Very few of us can avoid borrowing money at some point or another. Unless you are lucky enough to be born into a rich family, you will probably look to borrow money from quite a young age to study at university, to buy a car or to finance a holiday.
As for buying a home, who can afford to do that without borrowing money as part of a mortgage? Although borrowing is unavoidable, it is often a very positive and necessary action to take – as long as you do it safely.
If you need to borrow a sum of money, however much, it pays to do your research first. By being aware of all your options, you can save yourself a considerable amount of money by whittling down the right loan option for you. This involves a number of variables that are specific to you, including the amount you need to borrow, how quickly you can repay it and your credit score.
What is the best borrowing option for me?
If you only need to borrow a small amount, the cheapest way to do this is to borrow from your bank by arranging an overdraft. Your bank won’t charge you a setup fee for this, and interest rates are far lower than those of any payday loan company.
If your bank won’t give you an overdraft, however, or extend the one you already have, your next best bet is to take out a credit card which offers zero percent interest for the first six months and put all purchases on that. If you take this option, you do need to be disciplined about paying off the balance before the interest-free period is over if you want to avoid higher interest rates.
If you want to borrow money in order to buy a car, it is worth considering hire purchase or personal contract purchase (PCP). Check the interest rates being offered to you, first. If they are higher than a loan from a bank or building society, borrow your money from them instead and pay for the car upfront.
Secured homeowner loans
Secured homeowner loans are a great solution if you need to borrow a larger sum, perhaps to consolidate debts, to buy a new kitchen or for other home improvements. You could increase your mortgage or even remortgage your home, but you will need to have sufficient equity to do this.
Secured loans are also a viable option if you wish to borrow a large amount of money but you have a less than perfect credit score. Your property is offered as security to the lender, who can take action to repossess the property if you fail to repay the loan, just as with a mortgage. If you are confident that you can meet the repayments, homeowner loans can be very useful.
Again, it pays to shop around. Most lenders will charge an arrangement fee, and you may have to pay to have your property valued. As always, compare the different interest rates that lenders are offering. Be a wise borrower and you will find that you can save yourself a considerable sum of money.
Being in debt can be one of the most stressful things in people’s lives. Most of us will move our debts around to try to gain the best rate, all the while trying to pay off as much as we can. Unfortunately, though, it seems that before we get ourselves straight, something else always comes along — perhaps a home emergency, an unexpected problem with the plumbing or a broken-down vehicle.
All of these can lead to a necessity to borrow more money on a different credit card or by taking out a loan. Whilst aiming to get the best rate of interest on the money we owe, we can often cause ourselves confusion and even additional expense.
At the very least, monthly repayments can end up being more than we need to pay, and in some instances more than we can afford. This can lead to people living hand to mouth just to keep up with repayments, damaging their quality of life.
One possible solution is to consolidate existing debts into a single, more manageable payment each month. Both homeowner loans and debt consolidation loans can be useful for this purpose, allowing you to budget more effectively and avoid getting into further debt in the future. It can also simplify your finances.
Another advantage of consolidating your debts is for your own peace of mind in terms of knowing exactly when you will become debt-free. Someone who has debt on an overdraft, a loan, a store card and a credit card will be making four payments per month and these are likely to be at the minimum amount. This means that you are only paying off a tiny bit each month and the rest is going on interest, so the light at the end of the tunnel when it comes to paying off those debts can seem a very long way away. If another sudden need for cash comes up, you could well end up with a further debt. It could then be a slippery slope to defaulting on one or all of those payments.
Consolidation through the means of homeowner or debt consolidation loans allows you to deal with just one creditor each month and make a single payment. This single-payment approach will allow you to better budget for your monthly outgoings. You will know exactly how much money will leave your account on each day of the month. You can then sit down and draw up a list of the amount of money you have available and the things that you need for the month, safe in the knowledge that there won’t be any unexpected surprises when it comes to your repayments.
There is also the psychological motivation associated with a single loan to consolidate your debts. When you consolidate, the lender will tell you how much you have to pay per month and for how many months. This will give you a very clear idea about the day when you will completely pay off that loan. This is a massive motivator to keep up your repayments and not get into more debt. You can even mark on the calendar the date when you will no longer be paying out towards debts each month. Think how much money you will then be able to save, or even just spend on enjoying yourself without having to worry.
