It seems that the energy companies are stuffing millions of pounds into their deposit accounts by fixing our direct debit payments too high.

According to the consumer magazine Which?, 70% of account holders are in credit with their electricity and gas providers. As a result the energy companies are sitting on a pile of cash which you and I own! And they don’t pay us interest on our credit balances – but you can bet your bottom dollar that they are receiving interest on their cash mountain.

Energy companies are supposed to calculate our direct debit payments on an estimate of our annual consumption and divide that by twelve. But the power industry doesn’t seem too good at maths! Which? Found that 20% of us who are in credit were owed more than £100 and 10% were owed more than £200. This has led to complaints that clients are being ripped off.

This anger about over payments has been increased because of the failure of power companies to pass on the full benefit of a 50% fall in the cost of wholesale energy prices since last summer.

As you might have guessed, the Energy Retailers Association has denied a charge of profiteering by over-charging through direct debits. Nevertheless, the industry’s regulator Ofgem, has taken an interest. It has launched an investigation following complaints by MP’s and consumer groups.

Bur wheels grind exceedingly slow. The energy companies are in no hurry to sort this out and I doubt whether Ofgem will get up early to investigate. After all who heard of a quasi-government department getting their skates on?

You’ve probably heard of Bernie Madoff the guy who pleaded guilty to defrauding investors out of a cool £45 BILLION in the world’s largest ever investment scam.

Well it seems as if someone has just made money out of Madoff!

Ralph Amendolaro, aged 50, a building worker from New York used the scammers prison number to enter a US lottery and won £1,030 for a £2 ticket.

Commenting on his winnings, Ralph said, “Well I suppose someone had to get lucky with him!”

He’s now planning to blow his winnings on a trip to Las Vegas for his wife’s 50th birthday. “Put it this way” he said, “I’m not going to invest it. Hopefully it will turn into more money in Las Vegas.”

Well a gamble in Las Vegas has to be better than an investment in a Madoff Hedge Fund!

The report from Lord Turner about how he proposes the Financial Services Authority should change the way it polices financial services, says much about the mortgage market.

His main two points were that mortgage lenders must reduce the amount they lend relative to the value of the property and also relative to the borrowers income. Sounds like good sense? Yes, but we all now know his advice comes with hindsight and too late.

Thanks to lax regulation in the past, we have arrived at a crisis situation where mortgage lenders are over re-acting. Thousands and thousands of families cannot remortgage because the lenders have ferociously cut back their lending. In almost one bound, we have gone from a situation where lending was handed out like sweets to one where even the most financially solid households cannot find a mortgage.

The have been times before when first time buyers have experienced difficulties funding their home – but never as bad as now. Unless a prospective borrower has a big salary or a huge deposit, or both, then they simply don’t stand a chance of owning their own home.

So you do not have to be a genius to work out what is flushing the housing market down the drain. Without a working mortgage market there will be no housing market and house prices will continue to spiral down. That could spell disaster for the whole UK economy.

House prices could fall a long way from where we are now and we are already 25% off the top of the market experienced in late summer 2007. Are we talking about another 25%? If you ask me, we could be talking about 40-50% unless the Chancellor gets confidence back into the capital markets and a more liquid mortgage market develops.

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.

The American’s House of Representatives has overwhelmingly voted for a Bill to impose a 90% tax rate on excessive bonuses paid to executives of companies that receive Government bail out money.

If the Bill passes through the Senate, the new tax will apply to executives paid more than $250,000 working for any company that received at least $5 billion from the US Government.

The Speaker of the House said, “We want our money back and we want our money back for the taxpayer”.

Despite all the criticism in the UK of excessive bonuses paid to employees at the banks bailed out by the UK taxpayer (and we are sure some insurance companies and car manufacturers will follow), we haven’t heard of one constructive action to do something concrete about it. After all these companies would have gone to the wall without multi-multi millions from us, the UK taxpayer. And if the companies had gone bust the employees would have had to whistle for their bonuses. Puff, blown into thin air!

