Bank Charges Test Case

Laura has asked me this question:

What do you think the outcome of the test case involving bank charges will be? How will it effect both the banks and their customers?

I think the banks will lose in the end and my personal prediction is that this will signal the end of free banking in the UK.

You may recall that until the mid 1980s, you had to pay bank charges for a personal current account in the UK. Midland Bank stopped this practice and the rest of the industry followed suit. The ramification of that decision was that banks were unable to make decent returns on their retail banking operations and that led to a much greater focus on sales (e.g. being offered products every time you pay money in over the counter) and an increase in penalty fees of the kind which are now under attack.

I think once the banks lose this case, it will only be a matter of time before the UK consumer joins much of the rest of the world in paying for current account services.

Postal Strike Woes

I was posed this question by Tim:

What sort of repercussions do you think the recent postal strike could have on banks and small businesses?

In my opinion, the postal strike is a disaster all round.

It is certainly a disaster for small businesses and individuals who rely on the postal service for cashflow etc. It is clearly a disaster for Royal Mail which will lose millions of £s through the strikes.

I also predict that it will be a disaster for the postal workers. Royal Mail may have something of a monopoly but my golden rule is that whatever the dispute, you should never take it out on your customer because without them, you would not have a job.

Let’s hope they see sense soon because I suspect there are now lots of Royal Mail customers thinking about other ways (email etc) in which they can communicate with the rest of the world.

Credit Card Borrowing

George asks this question:

I’ve read recently about the Government cracking down on credit cards, which would see borrowers being forced to pay back more of their credit card debts each month. I’m in a bit of financial difficulty at the minute, and so I couldn’t really afford to pay back any more than the minimum amount each month. Should the Government raise the minimum monthly payment, is there any way I could come to some sort of agreement with my bank about this?

I have one simple piece of advice for you here. Borrowing on a credit card is just about the most expensive way of accumulating personal debt and if I were you, I would try my very best to shift that borrowing onto a different kind of facility – a personal loan for example.

It is always best to talk to your bank and I would start by talking to your bank and seeing whether they are willing to reschedule your debt onto a term loan. On the Government policy issue, I think this will take a long time to come to fruition, if ever, because as you rightly say, there are an awful lot of people who are simply unable to increase the amount they pay today.

Mortgages for First-Time Buyers

I have been asked this question by Sarah:

My partner and I are looking to buy a house, but have been put off by the recent economic climate. I’ve read recently that mortgage lending has been rising over the last few months, so do you think now would be the right time for us to look into a mortgage as first-time buyers?

I don’t think the evidence of mortgage lending going up is all that compelling to be honest with you, whatever the papers may say. There are lots of signs that the housing market has bottomed out, but I don’t think anyone is guessing yet when it will start moving up again.

There are certainly an increasing number of mortgage offers out in the market (mostly still directly from lenders rather than through brokers) and I think interest rates are going to stay reasonably low for the foreseeable future, so I suspect that now is not a bad time to buy.

I think you would have to be a real pessimist to assume that house prices are going to go through a further collapse yet.

Interest Rates and the Economy

Jordan has asked this question:

With the Bank of England recently announcing that the interest rate will be set at 0.5% for the eighth month in a row, do you see this as a positive or negative sign regarding the economy’s recovery from the recession. Also, how long do you think the interest rate will continue to be set at this rate?

Unquestionably, the maintenance of the base rate at 0.5% is a positive thing for the economy. A rise in rates now would be disastrous for both businesses and households in my view given the continuing levels of high debt in the UK.

I am rather less sure whether it is a positive sign for the economy. The Government continues to rely on pumping cash into the economy to stave off further recession and they could not realistically raise interest rates at the same time. Also, inflation levels remain low so there is no real urgency to increase rates.

I suspect rates will not move up for a few months at least, but don’t bank on them being this low in 12 months time.

Increasing ISA Allowances

Judith asks:

How do I go about taking up my increase ISA allowance? I’m 52 and we try to put as much in as possible. Is it actually worth it whilst the rates are this low? Is it time to invest in something more tangible like gold?