The other idea of debt consolidation is that, in total, you end up paying less interest. You should find a loan at a lower rate than your existing credit, ensuring that you are not paying over the odds for the simplicity of a single payment. Monthly repayments could be reduced through this alone, but by spreading out the repayments over a longer time period, you can further reduce the amount that you will be required to pay each month.
Interest rates for savings accounts are finally beginning to rise, says an independent financial information website. However, so called easy access accounts are, in fact, becoming less easy to access.
According to new research by Moneyfacts, average interest rates on the most popular ten savings accounts has risen to 1.49 per cent, up from 1.39 per cent twelve months ago.
But Moneyfacts found that some of the providers of these savings accounts are limiting their customers’ access to their money. Some limit savers to withdrawing their money just three times a year.
Moneyfacts suggests that these providers are investigated by the Financial Conduct Authority, (FCA).
Financial expert at Moneyfacts, Charlotte Nelson, said that the small rate increase ‘restores hope’ to savers but that many savers will be disappointed to see that their providers are limiting the number of times they can withdraw their own funds. Virgin Money, for example, only allows savers to take out their savings three times during a twelve month period as does Chelsea Building Society. The Nationwide permits five withdrawals per year.
The FCA found earlier this year that moving savings from one provider to another can be difficult and that only 20 per cent of easy access savings accounts had been switched from one provider to another during the previous twelve months.
In its report published in January of this year, the financial watchdog said that savers should be given more information and that the process of moving their money from one savings provider to another should be more straightforward. It proposed a series of measures to make switching savings accounts easier and to force providers to state their interest rates clearly in summary boxes on statements. The FCA will also publish details of firms offering the lowest interest rates on its own website.
The government has been accused of failing to build sufficient new houses by the Royal Institution of Chartered Surveyors, (RICS) and should be doing much more to address the housing shortage in the UK.
In RICS’s most recent survey, it found that the quantity of homes for sale has sunk to its lowest on record.
Consequently, demand for homes continues to outstrip supply, pushing house prices ever higher. RICS predicts that the coming months will see ‘sizeable gains’ in house values.
The government replied that more homes are being built, especially on sites that have already been built on: brownfield sites.
RICS found that the demand for homes is rising rapidly, more quickly than it has done in the past eighteen months. The sum total of houses for sale, however, has dropped to its lowest ever, just 47 houses or flats per surveyor this July.
Head of policy at RICS, Jeremy Blackburn, said that the government has been increasing demand for housing through its housing initiatives, such as the Right to Buy scheme, but has failed to address ‘the real issue’ – that of the supply of homes. He called for a co-ordinated and coherent house building policy. The National Association of Estate Agents demanded that the government adopt a similar strategy last month.
The government has recently extended its Right to Buy programme to include housing association homes and introduced the Starter Homes Initiative, which allows young people to buy their first home at a 20 per cent discount. Part of the Help to Buy scheme has also been extended until 2020.
The government’s response to RICS’s accusations was that it has been responsible for the building of more than 260,000 low cost homes since 2010 and that it is committed to building a further 275,000 over the next five years, the fastest rate for two decades.
House prices are falling sharply in parts of London but rising rapidly in the North East, according to the property website, Rightmove.
Prices have fallen most steeply in Kensington and Chelsea, where the average asking price of a property is now £178,000 less than it was in June, a drop of 7.2 per cent. The north east of England has seen asking prices increase, however, by 2.1 per cent in just one month. The average asking price in Kensington and Chelsea is £2.29 million and £147,251 in the north east.
The south east and the south west of England and the West Midlands also saw house prices fall during July, says Rightmove.
House prices have risen most in London over the last twelve months, increasing by 7.8 per cent. The largest drop has been in Wales, where prices are 1.7 per cent lower than they were in July 2014. However, London house prices vary vastly depending on the area. For example, prices in previously unpopular places, such as Waltham Forest, Redbridge, Merton and Hillingdon, have increased by as much as 15 per cent during the last year but prices in more expensive areas, such as Richmond, Fulham and Islington, have remained static.