So Gordon Brown, what are you going to do to recover those obscene bonuses that are an affront to the UK’s man in the street?

Hello Gordon, ……. hello ……….. hello …….. is anyone there?

Credit cards with no transfer fees and low follow up interest rates have become a very popular option amongst credit card buffs. These cards typically charge interest rate at 6.5% on the balances transferred from rival cards.

I think the best deal like this currently on offer is Barclaycards Long Term Balance Transfer (6.5%). This interest rate is lower than any overdraft or loan rate you’ll find. The credit card also provides you with far more flexibility regarding repayments, allowing you to repay the money in broadly your own time. For the first 10 months any purchases are interest free but thereafter, new purchases attract interest at 16.9% and your balances at this higher interest rate will not be repaid until your 6.5% balances have been repaid.

Also of interest is Citibank’s Life of Balance Mastercard. This has a low life of balance rate of 6.9% but there is also a transfer fee of 2.5%.

Abbey and Virgin Money still offer the best interest free deal. Both these deals last 15 months. Abbey charges a transfer fee of 2.98% and Virgins transfer fee is 3%.

Oh, by the way, unless your credit is perfect, don’t bother applying for any of these cards – you’ll stand no chance!

The cost of insurance which will provide a monthly income in the event that the policyholder is made redundant or becomes sick or has an accident is soaring. Of course it’s not because more people are becoming sick or having accidents – it’s because unemployment in the UK is now forecast the rise to 3 million by the end of 2009.

Insurance companies are now running away from the increased business risks in these types of policy by either withdrawing from the income protection market or charging steeply higher premiums. And some insurers are introducing new policy conditions which make it more difficult for the policyholder to make a valid claim.

If you are thinking about income protection insurance, especially if you want insurance that will pay your mortgage if you are out of work, then you must start the policy before you are aware of any threat to your job - otherwise your cover will be automatically invalidated.

And we have seen on this web site a big increase in visitors searching for Mortgage Payment Protection Insurance and Income Protection insurance.

Through this site a 35 year old man or woman can get cover for £1,000 a month payable for up to 12 months for a premium of £40 a month. It’s the same price for both Mortgage Payment Protection Insurance and Income Protection insurance. A similar policy with Abbey Payment Care would cost £60.

With unemployment forecast to surge and mortgage lenders predicting that there will be 75,000 home repossessions in 2009 (that’s three times the number in 2007), we think it’s time to get insured before it’s too late!

For further information about Mortgage Payment Protection Insurance click on this link https://www.life-assurance-bureau.co.uk/mortgage-payment-protection/

For information about Income Protection Policies use this link https://www.life-assurance-bureau.co.uk/income-protection/

Also see what the Financial Services Authority says about Payment Protection Insurance by following this link: https://www.moneymadeclear.fsa.gov.uk/news/product/ppi/payment_protection_insurance.html

If you take the average deposit being demanded of first time house buyers and add to that the cost of paying the first years’ mortgage repayments, then the result works out at 111% of the borrowers’ average salary. A year ago, the figure was 61% and even that was a lot higher than the long term average of 38%.

This huge burden is the result of the mortgage lenders demanding much higher deposits. On average lenders are demanding deposits of 24% of the purchase price of the property. So on average house price of £128,000 this means a deposit of around £30,000.

And once the first years mortgage payments are added in, the total is more than the average first time buyers’ gross annual income of £33,000. It is true that once you have one, mortgages are cheaper because both interest rates have fallen and house prices are down 20%. However, the increased deposits mean that only those who have been saving for years will be able to start on the housing ladder.

This must increase the popularity of shared equity deals where the first time buyer buys a percentage of the house and the developer or finance house, owns the remaining percentage of the house. In most of these schemes, the “owner” has the right to increase the percentage of the house they own by buying more of the house as their finances allow.

For others, the only option is renting a house or an extended stay with relatives.

As far back as 2002 the financial regulator was warned about the Payment Protection Insurance (PPI) racket being operated by financial services companies and the banks in particular. But it has taken an investigation by the Competition Commission into the £4 billion per year market to come up with new rules about how the insurance should be sold.

