‘Young homebuyers choose ‘Bank of Mum & Dad”
June 19, 2007 at 10:40 am
With first time buyers needing ever increasing sums of money to take the first step onto the property ladder, the Council of Mortgage Lenders (CML) has reported that 40 per cent of young home buyers turn to the ‘Bank of Mum & Dad’ for monetary aid, in addition to more commercial financial resources.
The CML found in a new survey that 23 per cent of homeowners had received financial help from their parents, while the number increased to 39 per cent for homeowners aged under 30, and 40 per cent for those who have entered the market since 2004.
According to the newest estimates, parental loans have amounted to more than £2.1 billion over the last decade, with the average loan from parents, as well as friends, coming to £12,188.
With banks and building societies continuing to increase interest rates on loans and mortgages, it comes as no surprise that a growing number of young adults have to turn to their parents for financial support.
The CML survey found that 31 per cent of potential first-time buyers anticipated help from the Bank of Mum & Dad, while 35 per cent expected that they would not be able to buy their first property without it. More than three quarters (76 per cent) of those under 25 said that they would not have been able to buy without help.
Bank of Mum & Dad “getting real”
Although parents and relatives have always provided some degree of financial help, the practice has become much more common lately. However, the money that parents give to their children does not come without strings, and much like a real bank, a growing number of parents are expecting to be paid back.
In fact, research from Scottish Widows Bank suggests that the number of parents expecting repayment has doubled over the last ten years, from one in ten (9 per cent) in 1996, to one in five (18 per cent) in 2006. Over the same period, the number of parents giving away free money has also fallen from 38 per cent to 32 per cent.
The Bank of Mum & Dad does still offer appealing terms to its favoured customers when repayment is required. Of those graduates borrowing money after leaving university, one in six have set themselves no deadline to repay their parents, while one in eight (13 per cent) said that they would not repay their debt until the sale of their first home.
“While it’s good to see that people are getting help from their loved ones, some of these loans might be leaving the Bank of Mum & Dad empty,” commented Richard Clark, head of product development and marketing at Scottish Widows Bank. “Lenders like ourselves offer alternative solutions for graduate first time buyers – and their parents – by offering 100 per cent mortgages and options that allow parents to act as a guarantor.”
But with bank rates continuing to rise, and further base rate hikes expected in the near future, it is likely that young adults will continue to take out loans with the Bank of Mum & Dad, particularly while its deals remain so much more attractive than any of the alternatives.
‘Consumers trusting billions to ‘Biscuit Tin Bank”
June 16, 2007 at 10:39 am
New research from Virgin Money has revealed that British consumers are collectively keeping more than £3.5 billion in cash stashed around their homes instead of in a bank account. That amounts to the price of five new Wembley stadiums or the entire GDP (gross domestic product) of the Bahamas!
Based on forecasts for future inflation and interest, the financial services provider estimates that Brits keeping their money in the “Biscuit Tin Bank” will lose around £200 million worth of purchasing power by 2010. Furthermore, by keeping their money at home, Brits are losing more than £174 million in interest payments every year (the equivalent of a yearly salary for 6,600 full time nurses).
If this money was put into mini cash ISAs, Virgin Money estimates that the interest payments would reach £887 million after five years, based on current market expectations. If Brits had invested £3.5 billion in the top ten stocks currently available, they would have made a total capital gain of £2.6 billion, enough for three new Wembley stadiums.
According Virgin Money’s survey, one in six Brits admitted to keeping money in the “Biscuit Tin Bank”, rather than putting it in the bank, with 15 per cent of those admitting to keeping £1,000 at home and 2 per cent keeping up to £5,000.
People stashed their cash in a number of interesting places, including under the floorboards, the mattress and even inside the fridge. The research indicated that 6 per cent were hiding money from their partners, while 4 per cent just didn’t trust their banks and 1 per cent were hiding their extra funds from the tax collector.
“Keeping cash at home is not wise,” said Dr Alexander Koch, financial economist at Royal Holloway University, and lead researcher on the study. “The British are throwing away the opportunity to easily earn several hundreds of million pounds over a few years.”
John Franklin, of Virgin Money, said: “If your biscuit tin is packed with cash, not custard creams, it’s the right time of the year to think about investing your money.”
Consumer confidence low
Taking into account the findings of a recent survey into consumer confidence in the “Big 5” banks (HSBC, Barclays, Lloyds TSB, Royal Bank of Scotland, HBOS), it is perhaps not so surprising that people are keeping their cash at home.
The survey, conducted by Fool.co.uk found that two-thirds of customers with the “Big 5” do not trust their banks to have their best interests in mind, while one in six people claimed that money had gone missing from their accounts at some time.
Barclays was the least trusted, with three-quarters of its customers dubious about the bank’s intentions when selling them products, while HSBC was the most trusted. One in five customers said they had lost money with Barclays, compared to one in six with HBOS (Halifax and Bank of Scotland) and one in seven with HSBC, Royal Bank of Scotland and Lloyds TSB.
“The research suggests that consumer confidence in the “Big 5″ banks has plumbed to levels that are clearly unacceptable,” said David Kuo, head of personal finance at Fool.co.uk.
‘Ethical Banking – what is it, who offers it and does it cost more?’
June 13, 2007 at 10:33 am
Last year, the subject of ethical banking came up over dinner with friends, and apart from one of us (a banker) we all had to admit that we had either never heard of it or were ill -informed about it to say the least. Now, it seems we have all developed a social conscience, because in the last few months, everywhere I look, I seem to read about it.
What is it?
It may not be immediately obvious but the policies of our banks and building societies have a real impact on our community. They can be supporting activities with our money that we as individuals find objectionable: everything from the arms trade, despotic regimes with poor human rights records and child exploitation, to name but a few. Some banks have woken up to the fact that their customers want them to act ethically and, in many instances, be environmentally friendly and have come up with policies to address the problem.
