Optimism in the housing market

There is a degree of cautious optimism creeping into an apparently recovering property maket, however, like a recovering addict, the emphasis is on 'cautious' rather than 'optimism'.

The Nationwide have released figures indicating that July was the third month running in which house prices have risen. The July figure is a 1.3% rise bringing down the annual rate of decline to 6.2%. The change over the last three months indicates a rise of 2.6%. The figures can only be interpreted loosely as the peculiarities of the current climate are likely to throw up anomalies. Nevertheless The Nationwide are predicting the possibility of prices being higher at the end of the year than they were at the start - a bold prediction..
Why is this prediction so bold?
Whilst demand is pushing prices up in the short-term, supply has been repressed by the evident drop in prices. If prices are shown to be on the increase, the market could be flooded once prospective sellers start entering the market again...this could result in prices being driven down yet again.
Low interest rates are being cited as an incentive, yet many house buyers are finding it difficult to take advantage of the Bank Of England low lending rate through obstructive practices by the mortgage vendors.
Earnings are not rising in line with house price rises, so prospective buyers (already cautious) may be restricted in their buying power.

The news that mortgage approvals are on a high, has to be offset by the fact that throughout the economy, the rate of increase in consumer borrowing is in serious decline. The worry-factor has prevented people from over-stretching their resources in the way that we have become accustomed over the last decade or so. In my opinion, that is not a bad thing, however a decline across the economy is unavoidable if borrowing is to even out to a reasonable level.

Related posts:
When will the property market recover?
25% house price drop expected
Worse-case scenario for house prices
Sub-prime mortgages to blame?

Credit Cards for the Credit Crunch

I have spoken on many occasions about how I have crawled out of the pit of debt by using 0% credit cards and am now very very close to paying the entire original debt off (although I have recently started to build up a balance on my 'normal' credit card which I will now have to work hard to pay off!!).
I am reminded however about my first application for a 0% card... I saw adverts for the wonderful 'Capital One' card which was advertised on the TV and I decided that this was the card for me. I duly applied and was turned down as I had a poor credit rating which turned out to be due to a number of still active credit accounts I had more or less forgotten about. I got a report from Experian or one of those agencies which listed accounts which, although I had not used them for years, were still having an effect on my creditworthiness.
Imagine you have four accounts each with a £10,000 limit that you no longer use - a potential lender can see that you have potential access to £40,000, therefore if he extends your credit even further, you could end up with debts that are beyond your means... So I took the step of formally closing any accounts that I wasn't using. Generally banks do not reconsider once they have decided not to open an account for you, so I went cap in hand (and with a better credit risk) to the nice people at Virgin Credit Card and they took all my debt and placed it in a 0% account, Hoorah for Richard Branson!
However, that is not the end of the story, Oh no... Capital One were still to play their hand. I had applied to them originally, so they knew exactly how much debt I had - they also assumed that I might not be able to get a 0% deal (if my apparent credit risk remained) so what did they do?? They plagued me for months with offers to lend me money (not at 0% I hasten to add). So not only do they NOT give me the account I wanted, they sought to exploit the knowledge they had about my financial position by trying to get me to take out a loan. There's something suspect in my opinion about a bank that thinks you are not worthy of their credit card, and then proceeds to persisently try and get you to take out a loan, and so I have vowed NEVER to enter into any agreements with Capital One under any circumstances. I do not know that any other banks would have behaved any better, but I know unethical practice when I see it and I firmly believe in voting with my feet so to speak... I also resent the implication that I would be so devoid of alternative plans that I would gladly grasp at whatever crumbs Capital One would throw my way. I have news for Capital One - I have had three o% cards in succession over the last few years and am within £100 of seing a zero balance - and have never even had to consider them as a credit provider in all that time.
For anyone who has a debt like this that is on the verge of becoming unmanageble, my advice is to take the same route and explore the possibility at least initially of getting the debt transferred to a 0% card and paying off what you can during the 0% offer (definitely DO NOT SPEND anything on this card...). When the offer expires, don't let the principle attract interest - move it on to another 0% deal straight away. The psychological boost one gets from seeing every penny of your payments coming off the debt rather than being sequestered away to pay off interest, is tremendous and just the ticket to make you want to pay off as much as you can as soon as you can..