From May this year, the sale of single premium insurance policies on unsecured loans will be halted. And from October 2010 no lender will be able to sell this type of insurance at the same time as selling a loan or credit card. For years these policies have been sold and the cost of the insurance added to the initial loan taken out. This has meant that the borrower has paid interest not only on the loan itself but also the entire cost of the insurance.

But the biggest problem has been that these policies have numerous “exclusions” which invalidate claims in specified circumstances. The problem is that hitherto many policies have been sold to people who would never be able to claim by virtue of the type of their employment. This means they may have spent thousands on worthless insurance. No wonder the Financial Ombudsman is being kept busy.

The new rules say that PPI can be sold but lenders will have to wait 7 days before approaching the borrower to take out PPI although if the customer requests for cover, it can then be sold 24 hours after the loan has been put in place.

The purpose of these delays is to avoid the borrower from being pressurised at point of loan sale to take the insurance and thereby allow the borrower time to search the market for a competitive quote. The changes will also make the variety of PPI which operates on a renewable monthly premium far more popular. And this, in our view, is as it should be.

You will therefore not be surprised to learn that Brokers Online only promotes renewable monthly premium Payment Protection Insurance with a policy which is organised by British Insurance, one of the market leaders.

Saga has written to 230,000 of its customers who hold a Saga credit card telling them that if they don’t have an income of at least £12,000 a year, their credit card will be cancelled.

For some time now Saga, the company which sells exclusively to the over 50’s, has promoted a Saga credit card to its clients. For some years now Saga’s card has been operated for Saga by Liverpool Victoria, the company that’s better known as an insurance company. But LV has decided to withdraw from the credit card market, presumably as a bi-product of the credit crunch.

Saga’s credit card is now operated by Allied Irish Bank and the bank has set a minimum annual income criteria of £12,000. This means that the thousands of Saga credit card holders living on modest incomes will have to face losing their credit card.

This will not be well received by them. Indeed, my Aunt, one of those affected, is most irate. She thought Saga were on the side of the elderly so to be forced to relinquish her credit card is most galling for her.

A spokesperson from Saga said, ”In the current financial environment credit card firms have to be sure that the people to whom they extend credit are able to pay it back. Different lenders adopt different lending criteria.”

My Aunt is less than impressed …………….

Recently Norwich Union has written to all its clients on its Hospital Cash Insurance Plan telling them that they are lowering the upper age limit from 71 to 65. This has lead to a storm of protest. But consider the facts.

The Hospital Cash Insurance Plan provides cover of up to £50 per day if the policyholder is hospitalised due to an accident and £25 if hospitalisation is due to illness. In this plan all policyholders are charged the same premium irrespective of their age. The problem has been that someone in the 65 to 71 age group is six and a half times more likely to be hospitalised than someone who is 35. That inevitably means that as everyone in the scheme pays the same premium, the younger members must be subsidising the older ones.

Norwich Union says that if they had not made the decision to reduce the upper age limit, then premiums across the whole scheme would have increased. As it is, with this change, premiums remain at their current level.

Some commentators have claimed that this is age discrimination. But is it? Surely it is a commercial decision which benefits the majority of people in the scheme who are under 65. Without the age change, they would be faced with paying more.

This highlights the issues involved in the Governments Equalities Bill which is currently being pushed through. As its name implies, this Bill is trying to outlaw discrimination but the insurance industry is trying to resist the Bill. It would seem that one of the results of the Bill would be that under the proposed law, insurers would be banned from using age as a basis for pricing insurance. As the Association of British Insurers point out, age is a relevant risk factor that insurance underwriters should be able to take into account when pricing a policy.

If this Bill goes ahead, I wonder how it will affect the pricing of life insurance policies? If anyone out there knows, please let me know.

We’ve always been told that the whole purpose of speed cameras is to reduce road accidents and injuries. But evidence released recently proves that simply is not true!

