‘British motorists ‘driving in the dark’ overseas’
July 26, 2007 at 12:54 pm
British holidaymakers are ‘driving in the dark’ when they travel abroad by car, with as many as two thirds (68 per cent) having no idea whether they are covered by their car insurance provider or not.
That is according to independent price comparison website uSwitch.com, which reported recently that one in ten (2.5 million) drivers wrongly assume that they are covered by their travel insurance for any motoring related mishaps they may have abroad, when in fact, they are not.
The website warned motorists that under European Union laws, providers are only required to offer third party insurance. This leaves many drivers covered for damage they cause to another vehicle or driver, but unprotected when it comes to theft, accidental damage to their own car or any injuries they may sustain while at the wheel.
Aron Thompson, head of insurance at uSwitch.com, said: “This is a major issue for holiday makers as they can end up facing an unpaid claim if they drive their car abroad without getting their insurance lined up properly beforehand. This is a classic case of ‘know before you go’.
“Many providers demand extra payment from drivers to take out insurance for overseas use,” he continued. “Even if a policy does extend to cover driving abroad, motorists need to be aware that insurers often limit the number of days that a car can be driven abroad in any one year, and that sometimes you cannot use this allowance in one go – you have to return to the UK in-between.”
Studies carried out by independent bodies, like comparison website MoneyExpert.com, indicate that more than one quarter of all comprehensive motor insurance policies limit cover outside of the UK to just three days. Currently, 25 policies available on the market offer no cover beyond statutory third party insurance outside of the country.
Although the average period of free foreign cover across all comprehensive motor insurance policies is 56 days, Direct Line, Egg, Esure, Halifax, MBNA, Sheila’s Wheels, Tesco and Virgin are among those providers limiting cover to three days. With such a policy, holidaymakers on a two week trip would be without cover for more than three quarters of it.
“The exodus to France and Spain is part and parcel of the British summer, and many holidaymakers prefer to drive. If you are planning a road trip to the continent you can’t take it for granted that your car insurance will cover you abroad,” said Sean Gardner, chief executive of MoneyExpert.com.
“Many of the biggest names in car insurance will only cover you for a couple of days. That might get you to the Costa Brava and back but it certainly isn’t enough for a decent holiday,” he said. “There’s no need to get caught out as there are a number of comprehensive policies on the market which will cover you without a charge. The key is to check before you buy.”
Around 47 policies on the market (one in five) come with unlimited free cover as standard for travel in European countries.
‘Facebook to blame for fraud?’
July 19, 2007 at 4:22 am
Facebook seems to be attracting all sorts of negative publicity at the moment. First it was confirmed that what many of us had long suspected was true: employers are not averse to having a sneaky peep at the profile of would-be employees and weeding out those whose uproarious private lives are not in keeping with the company’s public persona. Then it was the University of Oxford which caused indignation by using Facebook photos as evidence of student misdemeanours at the end of term and handing out financial penalties to those involved. Now it seems that Facebook could be guilty of facilitating the fraudster.
How many of us, when asked to set a security question, have trouble thinking of something original and fall back on the old favourites such as “What school did you attend?” and “What is your pet’s name”? Well, all that information and more is available on Facebook, ready and waiting for anyone to use, unless you have been careful with your privacy settings.
Online banking fraud rose by 44% last year to over thirty three million pounds according to APACS, the UK payment association, and UK banks are already acknowledging that things must change. The days of asking someone for their place of birth or mother’s maiden name as a means of identifying them, are well and truly over. Barclays is leading the way in the fight against fraud with their ingenious device, the at-home PIN machine. This cunning gadget gives customers a five digit PIN, which changes every two minutes, to enter in online transactions.
Chris Kelly, Facebook’s chief privacy officer, points out that the privacy settings and security measures on Facebook should make it impossible for personal information to be misused. However, for many of the site’s 1.8 million regular users there is no detail too private or for that matter too mundane, to share with the world at large, and therein lies the problem.
Interestingly, New Zealand has this month introduced a banking code of practice, whereby bank clients may be held responsible for fraudulent losses if, after a forensic inspection of their computer, the bank is not satisfied that they have sufficient security software and that it has been kept properly updated. We are left wondering whether it will only be a matter of time before banks here in the UK start adopting the same sort of attitudes and refuse to reimburse people who have made their personal details available on social networking sites such as Facebook.
If having made sure that your privacy settings on Facebook are up-to-scratch, you still have concerns about security and online banking, the website, Banksafeonline, has some useful tips on how to protect yourself.