The average price for all of England and Wales rose slightly during July, up by just 0.1 per cent, to £294,592.
Rightmove also reported that the number of properties for sale has dropped by more than 10 per cent in comparison with this time last year. Homes that are suitable for first time buyers with one or two bedrooms are in particularly short supply. What is more, these properties are often bought by buy to let investors, making the number available to younger people wishing to get onto the housing ladder even smaller.
The Bank of England may have decided yet again to keep interest rates at their current record low of 0.5 per cent during the most recent meeting of its Monetary Policy Committee (MPC), but it is becoming increasingly clear that the days of very low rate fixed mortgage deals are coming to an end. Thirty six banks and building societies increased their rates during July, with many more set to do so over the coming months.
During the last four weeks, average interest rates on a two year fixed rate mortgage with a 40 per cent deposit have increased from 1.81 per cent to 1.86 per cent. A five year fixed rate deal has risen to 2.59 per cent from 2.54 per cent.
The MPC voted 8 to 1 to keep interest rates at 0.5 per cent at the beginning of August but this was the first time that the vote has not been unanimous for months. The Governor of the Bank of England, Mark Carney, has already said that the time for a rate increase is drawing closer.
However, the vote came as a surprise to some economic analysts, who had been predicting two or three MPC members would vote against a rate rise.
The Bank said in its most recent Inflation Report that the outlook for inflation is muted due to the collapsing Chinese stock market and the continuing debate surrounding Greece’s financial woes.
The Bank hopes that inflation will rise to 2 per cent by 2017. Inflation is currently just 0.2 per cent and forecast to rise to 0.4 per cent by the end of September. This is due largely to the low price of oil and the rise in the value of sterling which, the Bank estimates, has increased by 3.5 per cent since May.
Super rich men and women from around the world are failing to pay at least $21 trillion in taxes, more than the entire American economy, according to new research from the campaign group, Tax Justice Network.
James Henry, from Tax Justice Network, and previously a chief economist at consultancy, McKinsey, conducted the research based on data from the International Monetary Fund and the Bank for International Settlements.
His report shows that tax avoidance schemes, such as that used by comedian Jimmy Carr last year, are just the tip of the iceberg. Carr used a trust based in the Cayman Islands to cut the amount of tax he paid but, according to the report, many of the world’s super rich are hiding some or all of their assets off shore, despite the efforts of many leading economies to tackle tax evasion.
The report shows, says John Christensen from Tax Justice Network, that inequality is much greater than government statistics indicate. Politicians rely on the trickle-down effect to transfer some of the wealth held by the rich to poorer members of society. However, the report indicates that, in fact, vast amounts of wealth are actually flowing out of the country and into off shore accounts.
James Henry estimates that more than $21 trillion (£13 trillion) is held in off shore accounts, possibly as much as $32 trillion (£20 trillion). Half of that is owned by just 92,000 people.
According to Henry, if these super rich tax evaders could be persuaded to reinvest their wealth back in their home countries, much of the wealth could be used to tackle many of the challenges faced by economies today. For example, taxing the super-rich citizens of Europe could, potentially, end the Eurozone’s debt crisis. African economies, such as those of Nigeria and Ivory Coast, could also drag themselves out of the indebtedness they currently face.
Supermarkets are deliberately misleading their customers with confusing promotions, says the Competition and Markets Authority, (CMA).
Following a three month study, the competition regulator found evidence that some supermarkets could be breaking the consumer law.
The CMA investigation was triggered by a complaint from Which? the consumer group. Their ‘super complaint’ accused the supermarket industry of confusing and deliberately misleading price tactics in hundreds of cases. However, the CMA said that although they had found some examples, the problem was not as widespread as Which believed.
The supermarket industry responded to the investigation by saying that most pricing promotions represented good value for money for consumers.
The CMA is to continue its investigation and has said that some supermarkets will be fined for their failure to comply with consumer law.