related:
more posts on 0% interest
more posts on credit cards
tracking my debt

UK inflation falls below target

Falling food prices have been cited as one of the reasons for inflation dropping below the Bank of England target rate of 2%. The figures have dropped to 1.8% from 2.2% in the last month. The likelihood is that this trend will continue as retailers try to stimulate demand in a slowing market. Some areas of the market, notably electronics and fuel prices have experienced rises, but when recession hits the proportion of our outgoings spent on food is likely to increase as it is far more difficult to cut food consumption than the consumption of non-essentials.
Even credit crunch inflated mortgage fees have dropped this year as mortgage companies try to entice more business, and insurance has followed suit. I have just switched house insurance companies and made a huge saving, it is certainly worth shopping around at the moment - in a telephone conversation one company even said 'what can we do to make this insurance more attractive to you? to which the answer would naturally be 'make it cheaper...'.
The Retail Price Index is naturally linked to inflation but measures the effect on specific goods and services, this month the RPI has just recorded it's lowest ever figure of -1.6% (yes that's MINUS 1.6%).

So things are getting cheaper which is good for consumers, but it also means that companies are cutting margins and may even cut jobs as a result. This is an entirely 'natural' process (in terms of the free market) which forces the manufacturers to make themselves leaner and meaner to compete effectively in the market. Those companies carrying surplus 'weight' will be forced to trim back the waste - hopefully this will see an end (at least in the short-term) to the 'fat-cat' culture of self-reward and lack of concern for the wider business and economy. If only we could extend this concern to the environment too, this recession could have a really positive impact.

Related posts:

Government Intervention
CBI predicts 'shallow' recession
25% house price drop expected
Mortgage safety net
Quantitive Easing
UK budget 2009

Bank of England expresses concern

Bank of England Governor Mervyn King states that the UK economy is 'more uncertain then ever'
describing the level of Government debt as 'extraordinary'. According to leading economists the UK will sink into more debt than any other developed country in the world next year.
If this were coupled with an upturn in the economy in general then you could offset the cost against tangible results, however although some industries are reporting stability, there are likely to be significant job losses yet to come in many sectors.
Any hopes that the government had of significant progress before the next election were never really realistic, but look even less likely as each day passes. Right now, Gordon Brown's personal political capital is vastly diminished even the most unbiased political observer must concede that the current administration are in considerable trouble. I would not make so bold as to say that ANYONE could have steered us around the obstacle of global recession, but I maintain that the massive commitment that we have made in order to try and stave off the worst effects of the crisis has always been likely to lead to throwing good money after bad - a precise definition of 'gambling' if ever I heard of one. The trouble is that gambling very often ends up in financial ruin - one thing to subject yourself to that type of fate, entirely another when you do it with a national economy.
Nobody knows what the worst possible scenario might be, but I have a sneaking feeling that we might yet find out. Even a change of government at this stage guarantees NOTHING, much of the damage has surely already been done. It is likely that even the Governor of the Bank of England is not above trying to make some political capital out of the situation, and his comments may well be timed to tip the balance of doubt over New Labour and Gordon Brown specifically. The fact remains however that whatever happens, this administration will be leaving a heck of a legacy in terms of unprecedented national debt which no pretender to the throne should disregard. It is not enough for opposition leaders to shout about recent failings, we need to hear something positive about where a new leadership (from ANY party) will take us which will help us out of this mess.

Related posts:
Is this the new Great Depression?
How to survive recession
Government Intervention
The unsinkable Gordon Brown

Sir Fred gives in...

Under threat of legal action from his former employers Royal Bank of Scotland, Sir Fred Goodwin has handed back over half of his £703,000 pension 'entitlement' leaving him just £342,000 a year to survive on (living abroad in retirement since living in the UK apparently doesn't agree with his health or well-being...).

The bank's chairman Sir Philip Hampton said: "I am very pleased that we have resolved a situation that has been a difficult and unhappy one for all the parties involved, and it is to Fred's credit that he has done this on a voluntary basis."

I am not clear on what constitutes a voluntary basis, folding under threat of legal action is voluntary enough apparently. As far as the British public are concerned, Sir Fred has emerged from this mess as disreputable and intransigent, a magnanimous gesture hardly fits the display of arrogance that we have seen so far in this sad affair. The pressure should more or less dissipate now, although for many, little short of cutting him off without a penny, or better still a spell 'inside' would have been sufficient punishment.