‘Vodafone to allow mobile banking’
July 18, 2007 at 12:25 pm
It’s not so long ago that cash machines were just for cash and in order to do much else you had to spend your precious lunch hour standing in a queue at the bank. Gradually cash machines became more versatile; then came Internet banking, which made life much easier. From the comfort of your own home you could pay bills, move your money around and view statements.
Now Vodafone is introducing mobile banking, free for all British customers with Internet enabled phones. Whether it stays a free service remains to be seen, with Vodafone reviewing the situation at the end of the year. The service is provided through Monilink, the secure mobile banking network, and is available to customers with accounts at Alliance and Leicester, First Direct and HSBC. The service will be extended to customers of NatWest, Royal Bank of Scotland and Ulster Bank at the end of the summer. The first services to be provided are: checking account balances, requesting a mini statement and topping up a pay-as-you-go mobile; there are plans to introduce paying bills and buying travel tickets at a later stage.
Customers can register their account on the Vodafone website. In a similar way to Internet banking, a letter is sent from the bank with your log-in details and a security password is set up to access your account details. No information is stored on the mobile itself, so there is no danger of having your mobile stolen and the information falling into the wrong hands. For the technologically-challenged, Nationwide provides excellent step-by-step instructions on everything that needs to be done, from telling you which phone you need and activating WAP to using the mobile banking service. If you prefer, you can go into a branch for practical assistance.
‘New Chancellor wants to make mortgages more affordable’
July 18, 2007 at 12:10 pm
One of the first moves of the Brown government, and Alistair Darling, his successor at the Treasury, will be an attempt to make the housing market more accessible to first time buyers. Despite Brown’s assurances as Chancellor that we had left behind the days of boom and bust, the property market has raced away from the rest of the economy. Rising interest rates, the last of which took the Bank of England’s base rate up to 5.75%, have failed to halt the march of the house price, with the average price paid trebling since 1997.
These prices, coupled with the other costs associated with buying a house, have made the plight of the first time buyer on an average income almost hopeless. One of the features of the mortgages UK banks provide, in an effort to make buying a house more affordable, is the fixed-interest period. This is when the interest rate on the mortgage is held, irrespective of the underlying Bank of England rate, at an agreed level. The usual period is around 2 years. After this time, the interest rate changes to the lender’s standard variable rate, usually a couple of points above the base rate.
The main advantage of a fixed rate mortgage is that it allows borrowers to budget more accurately, so they can feel more comfortable about exactly how much the mortgage will cost them, instead of being exposed to any changes in the Bank of England rate.
The price for this predictability is that usually when the rate is fixed, it is at a premium to the base rate. Also, if the borrower then wishes to transfer to another fixed rate deal after two years, they will have to re-mortgage, which can cost up to £1000. From this perspective, long term fixed rate mortgages, of up to 25 years, would offer better value.
In an interview with the Guardian newspaper, Alistair Darling said “When you look around the rest of Europe, it is more common to have longer-term fixed rates. We need to look at that. We need to reduce the volatility.”
In Europe, mortgages are funded differently, which allows lenders to offer fixed rates for longer periods. In the UK, banks fund mortgage lending by borrowing from the money markets, whose charges fluctuate with the Bank of England’s rate. However, in Europe, lenders fund the loans with issues of corporate bonds, which have a more stable yield. It is therefore possible for the lenders to guarantee an interest rate for a lengthier period at little risk to themselves. The Chancellor now plans to revamp covered bond legislation in the UK in order to encourage this kind of practice among UK lenders.
This proposal signals the new government’s acknowledgement of housing availability as a political issue. If voters cannot get onto the housing ladder, then they may be less inclined to vote for Labour. Darling commented, “It is a huge issue and it is not just being raised by people setting up homes themselves. Parents and grandparents are saying, ‘What’s going to happen to my children? How are they going to get a house?'”
The government has faced criticism from lenders and consumer groups, arguing that the Treasury’s refusal to increase the stamp duty threshold in line with house price acts as just as much as a barrier for first time buyers as the price of mortgaging.
‘Nationwide launch mortgage with interest rates fixed for 25 years’
July 18, 2007 at 11:56 am
Nationwide has become the first UK lender to respond to the government’s desire to make long-term fixed rate mortgages more common. It has re-opened its 25-year fixed rate mortgage, which was originally launched on 26th March this year but only backed by £50 million worth of funds, which had run out by the 4th of May due to consumer demand.
The deal has its interest rate fixed at 6.39% for people buying, and 6.49% for those re-mortgaging. A minimum 10% deposit is required, and the building society charges a £599 reservation fee. Borrowers are tied into the product for the first 10 years, after which they are free to move to a different provider. However, if one was to re-mortgage somewhere else within the 10 year period, a 3% penalty fee would be levied.