Who offers it?
The Triodos Bank was set up in Holland in 1980 and has branches in the UK and Belgium. It offers similar services to other banks but only lends to organisations involved in sustainable development such as solar and wind energy, organic agriculture and projects in the developing world.
The Ecology Building Society was set up in 1981 and tries to improve the environment by promoting sustainable housing and sustainable communities. It provides mortgages for energy efficient housing, ecological renovation and derelict and dilapidated properties.
The Co-operative Bank began way back in 1872 but in 1991 started an ethical policy whereby it will not lend to companies involved in the arms trade or those who violate human rights.
The Charity Bank was set up by Gordon Brown in 2002 and its sole purpose is to accept deposits in order to make affordable loans for charitable purposes. It will often lend to organisations which have been refused by banks and building societies or where they have been made an offer with unaffordable terms. Investors can choose to donate their interest direct to charity.
Other banks are trying to prove their green credentials to clients too. Giraffe, for instance, has recently brought out a “green” mortgage at 0.11% higher than its standard 3 year fixed rate deal. It will offset 5.5 tonnes worth of carbon emissions for each year of the deal.
Ethical investment funds are also big business with one of them topping the performance charts for the first time in the year ended 31 Jan 2007. The Co-operative Insurance Sustainable Leaders Trust, which buys shares only in ethical and green companies, outperformed all other unit trusts in the UK All Companies Sector.
Does it have to cost more?
With changing interest rates and new products being introduced all the time it would be impossible to explore each and every one available to see how it compares to the standard product but it is probably fair to say that we have to pay a small premium for our social conscience. In a recent survey by Which? Money, 40% of us said that we would be happy to do so if it meant that our banks invested more ethically and for 45% of us that is the most important factor when choosing a bank. It does not however, have to be more expensive. Smile, the internet sector of the Co-operative bank offers highly competitive interest rates and have been voted Best Online Banking Provider for the last five years consecutively.
‘Consumer borrowing rates ‘begin to slow”
June 4, 2007 at 10:58 am
Figures published by the British Bankers’ Association (BBA) for April indicate that consumer borrowing demand is beginning to decelerate in the face of higher interest rates.
Total lending to UK consumers rose by an underlying £9.1 billion (0.7 per cent) to £1,307 billion in April. This was the second month in a row that the rise was below the previous six month average increase of £11.4 billion, signifying that three previous rate hikes and the fear of future rises (at least one of which occurred in May) started to have an effect on consumers.
The underlying rise in net mortgage lending (£5.0 billion) was slightly less than that of last month and the previous six month average (£5.4 billion), while unsecured personal borrowing levels remained unchanged, and underlying credit card borrowing fell by £143 million (after seasonal adjustment) to £6,767 million.
David Dooks, director of statistics at the BBA, explained: “Lower mortgage demand, weaker deposit growth and little change in personal loans or credit card borrowing all point to people paying more attention to their finances. High house prices and increasing monthly repayment costs are causing a slow down in the mortgage market and people are using money from their accounts instead of borrowing to meet their spending needs.”
“The picture from approvals points to mortgage demand weakening further as the year progresses and the cumulative effect of higher interest rates bites harder,” he continued. “Another net repayment on credit cards means that repayments have exceeded cardholders’ spending in ten of the last twelve months, as they continue to run down their credit card borrowing.”
Meanwhile, the Council of Mortgage Lenders (CML) reported that mortgage lending fell by nine per cent from £31.7 billion in March to £28.8 billion in April. Although mortgage lending remained high (this is the highest April figure on record, 18 per cent higher than last year), the CML claimed that it was beginning to stabilise, and that seasonally adjusted figures would portray a stable market so far in 2007.
CML director general, Michael Coogan, commented: “With higher interest rates now beginning to have an impact, the modest slowing in activity that we have been expecting over the rest of the year looks set to materialise.”
Despite the fact that some financial analysts predict that rates could hit six per cent before the year’s end, he said that he expected lending in 2007 to be around four to five per cent higher than in 2006.
‘Fund set up as customers lose bank charges case’
June 1, 2007 at 11:23 am
Lloyds TSB has this month won two County Court cases against customers trying to recoup excessive bank charges. The first unsuccessful claimant was a builder in Lancaster who on May 11th was deemed not to have submitted an adequate claim. The second case, four days later, in Birmingham, turned on a lack of evidence. According to consumer groups, both cases demonstrate the need for claimants to ensure that their paperwork is a hundred percent correct. Despite the victories, Lloyds TSB is still settling some cases out of court.
Meanwhile the Alliance and Leicester bank has apologised to customers who have received a letter from their lawyers using the Lloyds ruling as a means to dissuade people from pursuing their cases, despite the fact that the rulings are not binding. References are made in the letter to the possibility of accounts being closed if clients do not accept the sums being proffered in settlement. Earlier this year the bank was criticised by the Financial Ombudsman for closing the accounts of rebel customers. Other banks using the Lloyds ruling include the Abbey, Yorkshire and Clydesdale banks. Campaigners are encouraging people to continue their fight while the Office of Fair Trading investigates claims that the true cost of bouncing a cheque or standing order is under £2, compared with the charge of up to £38 made by some banks. More than 3 million people have downloaded specimen letters from websites and the ombudsman is handling a thousand cases each week.
The good news for claimants is that a fighting fund of £100,000 has been set up to assist customers with cases which are likely to produce a legal precedent. The funds have been pledged by the website MoneySavingExpert.com, the Consumer Action Group and a number of private individuals. It will be held in trust by a Glasgow-based charity, Govan Law Centre, which has already assisted a million customers with their claims against the banks.
