to recycle and risk a fine of something like 1000 pounds if we fail to do it, apparently. There was a notice attached to our wheelie bin this very morning. It’s official.

Not that I personally have anything against it. I’ve long thought it’s a good idea for other people, but when it comes to it – I haven’t a clue. I’ve been really good about going along to our local station car park and happily tipping bottles into appropriately marked bins. I’ve saved newspapers for the boy scouts, helping them to make money – but apparently no one wants them any more. (Newspapers that is – I don’t think boy scouts are endangered species yet).

Cardboard boxes in theory go to the tip, but in actual fact the other half has a thing about “what if we need to take something back – we’ll need the box” so they’re taking up valuable shed room. We’ve composted too – although it never seems to break down quite how it’s supposed to.
So – it’s finally come to it – just at the same time as we hear that there’s a glut of waste and they don’t know where to put it. But can anyone tell me – if there’s a cardboard tube with a metal top and bottom – do I separate it or treat it as one or the other? If I chop my finger off washing out a corned beef can, will my household policy cover?

And where shall we put this multiplicity of containers, I ask. Don’t tempt me!

Todays’ historic Mortgage Rate cut has taken the Uk mortgage base rate to 1.5%

But will it have any effect on us the little people I hear you ask.

Many industry experts expect the todays cut to have very little - if any - effect at all on mortgage borrowing.

This is for two reasons.

1) Mortgage rates are so close to the level that mortgage lenders can effectively lend the money and still make a profit. This means that many mortgage lenders still have not passed on the previous rate cuts and there is little evident to suggest that this will change.

2) House price is still VERY high and with lenders demanding a much higher deposit ( upto 25% for the cheaper deals ) many first time buyers simply cannot affoard the depost. Even some remortgagers are now in a sticky wicked with many dropping into negative equity with their fixed rate deal finishing.

Finally I read in the paper Gordon is considering following Mugabe’s lead in fiscal management.

Good work Gordon.

More updates to follow as the news breaks

TTFN

BB

The list of companies forced into administration or going to the government with a begging bowl continues.

Today it has been announced in the news Jaguar and Landrover have gone to the government for a bailout to save its 15,000 jobs.

At the same time Savills, the upmarket estate agent, has give a sever profit warning.

Royal Worcester has been forced into administration.

Yesterday the fate of Woolworth’s was decided with an announcement that the high street giant would be closing the doors of its stores by the 5th of January.

Unfortunately this is likely to continue with more institutional companies closing their doors over the coming months.

Cheers,

BB

Figures released today show that amount of people claiming benefit in the UK has risen beyond 1 million.

The total number now on state benefits is 1,072,000 and is the highest since 2001. This is particularly worrying because unemployment usually occurs a significantly longer time after a country enters recession. This in turn indicates that the recession could be much more sever and longer lasting than experts had previously been forecasting.

*GROAN*

The recession continues to be strengthened by poor decision making by the Bank of England.

The 1% rate cut announced in early December was actually almost a more significant cut. The minutes show that many in the committee felt a larger cut maybe necessary to slow the recession down. In the end a 1% cut was settled on and when the minutes of the meeting were made public (yesterday according my sources) the pound fell sharply against the Euro.

At the same time rate setters in the US cut th interest rate down to 0% in a much more decisive move.

Gordon Brown won international acclaim for his bank bailout strategy, however since that point to me it seems that the international community has been less than positive about the UK’s handling of economic strategy.

Cheers,

BB

The economy is shrinking at a speed not seen since the 1980’s crash.

It appears that we are fast approaching a DEPRESSION rather than a RECESSION.

A depression is a sustained period of reduced GDP a recession is a reduction in a countries GDP.

For the most part this is due to reduced spending caused by low consumer confidence and the lack of availablity of credit to fund spending.

The government has tried to remedy this by increasing government spending and by lending the banks money.

However with the banks still not increasing their lending and the interest rates still not being passed on to the customers by the banks the governments efforts so far have had a negliable effect.

Over the month of December we are not likely to see any improvement.

We need to look to January for a recovery.

Merry Chrtistmas

BB

More info on the shrinking of the UK ecomomy can be found below.

UK economy shrinks by 1% in 12 weeks

The UK economy shrank by 1% in the three months to November as the pace of the downturn quickened, a leading think-tank warned today.

The National Institute of Economic and Social Research (NIESR) said “there was every reason to believe” the figure would be worse for the last three months of the year.

In a further sign of the deepening economic woe gripping the country, the organisation also revised its output contraction for the three months to October to 0.8%, from 0.5%.

The figures “make clear that the rate of output decline is accelerating”, NIESR said.

Latest official UK data showed the economy shrank 0.5% between July and September — the first contraction for 16 years.

Initial estimates for how output during the three months to December has fared are due out from the Office for National Statistics (ONS) next month, but they are widely expected to show that the UK is officially in recession.

NIESR — which is one of Britain’s largest independent economic research bodies — said the reduced availability of bank lending was the main problem for policymakers to address.

It said: “The Government faces the real risk that, despite the measures it took in last month’s Pre-Budget Report, output will fall more sharply than it expected to the end of next year.

“The main problem it needs to address very urgently is the availability of bank credit.”

The Bank of England has slashed interest rates by 2.5% in two months in the battle to stave off a deep UK recession.

The Government has also provided billions of pounds of funding to the UK’s banking sector to boost lending to homebuyers and small businesses.

It is being paid for by increased Government borrowing. The Chancellor, Alistair Darling, was due today to face a grilling from MPs over his plans.

The NIESR report follows data from the ONS which showed that UK manufacturing’s biggest slump in almost 30 years had deepened.

The ONS said that in October, output had fallen more heavily than expected, by 1.4%.

The dire performance represents the eighth successive month of decline in the worst run since 1980.

This leaves annual output 4.9% down after September’s figures were also revised lower.

Overall industrial production, which also includes the mining and utility sectors, fell 1.7% between September and October, at the peak of the crisis in the banking sector.

Paul Dales, of Capital Economics, said “activity all but fell off a cliff” at the start of the final quarter of 2008.