This deal compares favourably with an existing 25-year fixed rate mortgage from Kent Reliance Building Society. Its borrowers are charged a penalty if they want to move their mortgage elsewhere at any point within the 25 year tenure. So, if in 15 years the Bank of England rates are significantly below Kent Reliance’s current 5.98% rate, you will be charged 3% of the amount you pay off if you want to renew your mortgage deal and take advantage of the lower rates on offer elsewhere.
Although Nationwide’s tie-in period only lasts 10 years, it has been criticised by some commentators who argue that most people do not want to commit to one property for so long. David Hollingworth, a mortgage broker at independent London & County, commented, “We sell very low volumes of these products. Most customers are not interested in locking themselves in for even 10 years, let alone 25.”
This contrasts to Europe, where mortgages of this length or longer are standard. Lenders there are more prepared to commit to long-term fixed rates because they fund the mortgages with bond issues, rather than borrowing from the money markets, as UK lenders do. This makes them less susceptible to shifts in central bank interest rates.
Gordon Brown has identified this uncertainty over exactly how much a mortgage will cost as a barrier for first time buyers, which he and his new government believes is an increasingly political issue, and one that could damage his party’s prospects of retaining power.
However, judging by the press reaction and comments from industry insiders, long-term fixed rate mortgages are not going to do a great deal to reduce these barriers. Particularly if they are being launched now, which many believe is the top of the current interest rate cycle. Borrowers may look back over the last 10 years and conclude that Nationwide’s 6.39% is expensive – rates were between 4 and 5% for much of the decade. However, on a 25-year basis, the deal looks very competitive, with rates around 11% at the beginning of the 90s.
‘Moneysupermarket.com to float’
July 18, 2007 at 11:01 am
Moneysupermarket.com is to float on the London Stock Exchange, possibly as early as July 31st, earning its founder and current owner, Simon Nixon, up to £127 million. Mr Nixon, a 39-year-old university dropout, will sell 60.3 million shares at between 170p and 210p, depending on the demand for them. The offer and placing is being handled by investment bank Credit Suisse, who initially advised Moneysupermarket.com to only make shares available to institutions, denying private investors access to the initial public offering (IPO). Mr Nixon commented, “Our advisers said, ‘Don’t do a retail offering, it’s a pain.’ We said, ‘No, we want to do one. We want to be a consumer champion.'”
The prospectus will be available from Credit Suisse sometime next week. If you would like to apply for shares, you should contact a retail stockbroker such as Redmayne-Bentley.
If the shares floated at the top of the price range, the company would be valued at just over £1 billion, making it the largest IPO made available to private investors since last year’s offering of Qinetiq, the formerly state-owned defence contractor. The current market conditions of increased volatility and illiquidity have discouraged many large companies from listing. Only last month the public offer of £2.5 billion property portfolio Vector Hospitality, which includes Malmaison Hotels, was cancelled, due to various considerations, lack of demand from consumers being one.
However, the flotation of Moneysupermarket.com is expected to be successful. The company has grown at a phenomenal rate since Simon Nixon and Duncan Cameron founded the site in 1998 with only £4,000 in start up capital. It began by comparing various bank accounts, allowing consumers to assess accounts on their relative merits, and choose the best one to suit them. Once the visitor clicks through to open an account, Moneysupermarket.com receives a referral fee. They also make money from the advertisements on the site. The company now has 25 different comparison channels, including banking, credit cards, insurance, broadband and the subsidiary Travelsupermarket.com. Last year it had a turnover of £104.5 million from 64 million visitors.
The founders fell out in a disagreement over strategy, which resulted in a lengthy battle for control of the company. Mr Nixon bought £162 million of Mr Cameron’s shares in June, which has led to this flotation. Some of the proceeds of the offering will be used to pay off the debt incurred by Mr Nixon’s buy-out of Mr Cameron.
There is some concern as to what the remaining cash will be spent on, as well the possibility that Mr Nixon is ‘cashing in’. Richard Hunter at Hargreaves Lansdown Stockbrokers explained, “The important question will be whether Nixon will stick around and how the business might change flotation.”
Mr Nixon has attempted to allay these fears by agreeing to a three year ‘lock-in’ period, during which he cannot sell any of his remaining £500 million worth of shares. He also elaborated on future plans for the business, including the possibility of acquisitions, “We believe we can continue growing this business at breakneck speed… we are only scratching the surface. Only 15 per cent of people have bought a financial product online.”