Sir Fred has been in many ways a shining example of how we cannot afford to run businesses in the future, we should be grateful at least that his apparent greed and arrogance will serve as a warning to company bosses who will be taking over the reins as the UK economy struggles to it's feet once more.

Related posts:
Sir Fred's full pension revealed
RBS investigation
Sir Fred Goodwin and his pension

Need a new line of credit?

Whilst it is true that credit cards have been one factor in bringing about the Credit Crunch that has wrought havoc on economies over the globe, selecting the right credit card for you can help bring you out of personal financial difficulties.
I will say right at the start, that this advice is not aimed at those who are seriously in debt and struggling to meet repayments - this is for those who are slipping into a 'manageable' debt but would like to be debt free. If you find yourself relying on a credit card for every day purchases like food and consumables, then you may need to seek professional financial assistance.
If you have a small debt that you are determined to pay off then a 0% interest on transfers credit card would be perfect for your needs. I have had three 0% credit cards over the last few years and have managed to shrink a $13000 credit card debt down to around $300 in that time without paying a cent in interest.
In order to do this too, you must be determined to cut out excess spending and certainly to stop using your credit card for purchases - if you do this, then every cent you pay each month will come directly off your debt. If you can't manage to pay off your debt within the 0% interest on transfers period, then you can just switch the remaining balance to another 0% card at the end of the offer.
If on the other hand, you manage to pay your card off every month and have no debt, then you could actually save money by using one of the many cash-back credit cards available. Also worth considering are other incentive and reward schemes such as air miles cards.
The fact is that you can make credit cards work for you if you control your card rather than allowing your card to control you. If your card is not working for you, then ditch it right now and get one that does.

The 'unsinkable' Gordon Brown

Gordon has defied the critics by keeping his job this week despite the current intense heat of British Politics, but what exactly has he done wrong, and what are the consequences of his weakened position?
Gordon Brown has apparently ridden the waves of a rumbling storm over the way he has been freely berating his colleagues who have been caught short by the MP's expenses row. He was not however first the one to 'strike a blow for justice' over this issue as David Cameron beat him to the draw mercilessly applying high standards and demanding retribution from errant Conservatives giving him the moral high ground. Gordon is guilty of not only agreeing with Mr Cameron after the fact, but also appearing to go about the task with some relish and gusto. Somewhat piqued at having been caught with hands in the till, some prominent MP's set about starting a rebellion to bring down their illustrious leader - setting a fire which would smolder until the recent electoral results were announced.
Of course, everyone knew the results were going to be bad for labour, so the surfacing of this rebellion at this juncture was always a dead cert. The results were bad for labour and bad for Gordon Brown's support of the policy of spending our way out of the recession. Across European and local elections hard-line right-wingers were gathering votes left right and centre. Gordon will go down in history as the man that gifted the BNP two seats in the European Parliament, yet he retains his position and shows that he has learned something from 'Teflon Tony'.
Nationalists and Conservatives have potentially been handed a mandate by the voters to scupper any further plans for 'Stimulus' packages. The unfortunate thing about these expanding spending plans is that if they are not maintained, then the money is basically wasted. We are caught between continuing to pursue a policy that will cost untold billions or scrapping it and declaring the money we have already spent 'wasted' - even a slowing down of the policy of stimulation could set us right back to square zero!
I feel that the Stimulus packages were at least doing a PR job to show people that something was being done, however I seriously doubt that the taxpayer is getting value for money. My fear now is that getting off the 'stimulus train' without having reached any destination will still cost the same, yet give the momentum back to the dark forces that make up 'recession'.

Earning opportunities

Regardless of the current economic difficulties, the internet remains one of the most lucrative seams of income still worth exploiting if you can find your niche. I firmly believe that this economic crisis will lead to a rise in online purchasing as most consumers regard online purchasing as a way to save money. Certainly, if your existing business does not have an online presence, then you are definitely missing out on an inexpensive way of promoting your business.
If you are under the impression that webhosting is a costly business, then check out the service at webhostingrating.com where they compare webhosts and basically tell you which offers the best deal. If you don't have software to create a website, then you can use this service to find the best place to get webhosting which includes a CMS service such as Joomla or Drupal.
There are many types of websites that could potentially make money in the credit crunch - a trading or auction website such as eBay which represents bargain purchases is an obvious one. However there are a number of different types of websites that could be used to generate income from blogs and forums to sites that resell webhosting. Webhostingrating.com compares hosts for the ones that offer the best deals in each of the different areas that you might be thinking of investing in.