During the three month study, the CMA found that 800 of 150,000 products displayed prices that could mislead. For example, some products showed a discounted price and compared this to the old, non-discounted price, but this is only allowed if the product has been at the discounted price for a shorter time than at the higher price. In a number of cases, the CMA found that supermarkets were not adhering to this regulation.
Furthermore, some supermarkets did not always display how much the product cost per gram or per litre clearly or did not use like with like, making it difficult for the consumer to compare products.
Examples from the Which? complaint
Which? found that Pepsi Max was sold for £1.98 for 28 days and then sold at £1 for 63 days with a promotion, saying that it had been reduced from £1.98, although it had been on sale at that price for a far shorter time than at £1.
The price of tomato ketchup is sometimes given per 100g or 100 ml, making it less simple to compare prices.
House prices are falling sharply in parts of London but rising rapidly in the North East, according to the property website, Rightmove.
Prices have fallen most steeply in Kensington and Chelsea, where the average asking price of a property is now £178,000 less than it was in June, a drop of 7.2 per cent. The north east of England has seen asking prices increase, however, by 2.1 per cent in just one month. The average asking price in Kensington and Chelsea is £2.29 million and £147,251 in the north east.
The south east and the south west of England and the West Midlands also saw house prices fall during July, says Rightmove.
House prices have risen most in London over the last twelve months, increasing by 7.8 per cent. The largest drop has been in Wales, where prices are 1.7 per cent lower than they were in July 2014. However, London house prices vary vastly depending on the area. For example, prices in previously unpopular places, such as Waltham Forest, Redbridge, Merton and Hillingdon, have increased by as much as 15 per cent during the last year but prices in more expensive areas, such as Richmond, Fulham and Islington, have remained static.
The average price for all of England and Wales rose slightly during July, up by just 0.1 per cent, to £294,592.
Rightmove also reported that the number of properties for sale has dropped by more than 10 per cent in comparison with this time last year. Homes that are suitable for first time buyers with one or two bedrooms are in particularly short supply. What is more, these properties are often bought by buy to let investors, making the number available to younger people wishing to get onto the housing ladder even smaller.
The number of UK citizens declared insolvent is lower than it has been for ten years, according to figures released by the Insolvency Service.
18,866 people were declared insolvent during the second quarter of this year in England and Wales, 29.3 per cent less than during the same period in 2014 and the lowest figure since July to September 2005, nearly ten years previously.
The Insolvency Service also reported that the number of companies going bankrupt is at its lowest rate for over seven years. A total of 3,908 businesses failed between April and June of this year, the smallest number since the last quarter of 2007.
Financial experts declared that the drop in insolvency figures is due to the strengthening economy and recent real term increases in salaries.
Philip Sykes, president of insolvency trade body, R3, said that now that wages are rising faster than inflation once more, people are in a better position to pay off their debts without having to declare themselves insolvent.
The drop in personal insolvencies has been welcomed by the organisation that runs the National Debtline, the Money Advice Trust, MAT. However, it expressed concern that the recent cuts to tax credits will push some households further into debt, forcing them to turn to expensive credit providers to boost their budgets.
The number of people borrowing a mortgage to buy a home rose during June, when 66,582 new mortgages were taken out, just 1,469 fewer than in April, the most recent peak month.
Lending to businesses fell, however, by as much as £5.5 billion, raising serious concerns about economic investment, according to Howard Archer, chief economist at IHS Global Insight.
The Office for Budget Responsibility has predicted that household debt will increase to 169 per cent of household income within the next five years.
Representative 22.93% APRC variable.
For a typical loan of £26,600 over 180 months with a variable interest rate of 19.56% per annum, your monthly repayments would be £484.00. This includes a Product Fee of £2,660.00 (10% of the loan amount) and a Lending Fee* of £763.00, bringing the total repayable amount to £87,030.00. Annual Interest Rates range between 11.7% to 46.5% (variable). Maximum 50.00% APRC. *Lending Fee varies by country: England & Wales £763, Scotland £1,051, Northern Ireland: £1,736.
Think carefully before securing debts against your home may be repossessed if you do not keep up repayments on your mortgage or any other loan secured against it. If you are thinking of consolidating existing borrowing, you should be aware that you may be extending the terms of the debt and increasing the total amount you repay.