‘FSA Criticises sub-prime lenders in industry review’
July 18, 2007 at 10:43 am
The Financial Services Authority reported the findings of a 6 month investigation into the sub-prime mortgage market last week. The financial watchdog has regulated mortgages for 3 years, and this is the second review of its kind.
The investigation probed the practices of lenders and brokers and found serious failings on both sides. Thirty four brokers were surveyed, of which 5 have been referred to the FSA’s ‘Enforcement’ division who will look at taking punitive measures against the brokers, who have not been named. None of the brokers surveyed ‘adequately covered’ the material in their policies regarding responsible lending, and they will all be expected to work with the regulator to improve their practices. Of particular concern was evidence that brokers were not properly justifying their decisions to advise individuals to re-mortgage. A re-mortgage attracts a large fee for the broker, and can be of considerable expense to the customer, so regulations state that the broker must clearly state why they have recommended this procedure to a customer. The survey showed that these reasons were rarely recorded fully, suggesting the possibility of irresponsible lending.
The FSA’s Chief of retail markets, Clive Briault, commented, “We are very concerned about these findings. Consumers in the sub-prime market are vulnerable people who may have high debts or a bad credit history. It is therefore important that they are properly assessed and advised. We will not hesitate to take action where we find bad practice.”
The sub-prime market accounts for around 8%, or £30 billion, of the total UK mortgage capitalisation. It is a relatively new part of the financial services industry – ten or fifteen years ago people with CCJ’s or bad credit would have found it hard or impossible to get a mortgage from a mainstream bank. As the property market started providing steady, generous returns, institutions realised they could safely lend to individuals with bad credit ratings.
Michael Coogan, Director General of the Council of Mortgage Lenders, said, “The sub-prime market has an important role to play in helping people with past credit problems to rehabilitate their finances. But we acknowledge that, in particular, lenders and intermediaries in the sector need to demonstrate that they are complying fully with the FSA’s responsible lending guidelines.”
Northern Rock, one of the fastest growing banks in the UK over the past 10 years, built its business on sub-prime mortgage lending, and has outperformed its FTSE 100 competitors in recent times. However, in the past two weeks it has issued a profit warning to the market, saying it will not be performing as well as analysts expected in the next quarter.
This has echoes of the woes experienced by sub-prime lenders in the US. As growth in the property market slowed, and borrowers began to default on their loans, lenders were unable to recover the value of the initial loan, and had millions (possibly billions) of dollars wiped off their valuations.
The FSA’s review was carried out with the intention of pre-empting any such crisis in the UK and to ensure that the appropriate suitability checks are carried out on borrowers before loans are made.
‘High street banks urged to share branches to cut costs’
July 17, 2007 at 9:18 am
In a measure designed to reduce the costs incurred by high street banks, the pressure group, the Campaign for Community Banking Services has encouraged banking institutions to consider the possibility of sharing branches. The lobby group estimates that this move would save the principal British banks a massive £500 million in costs. In addition, it would allow banks to take on additional customers, particularly within rural areas, thereby increasing financial inclusion. According to Derek French, director of the Campaign for Community Banking Services, this proposal, if acted upon, would prove particularly beneficial to customers given that there are some 1,000 communities in the United Kingdom “which are only served by only one branch of their preferred bank.”
Despite initial opposition, a number of banks have now voiced interest in the proposed move. According to Derek French this is in part due to the fact that “banks now recognize they’ve got a problem. People are coming into the branches less frequently … we (the Campaign for Community Banking Services) suspect that whereas they were very against it, now they see that maybe it’s a solution.” In addition, the top five British banks have closed 20% of their branches since 1995 partly because of higher costs. It is hoped that branch sharing will help to alleviate the pressure placed on these institutions to reduce their costs. The basis of the planned initiative is as follows. Under the scheme, banks would share the costs of keeping key facilities operational including tellers and ATMs. Furthermore, each bank would also contribute to the payment of overhead costs. All customers holding accounts with banks participating in the scheme would be served by any given branch.
The advisory firm, Deloitte recently described bank branch operations as providing the best opportunity for these organizations “to build long-term customer relationships (and to) increase revenue.” If this is indeed the case, then it would make the need for branch-sharing among banks all the more desirable.
‘Alliance and Leicester to pay 15 per cent on savings account’
July 16, 2007 at 4:18 am
Alliance and Leicester are the latest high street bank to get gimmicky and try to win customers’ loyalty with short term offers and headline-grabbing rates.
They are now offering an account called the ‘Mortgage Regular Saver’ which pays 15 per cent interest but has more strings attached than a puppet show. The main restrictions are:
- You must take out a new mortgage, or existing customers can re-mortgage, before August 5th, 2007.