Witness the Gatso speed camera on the M11 at its junction with the North Circular near Woodford, Essex. That camera is reported to catch up to 3,500 a week, generating over £1 million per year in fines. A good little earner!

And what has happened to accidents? They’ve risen! Casualties at the location have virtually doubled and accidents have risen by a quarter. Police believe that crashes have increased because motorists are slowing down anticipating the camera and then accelerating once they have passed it. (Now who would believe that drivers would do that?)

If you are arguing the case for speed cameras on the sole basis of safety, then the experience o the North Circular debunks your argument. Roads would be safer without them. Well at least on faster roads which allow motorists to significantly slow down and then accelerate.

Bearing in mind that this M11 camera is the most profitable in the UK, does anyone want to have a bet with me that it will be removed to increase road safety?

I rest my case.

If you are considering re-mortgaging you may be in for a shock. Low interest rates are now only available to people whose mortgages represent less than 60% of the value of the property. But as property prices continue to fall, the percentage of the property’s value taken up by the mortgage inevitably rises.

The problem is that homeowners may not realise that the falling value of their property has pushed them into a higher loan-to-value category (LTV). This can really push up the interest rate you’ll be offered when you re-mortgage. Take the Halifax for example. If your LTV is less than 60% then the interest rate you’ll be offered is 4.69%. Between 60 and 75% LTV the rate rises to 5.02% and from 75 to 85% it’s 6.09%. At 85 to 90% LTV you’ll pay 7.09%.

If you’re having your home re-valued, be sure to make the valuer aware of anything which may push up the value of your home in comparison with other properties in your locality. And if you have savings, you should also consider using some of that money to reduce the size of the mortgage you need. If you’re lucky, that money could drop you down into a lower LTV band and into a lower interest rate. That would save you quite a lot of money.

So if your mortgage deal is coming to the end of its offer period, check out the position a.s.a.p. In our view, property prices will continue to fall for some time yet, so the later you get a valuation, the lower the valuation will be.

But the end of a special period is no cause or panic. At the end of the special deal period, most lenders will automatically switch their borrowers onto their Standard Variable Rate (SVR). Since many SVR’s are now down to 3% or so, that in itself can be a good deal.

Our advice is check it out a.s.a.p. but don’t panic!

In my last blog I talked about the bonus culture. Today I want to talk about corporate risk taking.

All businesses take risks. Risks are an inherent part of company development whether it be should they offer a client more credit, whether they should change a product formulation or whether they should expand the business. In the end risk and risk assessment is a fundamental function of senior management and the Board of Directors in particular.

Three fundamental questions emerge from that. To control risk, management has firstly to identify the risk, secondly assess the level of risk and finally make a decision as to whether it is in the company’s best interests to accept, or reject, that level of risk.

So where did the Banks get it wrong? It seems that some managers within the banks did identify the risk and were able to assess the risk as high. It would seem that those above them either rejected their risk assessment or simply went ahead irrespective knowing the risks. The suspicion is that as the toxic investments had “performed well” before they imploded, the Directors were seduced by the illusion of profit and, I suspect, the actuality of their blooming bonuses. Whether it was company interest or self interest which drove them, the answer for me is the same – they made major errors of judgement and for that they must be dismissed.

Coming out these most expensive mistakes in corporate history, we will undoubtedly see a new raft of management – the Corporate Strategical Risk Assessors. Whether they will be an expensive raft of toothless management or whether they will help steer companies around rapids and waterfalls, depends on the risk culture within the Board of Directors as the Directors remain the people who are responsible for the direction the company takes. If the Corporate Strategical Risk Assessors provide high calibre assessments and the Directors bring that work into their decision making process then all will be well.

Otherwise at some point in the future, we will again see the emergence of the sort of problem the banks fell for.

I’m all for a bonus for a job well done. But the recent debacles in the banking industry beg the question “when is a job well done?”

To me it’s got to reflect the financial benefit to the organisation of the employees work. So if the employee’s work results in a fantastic profit only for the deal to go bad and throw up a loss, should the employee get a bonus for the profit and the company ignore the loss? Common sense says the profits and the losses have to be netted off.