Is the buy-to-let market dead?

Buy-to-let was a buzz-word that became a market of it's own in the last decade or so as many individuals discovered it as a means of generating huge amounts of money, and as a side-issue, huge amounts of debt.
Whilst it is certainly true that the 'Buy-to-let Boom' is over, buy-to-let as a concept is still a feasible business model as long as not taken to the extremes that have left individuals with millions of pounds of debt and a declining property portfolio. One such person was interviewed on British television this week, stating that their debt stood at something like £6.5m and losing properties to repossession on a daily basis.
In retrospect the mistake was fundamental and is basically at the root of the global credit crunch - an over-reliance on property prices to generate capital. Your typical buy-to-let mogul who emerged in the last decade proceeded in the following manner:
After a windfall of some type or other, the budding property magnate decides to buy a property (generally reasonably cheaply) with the intention of renting it out. A few renovations make the house habitable and a tenant is installed. It is probably the case that a small mortgage was taken on the property as the cash windfall would have probably covered a lot more than just the deposit. Let's assume the property was bought for £100k and £5ok of that was mortgaged... in the time between the purchase and the tenant being installed, the property has been improved, the market has gone up and the property is worth £120k, the mortgage is effectively being paid by the tenant and the owner has £70,000 equity in the house...
If this equity is 'realised' (and here is the bit where it all goes wrong...eventually) the house gets remortgaged and the £70,000 goes to be used as a deposit on three more properties where the exact same cycle is repeated.
If, two years later, the property is worth £150,000 then all is well and there is plenty of equity probably in each one of the properties - and this is how things went for a number of years. However if you have stripped equity out of a property and then the market declines, it is a very different story. The incredible part of the story is that mortgage companies seemed perfectly happy to allow property buyers both domestic and commercial to remortgage their houses with no thought as to what would happen if prices went down.
So I return to the question: is buy-to-let dead? No, emphatically no... what IS dead is remortgaging up to 100% of the current market price of your property whether it be your home or one in a string of properties. It is the purchasing of property with the assumption that 'the only way is up' that has hit a brick wall.
There is no reason at all why someone would not invest their nest-egg in a property that will provide rental income along with a (long term) capital return.
There is every reason not to use the equity to invest in another property without doing a lot of careful calculations. With a decline in house prices comes a decline in rental prices as renters become buyers, if you have a mortgage on your rental property you cannot guarantee that your tenants will cover the mortgage and you cannot guarantee that the value of your property will automatically rise in the short-term. If you understand these simple concepts then maybe you are ready to plunge into the market of buy-to-let..

Related posts:
When will the property market recover?
25% house price drop expected
Worse-case scenario for house prices
Sub-prime mortgages to blame?

Japans recession

The world's second largest economy has reported it's sharpest drop on record yet remains positive about recovery. Economists are apparently in agreement that Japan is over the worst despite a decline in GDP of 4% in the last quarter, marking a full 12 months of decline totaling more than 15%. In contrast the UK and US only declined by 1.9 and 1.6 per cent respectively in the first quarter of 2009.
The crisis is now impacting on domestic spending as the effect of falling global demand takes it's toll and exports plummet. Workers are being laid off as production is cut back but the cycle of a cut in spending leading to joblessness, leading to further cuts in spending has (if economists are to be believed) already 'bottomed out'. This seems to be a bold statement straight after a 4% drop in GDP has been recorded and may be an attempt to 'spin' some confidence into the market.
Spin has played a major part in battling the economic crisis right across the globe, yet it has proven to be fairly ineffective when negative publicity about the crisis is readily available in the media. The people are not going to have the wool pulled over their eyes when staring uncertain job prospects in the face no matter how much spin you employ.
Practical measures are being taken as Prime Minister Taro Aso has announced a $150bn stimulus package to reinvigorate demand and re-inflate the economy, and economists are banking on the stimulus to work. If the experience of the Western Economies are anything to go by, whilst the stimulus packages do indeed serve to give the impression that 'something' is being done - they do not actually lever tightly grasped coins out of our hands, if anything the enormity of the situation can be highlighted by the quantity of cash being fed into the economy. The publicity caused by the billions and trillions of dollars on the table can actually make people cautious about how they spend the cash that they have. After all, even those who don't understand the minutii of macro-economics have probably worked out that in years to come, these huge amounts of cash will be coming straight out of our pockets. True to form, it is expected that when the Japanese economy recovers, purchase taxes will be hiked to help pay for the stimulus packages. Currently Japan's national debt outstrips any other major economy and currently stands at 200% of their GDP.