- You can pay anything between £10 and £250 per month.
- You must pay in exactly the same amount every month.
- No withdrawals are permitted throughout the term. If you do need to make a withdrawal, you forfeit the interest accrued during that month.
- Once the 12 month period has elapsed, your cash will be transferred into Alliance and Leicester’s ‘Instant Access’ savings account, which pays stingy rates, only 0.65 per cent on balances up to £10,000.
So, taking all these restrictions into account, will you be any better off saving with Alliance and Leicester than anywhere else? If you were to make monthly payments of £250 and no withdrawals, you would have paid the maximum £3000, and earned £243 interest before tax, and £195 after. This still stands up well as good return on your investment, and is probably the best rate available for those saving up to £3000. This £195 equates to around £100 more than a comparable competitor, Halifax’s (no strings attached) Instant Saver. However, there are still costs to be factored in. The offer is only open to new mortgage customers or existing customers re-mortgaging, so there are costs hidden here. The money you spend valuing your property could easily wipe out the £100 in one go.
Also, Alliance and Leicester’s mortgages rarely come near the top of the best buy lists on comparison websites such as uSwitch, Moneysupermarket.co.uk and Moneynet.co.uk. Their two year discounted variable rate mortgages are usually reasonable value, but if you take out a £100,000 mortgage, you are only improving your rate by 0.23 per cent with the premium savings account, and this doesn’t include the costs of the new mortgage. You also run the risk of being tied in to a longer term deal which doesn’t offer you particularly competitive rates, and over the full tenure of a mortgage this could result in you losing out on a significant multiple of the £195 you make in one year of earning 15 per cent of your savings.
So, despite the ostensibly high rates, this savings account and its associated mortgage could end up costing you. Rachel Thrussell of Moneyfacts.co.uk said: “For anyone who can match the account requirements, this is the best paying regular saver on the market.” If you were considering mortgaging with Alliance and Leicester this could be a nice added bonus. However, it’s important to look beyond the headline and figure out exactly what you are signing up for before committing yourself to this account.
‘Taxman wants access to your bank account’
July 12, 2007 at 1:19 pm
HM Revenue and Customs has approached the government asking for the power to directly access the bank accounts of those they believe to have outstanding tax bills. Under the new proposals, they will be able to freeze funds in a bank account, and if the bill remains unpaid, will be able to make a withdrawal of funds from the account. This represents a major extension of HMRC’s powers, who at present require a court order to seize funds or property. The argument is made in a report entitled Payments, Repayments and Debt, which was published last week and seeks to ascertain the public consensus of the proposal.
HMRC takes around 200,000 people to court every year in order to try and retrieve outstanding tax bills. The process is long, costly and bureaucratic, and gives the defendant opportunity to hide their assets from the taxman. HMRC said, “Taxpayers who owe money frequently have sufficient funds or assets to pay their debts, but choose to delay doing so.” The organisation emphasised that these powers would only be used in very selective cases, as a last resort when other avenues have been exhausted. “This type of defaulter would be a chronic late payer. We do not, and will not, seek access to personal bank accounts unless all other exacting avenues of communication have failed.”
Naturally, there were plenty of people expressing their concern regarding the new powers, which, if granted, would effectively make HMRC ‘judge, jury and executioner’ removing the sacred right to ‘habeas corpus’, according to Andrew Watson, spokesman for the Federation of Small Businesses Scotland. There is also the issue of the HMRC’s competence. At present, it is estimated by the National Audit Office that around 1 million people pay the wrong tax rate and the organisation’s inability to handle the tax credit system was well documented. John Whiting, a tax partner at PricewaterhouseCoopers commented, “We’ve got to have safeguards to say that it’s definitely owed and properly proceeded against. The taxpayer’s got some rights of appeal because if you suddenly find some money disappearing from your bank account and it’s a mistake, well, how do you get it back?” Mr Whiting’s concerns seem well founded when one considers that HMRC is currently incorrectly billing one million individuals.
A different criticism came from Neil Tipping, a consultant at accountancy CCH, who said, “Businesses may have other creditors, such as small suppliers, who need to be paid. This move could send thousands of small businesses to the wall.” If it were granted these powers, Mr Tipping argues, HMRC would be giving itself de facto ‘preferential creditor’ status, which it may not be legally entitled to. This point becomes more pertinent when you consider that many of the ‘chronic late payers’ that HMRC is targeting are small, self-assessed businesses.
If you would like to read the consultation document in more detail, or would like to give your opinion about the proposal, visit HMRC’s website here.