This also implies that people who receive a profits bonus must have the bonus assessed over a period of time which is sufficiently long as to allow the entire transaction to be completed and their worth to the company to be fully evaluated.

Furthermore, a clawback reserve should be with-held from current bonuses to cover against the possibility that the employee’s future activities will make a loss. If this is not done, an employee could simply resign in order to avoid repaying a bonus clawback. And yes, I believe that over paid bonuses must be recoverable!

And this raises another issue. How much bonus should employees receive? Bonuses of £million are hard to justify unless they are a tiny % of the profit created. Employees make profit within an organisation because of the whole organisation’s infrastructure creating the opportunity for the employee to make profits. And don’t forget the organisation’s owners are its shareholders. It seems to me that in the banking industry, senior employees have been feathering their own nests rather than allowing profits to flow through to the owners of the organisation within which they work - and without which they would be powerless to make the profits in the first place.

Who is to blame for this nest feathering? It must be the remuneration committees who decide the bonus levels and the Directors whose job it is to keep a watching brief on the company’s activities – i.e. the Non Executive Directors. And if the Non Executive Directors cannot be trusted to do their jobs, then yes, the industry’s watchdogs which for banks, includes the Financial Services Authority and the Bank of England should have their say.

My comments on risk taking and what is an acceptable level of risk, are for another day ………..

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.

If you’re anything like me, probably not. In fact I may at one time have known what an EHIC card was, but the details have long been forgotten.
They’re the cards given to us by the UK government which entitle us to free medical care within Europe. It seems that over half or us were totally unaware that they had expiry dates – or at least we’d forgotten the fact.

The result of this is that many of us travelling abroad are at risk of healthcare costs should we become ill or have an accident.

It’s important to realise that the EHIC is not meant to be an alternative to travel insurance. It will not cover any private medical healthcare or the cost of repatriation to the UK. What it will provide is access to the same state-provided healthcare as a resident of the country you are visiting
For these reasons and others, it is important to have both an EHIC and a valid private travel insurance policy. Some insurers now insist you hold an EHIC and many will waive the excess if you have one.

Applying for an EHIC card is simple and free and it’s valid for up to five years. You can apply on-line to the NHS or collect an application pack at the post office. For phone enquiries call 0845 606 2030.

The government is keen that everyone should have an up to date EHIC. Check yours now.

Vauxhall have proudly and hopefully introduced a new car at the Geneva car show. They claim that the Ampera, which runs off electricity, could go a long way to fulfilling Gordon Brown’s ambition of making the UK the ‘electric car capital of Europe’.

The car is charged from the mains and stored in a 16 kilowatt lithium-ion battery. An overnight charge from the mains, which will cost just one pound, is sufficient to take you 40 miles using just the battery power.

For longer trips you can achieve a further 260 miles by using the petrol-driven generator which is under the bonnet. Whilst driving on electricity from the battery, there is zero carbon dioxide emission. It is predicted that the Ampera will cost around a fifth the current cost per mile of a comparable petrol-engined car.

Vauxhall has plans to put the car into production at plant in Ellesmere Port, which employs 5,000 staff. They would switch from a short working week to 3 full shifts, 5 days a week.

Vauxhall’s owners, GM, are asking ministers to back a network of plug-in charging points to help the push for electric cars.
Business Secretary Peter Mandelson gave a positive response on a visit to the show, saying he though Ellesmere Port is a brilliant plant, as does GM, and offered assurance that the Government would stand behind it.

Some facts and figures show that the 40 miles of zero carbon driving, at all speeds, is around 10 miles more than 80 per cent of drivers travel in a day.

A full charge from a domestic socket will take 3 hours. Performance is 0-60 in 9 seconds with a top speed of 100mph
This is the vehicle being billed as one which could rescue the British car industry from the brink of disaster. At a cost of 20,000 pounds it’s hoped that it’ll be a leader for electric cars and a saviour for thousands of jobs.

The Ampera is scheduled to go into production this September and should be in the showrooms in 2012.

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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.