Posts filed under 'News'
In case you didn’t already know this, the first £35,000 of savings you deposit in a bank or building society are guaranteed by the government in the event of that institution collapsing. Judging by the mass panic amongst Northern Rock customers last year, it seems likely that most people aren’t aware of this safety net. But the point is that safety net has been in place for a long time, which, if you ask us, makes it clear that today’s announcement that the government plans to guarantee savings to the tune of £50,000 a bit of a non-story.
For a start, it’s not really committing itself to a much bigger bailout than it had already allowed for, and secondly we already know that the government will always bend over backwards as far as it needs to in order to prevent a major financial institution from going out of business. Too big to fail, and all that nonsense.
The real news here is that the banks won’t be expected to make any sort of contribution to this scheme. OK, you can’t argue with the importance of securing the deposits of innocent savers (unless you believe in some sort of extreme-free-market ideology in which even simple cash savings carry an element of risk, which would make for an interesting discussion) but it does seem like once again the financial industry is being given a free insurance policy at the expense of the tax payer.
Keep partying boys, we’ll pick up the tab…
July 1st, 2008
People in the UK are saving the lowest amount of money in almost fifty years, according to research from the Office of National Statistics. In the first three months of 2008 Britons saved just 1.1% of their income, compared to 3% in the winter of 2007 and 6% in the summer of 2006. The last time people were saving this little was in 1959. Given recent increases in the cost of living, it’s hardly surprising that everybody is feeling the pinch and finding it harder to put money away for their future. With the economy looking likely to continue tanking for a long time to come, you have to wonder how people are going to cope if they’re already struggling to put aside a significant amount of money from their earnings.
If you think times are looking a little tough now, you ain’t seen nothing yet…
June 28th, 2008
The big news today is, of course, that mortgage lending has dropped so far through the floor that it’ll soon be burrowing its way to the centre of the earth. No surprises there, houses are still far too expensive for most people and even if you were brave enough to clamber onto the property ladder at the moment, the chances of you being able to find a decent mortgage deal are becoming slimmer by the day.
But that’s not all - the average two year fixed rate mortgage now stands at over 7%, the highest level in over ten years. It just keeps getting uglier and uglier out there. Six months ago the idea of a massive crash in property values seemed absolutely unthinkable, and now it’s difficult to see how this can end any other way.
June 24th, 2008
It should come as absolutely no surprise to anybody that the Alternative Investment Management Association, which represents those financial sector cowboys otherwise known as Hedge Funds, doesn’t like the FSA’s new rules which will force them to disclose significant short-selling positions. Hedge Funds tend to make a lot of money from betting that a company’s share price will fall, and the FSA thinks this is having an adverse affect on companies which need to offer rights issues to raise cash (something lots of banks are currently doing to survive the credit crunch.
The FSA claims these new rules are designed to combat market abuse – a handy catch all term, because in today’s ‘anything goes’ financial markets, it’s practically impossible to tell what counts as a fair and honourable transaction and what counts as sneaky, underhand market abuse.
Either way, once again the City of London earns it’s well deserved reputation as a snivelling hypocrite which insists that the government should leave it alone to get along with its business, except when things go tits-up and a hefty bailout at the taxpayers expense is required.
June 21st, 2008
It’s funny that after a decade of cheap credit, low interest rates and out of control house prices, it’s only now that people are starting to worry about inflation. Nobody seems to mind that it’s prohibitively expensive to buy a home, or even rent one, but as soon as the cost of a litre of petrol starts to creep up and a loaf of bread costs a few pence more, all of a sudden the people of Britain are up in arms. Where was all this righteous fury when an entire generation was being robbed of the opportunity to own a home at a fair price?
In any case, if you think inflation of 3 or 4% is bad, you ain’t seen nothing yet. The measure of inflation used to arrive at these numbers is the badly flawed Consumer Prices Index (CPI - which is explained in an earlier economonkey article here). Think honestly about how much the cost of your food and fuel bills have risen in recent years, and ask yourself if it’s really just a few percent? According to the Telegraph, which has taken a stab at producing an alternative index, the real cost of living has risen by almost 10% in the past year alone - but we suspect that’s still probably a bit optimistic.