Related posts:
Government Intervention
CBI predicts 'shallow' recession
Is this a recession?
Credit Crunch News
The Multiplier

Economy Update

The Bank of England has not made any changes to the bank base rate at the last two opportunities and there are both encouraging and discouraging economic signs in the news.
Whilst Sainsburys supermarkets have just reported above-expected profits, the job-less figures in the UK have risen to 2.2million. It is of course arguable that with large companies laying off staff, short-term profitability could be a direct result of lay-offs...
It is the job-less figure which causes concern, as having a large proportion of the workforce not working is a big drain on the economy as a whole - we must hope that the government will concentrate it's efforts on getting people back into work as quickly as possible.

In the meantime, the whole MP's expenses debacle threatens to undermine the UK political system in it's entirety. It's all very well everybody firmly agreeing that the system was wrong, but they didn't seem too bothered to correct they system until suddenly the electorate is in possession of the facts. Everyone is at pains to point out that expenses claimed were in line with the rules, and the rules were at fault - but if we step back and take a look at who came up with the rules, that would presumably be these same parliamentary politicians wouldn't it??

The phrase 'fiddling' while Rome burns has now taken on a slightly different nuance...

To get back to the economic forecast, it has to be said that we are very likely in for 12 months of job-losses and hardship before the economy (GDP) finds a new level. Following this plateau, we can expect a slow build-up in GDP and eventually a leveling of house prices. I would hesitate to say that the worst is over, because that can be very subjective. If you are about to lose your job next week, then the worst is hardly over for you personally.. However, it seems that the bulk of the major crashes that were going to happen have happened, notwithstanding there will no doubt still be significant job losses in the coming months.

Related posts:
25% house price drop expected
How long will the credit crunch last?
Economic meltdown
When will the property market recover?

Joanna Lumley outsmarts Gordon Brown

In an increasingly desperate political UK climate, one figure emerges as a shining light. Yesterday on the 'One' show on BBC1 Rory Bremner declared that we are we are in the middle of a political 'character crunch' with a dearth of political characters worth imitating or lampooning.
Increasingly government ministers are exposing themselves as being devoid of wisdom. Jaqui Smith has announced a list of 'undesirables' that will not be welcomed into the UK including not only gangland killers and terrorists, but a US shock-jock who simply expresses views that are not in line with her personal preferences. One may well think that the shock-jock in question could be considered juvenile or even idiotic, (I must be careful because he sues apparently) but should that exclude him from the UK?? Whatever you believe about loud-mouthed undesirables, what sort of wisdom does it take to declare them banned from your nation? I am also doubtful now about the steps that were promised to take care of the Sir Fred Goodwin situation. The sledgehammer to crack a nut approach endorsed by Gordon Brown seems over-bearing on one hand, but on the other hand nothing has happened... so where is this sledgehammer - and where is the wisdom?
I don't want to appear politically biased, and the character crunch certainly extends to opposition parties, it is hard to see where the next political characters are going to come from regardless of political persuasion.
The one figure that emerges as a force to be reckoned with is Joanna Lumley who perfectly wrong-footed the Prime Minister by congratulating him on his integrity before he announced his measures for dealing with the Gurkhas. For those who don't know, the Gurkhas are the brave Nepalese soldiers that we seem to throw onto the front-line of every conflict, and then try to send home without a pension when we are finished with them...
Whether portraying 'Patsy' or 'Perdey' - I would certainly vote for Joanna Lumley to guide Great Britain through the next decade or so. I have long thought that the people best suited for running the country are those who don't have any political ambition. I move that Joanna Lumley should lead the 'Absolutely Fabulous' party to victory at the very next election. Join me in lobbying Joanna and starting a new political chapter in the UK's political history. Please rescue us from political mediocrity and complete apathy.