As I always say, investment decisions depend entirely on an individual’s circumstances and attitude to risk, so you really ought to sit down with a qualified IFA to discuss your particular investment decisions. What I will say more generally, though, is that balance in an investment portfolio is crucial unless you are a major gambler.

The stock market looks pretty heated up at the moment and I think it may be ripe for a bit of a fall soon, although lots of commentators are still talking very bullishly about the market and financial services stocks in particular. If you are into mineral investments, you may have noticed a lot of noise in the papers recently about diamonds – one of the hardest fallers in recent months (because it is not regarded as a traditional safety investment like gold for example), but an investment which some at least say is ripe for increases as the new world economies like India and China start to take an interest.

Good luck with it!

Tesco’s Supermarket Banking

We had a question on our Facebook page about Tesco’s plans to offer their own banking services brand within their supermarkets.

So now we will be able to bank at Tescos? Is that a good idea? Are the conventional banks worried? Could be a huge development

Owen Repliers

To be honest, you have been able to bank with the big supermarkets for a while now as there have been a number of joint ventures in place between supermarkets and banks to offer financials service products through supermarket stores. Whether it is a good idea depends on the value for money they are offering so as with any bank offering, never assume it is the best deal around without doing a bit of research – whichever brand is offering it to you. I suspect that conventional banks are a bit worried because many would argue that banks are far less effective at great customer service than supermarkets are. The saviour for them, though, is that people seem to be terribly slow at moving their current account from one bank to another, even when they are fed up with the service they are getting from their existing provider.

Ask Owen is about providing impartial financial advice for those concerned about managing their money. The country is suffering a serious economic decline and with people concerned about increasing costs of living and fuel bills, teamed with worries about job losses and house repossessions, it is a daunting time; so if you have a question to Owen fill in the comment box below and he will answer.

Question regarding IVAs

Inty wrote :

What is an IVA, it seems to be a good way of getting yourself out of a hole….the benefits seem great, is there a downside? There must be long term consequences.

IVAs – yet another one of those acronyms which the financial services industry use! It stands for Individual Voluntary Arrangement and is a formal agreement between the person who owes money (called “the debtor”) and the people he or she owes money to (called “the creditors”). IVAs set out a formal plan for how the debtor is going to repay the creditors over (usually) a five year period. Unlike a debt management plan, which is a much more informal arrangement, an IVA is set up by a licensed insolvency practitioner.

The key benefits of an IVA are that the debtors assets are protected and any debt not repaid at the end of the agreement has to be written off by the creditors. IVAs also avoid the more serious consequences of going bankrupt. They key thing, though, is to get some proper professional advice because your personal circumstances (amount of debt, income etc) all have a bearing on what the best solution may be.

AskOwen now giving financial commentary and free financial advice on Twitter

Just a quick note to let you all know that as well as this blog and our facebook group we are now on Twitter. You can follow me at @OwenWoodley and my CEO Gary Jennison is also on there with @GaryJennison. Together with Gary we are also busy putting up snippets of financial commentary on our YouTube channel.

So far we are delighted with the response we are getting from all these sources. It’s a great way for us to reach a wider range of people and provide the answers to their financial questions.

The Budget 2009

Last week Ally asked “Owen, what do you expect to see in the budget next week and what would you like to see.”

Well, all the noise is that the Chancellor, Alistair Darling, will focus on job creation (including support for Jobcentres etc) and stimulating the housing market. I also suspect that there will be at least the start of some fairly tough measures on tax levels for the well off. What would I like to see? Well my simple view is that the economy will only start to really improve when investors of all kinds believe that the UK is a good place to invest in.

At the moment, they do not because so far at least, our Government believes that it can borrow its way out of trouble. All my experience tells me that if you are already borrowing too much, you cannot borrow your way out of debt – whether you are a Government, a business or an individual – so I hope the focus will be on reducing Government borrowing and Government debt to build some more fundamental confidence in UK PLC. That way, both businesses and individuals will feel more confident about investing for the future.

Ask Owen is about providing impartial financial advice for those concerned about managing their money. The country is suffering a serious economic decline and with people concerned about increasing costs of living and fuel bills, teamed with worries about job losses and house repossessions, it is a daunting time; so if you have a question to Owen fill in the comment box below and he will answer.