Inflation - it was a hoot when the value of your property was shooting up by 10% a year, but not so much now that it’s starting to hit you in the pocket…
June 17th, 2008
According to the FT, chancellor Alistair Darling wants to put a panel of leading lights from the City of London’s financial sector into the Bank of England in order to oversee the Bank’s decisions on financial stability. So let me get this straight - here we have a bunch of suits from the city, where financial services companies have run riot for the past ten years, chasing increasingly higher profits with a completely reckless and selfish attitude to risk and the impact their greed might have on the wider economy, and these are the people who are being asked to advise the Bank of England on the best way to achieve economic stability? Isn’t that rather like asking a fat child with no self control to guard your cake?
We can only hope this ridiculous idea gets swept aside before anybody starts to take it seriously.
June 6th, 2008
It’s hard to avoid the “house price calamity” stories in the press today, so you’ve probably already heard that UK property values are dropping at record pace right now and it’s likely that they’ve still got quite a long way to fall. If you bought at the top of the market and/or overstretched yourself in a desperate rush to claw your way onto the property ladder at any cost, well, it sucks to be you right now. But for the rest of us, falling house prices can only be good news.
There’s a lot we could say about this subject, but this piece of analysis from the Guardian has already covered everything quite nicely.
May 29th, 2008
The number of complaints against financial services companies rose by 30% over the past year, according to the Financial Ombudsman Serice, which says it dealt with 123,089 new complaints during the 2007/2008 financial year. Complaints about mortgages and banking services tripled, insurance complaints doubled but mortgage endowment issues fell by nearly three quarters.
Over half of all complaints were about the country’s five leading financial services providers, which the FOS says is roughly in line with the ammount of business they account for in the UK. Following a succesful high court test case against unfair bank charges earlier this year, the FOS says it has seen a ten-fold increase in the number complaints about current account charges.
May 28th, 2008
According to the National Association of Estate Agents, the UK property market is now ’stabilising’ - which, if you cut through the spin, simply means that a few metrics such as the number of sales agreed and the difference between asking and sale prices have remained roughly level for the past couple of months. The NAEA itself admits that there are a lot of properties on the market, buyers are being more cautious, and more sales are falling through before completion.
A more accurate picture is painted by the British Bankers Association, which says that April saw the second lowest level of mortgage approvals on record and the month saw only a marginal improvement on March’s record low, so calling it any kind of recovery would be stretching the facts to breaking point.
There’s also bleak news for the British consumer services sector today - the CBI reports that this sector is currently struggling through its worst period since 2001 as consumers tighten their belts and cut back on luxuries like eating at restaurants and going to the cinema.
May 27th, 2008
Throughout the course of the UK’s insane ten year long property boom, the market cheerleaders have patiently explained that these massive increases in the cost of property are a natural result of the laws of supply and demand - the UK’s population is growing and there simply aren’t enough homes to go round. This, of course, is complete bullshit. Yes the population is growing, but that’s nothing new and taken in isolation it simply cannot explain a trebbling of house prices over the space of a decade.
The truth is that the easy availability of low-interest mortgages at higher than normal salary multiples meant that people were increasingly able to outbid each other to secure their ideal homes, and when this phenomenon started pushing up values thw widespread belief that ‘house prices only ever go up‘ took hold (in spite of the recent evidence of the early nineties market crash) and a speculative bubble was created, a situation where the only thing driving up property prices was the market’s confidence that whatever price you paid today, the value would be higher tomorrow. Supply and demand really had very little to do with it.
On the other hand, the laws of supply and demand do provide a very clear explanation of why property prices are likely to fall a very long way. As the Independent reports, the latest Hometrack figures show that the number of homes for sale has increased by 7% over the past two months, while the number of buyers registering with estate agents fell by almost 7% in May alone. More sellers, less buyers - supply and demand - there’s really only one way prices can go. And with the banks continuing to push up mortgage rates and tighten their lending criteria (regardless of goverment efforts to convince them to do the opposite) it’s hard to see how demand is going to rise any time soon.
Obviously this sucks for anybody who’s been unlucky/stupid enough to buy at the top of the market, but for society as a whole (especially the entire generation of adults who have been completely priced out of the opportunity to own their own home) it marks a long overdue return to some level of sanity in the propery market.
May 26th, 2008
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