‘Recession sees Brits paying off debts’

May 22, 2009 at 3:59 pm

New research has shown that Brits are taking advantage of the economic crisis by making determined attempts to pay off at least part of their debts. New figures show that during 2008, Brits paid back almost £40 billion of non-mortgage debt. This figure is significant, since it represents the first time in the history of the research that a larger sum of money has been repaid than has been recorded as fresh borrowing. It seems as if savings have been sacrificed in this quest to repay debts, with many Brits choosing to change their saving habits at a time of economic uncertainty.

The last few months have forced many individuals in the UK, and indeed across the world, to take a fresh look at the state of their personal finances. Cutting back on non-essential expenses has become the norm for families in Britain and many people are also looking to relinquish control of financial investments which are not providing a stable or reliable return. For example, endowment policies are being cashed in, or indeed sold, in an attempt to impose a greater sense of control over personal finances.

Whilst officials responsible for releasing the results of this new research have not been surprised by the findings that Brits are choosing to pay off debt, they have been shocked by the extent of the trend. It is not unusual to see consumers sacrificing the habit of saving in favour of paying off personal debts but the impact of the credit crunch across the country has been confirmed by the manner in which this pattern has grown over the last few months.

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‘Why mortgages now cost just a penny’

May 15, 2009 at 3:56 pm

If you have an Interest-only Tracker mortgage, you’re probably jumping up and down with glee right now. The amount repayable on this type of mortgage is tied to the Bank of England’s base rate of interest. Not so long ago, the base rate was set at 5.5%, and consequently a popular mortgage option was to couple your repayments to a level below this, such as 1% below. In the boom times it was a sensible and realistic way to set the amount you had to repay monthly for your home, judged against the rate of inflation. Now the interest rate has plummeted to 0.5%, meaning that the tracker repayment cost is effectively zero. The banks’ computers can’t handle zero so they assign a one penny nominal amount, which means that no repayments are due on these types of mortgages currently.

A word of caution though. Eventually the economy will regain some strength, and the interest rate will once more begin to rise. If you are someone who has enjoyed a “payment-free” period, you may find it difficult to get used to paying large lump sums again each month. Also the amount left to repay will be effectively larger relative to the time left to repay it. The financial institutions are strongly urging mortgage customers who are in this position to set aside a good amount in a savings account, or to make voluntary contributions month on month. If the housing market continues to remain repressed but recovery elsewhere prompts a modest rate rise, then this can compound a situation of negative equity.

The fall in rates has been so heavy and the resulting number of “zero-cost” mortgages so unexpected that Nationwide Building Society last week announced that they would no longer promise to fix their variable rate mortgage packages to the base rate. The UK’s largest building society has devised a new product called Standard Rate which will replace Tracker mortgages in the future.

It has taken the lenders until now to realise that interest-only mortgages are not the short term answer that they were looking for. People taking out these types of mortgages need to be aware that they are not actually paying off any of the capital to which the debt was originally secured, so after 25 years, the customer may have paid off £50,000 in interest but none of the original debt.

Times may seem rosy at the moment for Tracker customers, but the sensible thing to do would be to pay off as much capital as possible, rather than viewing this simply as a payment holiday.

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‘Lloyds slash nearly a thousand jobs’

May 8, 2009 at 2:30 pm

If you are one of the 140,000 members of staff who work for Lloyds bank in the UK, then it’s not been a very stable year in terms of your job safety so far.

Rumours of massive job cuts have been spreading around the company like wild fire. In April of this year, the industry union group Unite announced to the press that they had it on good authority that Lloyds would soon be making 985 people redundant from somewhere within the halls of Lloyd’s empire.

During the bank bail outs of last year, the bank with the black horse found themselves acquiring the crippling HBOS. Following this, and all the other problems the whole banking world faced, Lloyds started to become very weak at the knees. This has now resulted in a huge need for cost cutting.

Staff have felt as though they’re on death row for the last half a year. Almost every day there has been a question mark over jobs. The bank took some time to comment and confirm the prospect of job cuts at all, let alone 985, positions, but finally they announced the losses would be coming from the car finance sector called The Bank of Scotland Dealer Finance.

There will be talks with Unite to prevent any compulsory redundancies. Unite are keen to insist that Lloyds look at other ways to cut costs other than simply showing people the door. Retraining courses for current staff is one of the possible routes to go down. Finding a way to merge the two banks, Lloyds and HBOS, could be what saves people from receiving their P45.

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£2.8 trillion lost to credit monster

May 6, 2009 at 1:30 pm

In January, business minister Baroness Vadera drew criticism for insinuating that the British economy was beginning to recuperate. Four months later, as the Bank of England announces yet another month of credit woes, the International Monetary Fund (IMF) warns that global debt could reach a record £2.8 trillion before the first “green shoots” of economic recovery begin to appear.

According to the BBC, the UK economy suffered a slump of almost 2% during the first three months of 2009. The Bank of England has asked consumers to be vigilant over fluctuating credit conditions, but has made no promises to unhappy savers and the ubiquitous unemployed.

John McFall, chair of the UK Treasury committee, described the current economic crisis as an “astonishing mess” and called on financial institutions to make amends with alienated consumers.

Experts predict that the credit-crunch will continue to gobble up money, jobs, and good cheer until 2010. British anglers, foresters, and farmers have shown some resistance to the frosty economic climate, however, with some sectors experiencing growth for the first time in twenty months. Retail services also enjoyed a boost to their profits in early 2009.

In similar news, beleaguered American institution, Citibank, finally quashed rumours of its collapse by reporting a £1 billion profit in the first four months of 2009. Citi, who also own the Egg internet bank, made thousands of people redundant in November 2008. Fellow US banks, JP Morgan Chase and Goldman Sachs also posted a profit.

An interactive Recession Tracker – offering data on unemployment, repossession, and house prices – can be found on the BBC website.

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