History > 2008 > UK > Economy (I)

Warning

over one million homes at risk

Economic slowdown
would leave many borrowers vulnerable,
says FSA

Wednesday January 30 2008
The Guardian
Jill Treanor

More than a million homeowners could be at risk of serious financial difficulty and possibly losing their homes in an economic slowdown, the City regulator warned yesterday.

The Financial Services Authority is preparing for a tougher climate of rising inflation and a slower economy. It fears that many homeowners with large mortgages who have borrowed three and a half times their salaries or more could be at risk.

The warning comes as surveyors predict today that 123 homes a day will be repossessed this year. The FSA cites three warning signs on mortgages:

· The loan was taken out for longer than 25 years;

· It is worth more than 90% of the home;

· The amount borrowed is 3.5 times or greater than income .

Over a third of all mortgages sold between April 2005 and September 2007 fall into one or more of these categories. This suggests that more than 2m of the 5.7m mortgages written during this period are of potential concern.

It is the 1.04m customers whose mortgages contain two or more characteristics who most concern the FSA. It calculates that the number "most likely to default on loans" - those whose mortgage falls into all three categories - is 150,000.

The regulator is concerned that many borrowers are badly prepared for worsening economic conditions. It believes homeowners may have become too reliant on cheap credit and rising house prices to sustain levels of spending.

The FSA's concerns are based on the current economic climate deteriorating and an end to the easy credit available to many customers over the past two years.

A "significant minority" of customers could find their finances become very tight if lenders react to any worsening in financial conditions by cutting the number of mortgages they are prepared to sell.

The pressure on homeowners may not be eased by cuts in official interest rates either. The Bank of England is expected to sanction another cut next week - on top of its quarter point reduction in December. But the FSA admitted it was "not clear" whether the reduction would be passed on by the mortgage lenders, whom it notes could actually raise rates to deal with the pressures on their business.

Lyndon Nelson, the FSA's head of financial strategy and risk, said: "It is not necessarily the affordability of the mortgage. It is their other debt. Customers with other borrowing in addition to the mortgage are struggling."

"The other borrowings tip them over the edge," he said.

This could have repercussions for the wider economy if house prices start to ease and other spending slows.

The warning comes in the FSA's Financial Risk Outlook, which it uses to describe the risks it sees over the next 18 months. The regulator notes that the new loans were "concentrated in groups which historically have not been homeowners" which could make it difficult for lenders to predict how they will behave.

The FSA also points out that the level of repossessions is still relatively low, but believes they will rise. This is borne out by the Royal Institution of Chartered Surveyors, which today predicts about 123 homes a day will be repossessed this year.

The FSA has already sounded the alarm over 1.4m fixed-rate mortgages which are due to mature in the next 12 months and has warned mortgage lenders not to rush into repossessions.

The warning is just one of the "priority" risks it has identified for the next 18 months. The others include customers losing confidence in another financial firm, in the way they did with Northern Rock; concerns about the business models of some banks since the credit markets tightened; and a potential increase in finance crime caused by the downturn.

Warning over one million homes at risk, G, 30.1.2008,
https://www.theguardian.com/money/2008/jan/30/
mortgages.housingmarket

5pm update

London shares

in biggest fall since 9/11

Monday January 21 2008
Guardian.co.uk
This article was first published on guardian.co.uk
on Monday January 21 2008.
It was last updated
at 18:35 on January 21 2008.

Shares in London plunged today following heavy losses in Asia overnight, as intensifying fears over the state of the US economy triggered a wave of selling and talk of market meltdown.

The FTSE 100 index of leading shares was a sea of red, opening nearly 3% lower this morning and steadily ploughing new depths.

It closed at 5578.2 points, down 323.5 points or 5.48% on the day. That is the biggest percentage fall since September 11 2001, and the largest fall in points terms ever, wiping tens of billions of pounds off the value of Britain's biggest companies.

Miners and financial institutions were among the biggest fallers, as investors were unimpressed by a stimulus package for the ailing US economy announced by George Bush on Friday.

Only four FTSE 100 companies ended up higher than they started the day, led by insurer Friends Provident. It finished 3.6% higher at 158p after US private equity firm JC Flowers confirmed it was considering a takeover bid.

Northern Rock was a rare riser on the FTSE 250, gaining 46% to 90.8p on the back of the government's plan to turn its loans into bonds.

Tim Hughes, head of sales trading at IG Index, said it had been an "incredible day of trading".

Oil prices also slipped, with US crude dropping more than $1 a barrel to below $89 - indicating that traders expect demand may fall on the back of a slowdown in the world's biggest economy. That knocked energy-related shares in London, with Cairn Energy one of the FTSE 100's biggest fallers, down over 8.5%.

Bush's emergency $145bn (£74bn) package of tax cuts spooked the US financial markets on Friday, wiping out early Wall Street gains. Some analysts saw the plan as "too little, too late", while others said it suggested the problems in the US economy are even worse than previously thought.

In Japan, the Nikkei stock average today slumped almost 4% to a two-year low of 13,325 points, taking it back to the level it was at on October 25 2005. The Japanese market has lost almost 13% since the start of the year – compared with the FTSE's fall of around 12% since January 1.

Tokyo stocks had rallied briefly at the end of last week in the run-up to Bush's announcement, but analysts said expectations were too high. After a slow start to the year the Nikkei put on a combined 2.6% over Thursday and Friday.

"I think the 13,300 level is about bottom but you need a catalyst for a major recovery in stock prices," Kasuhiro Takahashi, general manager at Daiwa Securities, told Guardian Unlimited.

He said the stimulus could come when major corporations announce their third-quarter results next week. "If the October to December results are favourable then the earlier expectation that earnings will decline will have proved too pessimistic."

The fall in Japanese shares was also triggered by mounting concerns about the health of the domestic economy. Consumption is still weak and more trouble for the US economy will hit corporate income and wage hikes in the spring.

"A lot of today's problem is that Japan expected too much of the economic plan last Friday and stocks rose too far," Takahiko Murai at Nozomi Securities told Reuters. "Of course, it's only natural. The US economy makes up several percent of the world GDP so when it has economic problems the rest of the world suffers."

The banking sector suffered big losses amid continued fears over the knock-on effects of the US sub-prime loan crisis. Mitsubishi UFJ Financial, Japan's largest bank by market value, fell 6.2% to ¥915 (£4.42), while Sumitomo and Mizuho were down 5.2% and 4.6%, respectively.

Major exporters also suffered, with Toyota and Honda both losing out. Matsushita, the world's biggest producer of consumer electronics, lost 4% to close at ¥2,050.

    London shares in biggest fall since 9/11, G, 21.1.2008,
    http://www.guardian.co.uk/business/2008/jan/21/marketturmoil.equities

£70bn wiped off shares

as FTSE plunges

Published: 21 January 2008
The Independent
By Holly Williams and Matt Dickinson, PA

More than £70 billion was wiped off the value of blue chip shares today as the London market suffered its worst one-day fall since the September 11 terrorist attacks in 2001.

The stock market misery came as fears of a recession in the US intensified.

Traders described the losses on the FTSE 100 Index as "incredible", with the Footsie at one stage plummeting by as much as 330.7 points.

London's leading share index later closed down 323.5 points at 5578.2, almost equalling the dramatic 324-point fall seen the day after 9/11 and taking the FTSE 100 to its lowest level in around 18 months.

The drop continues an unprecedented slide in the top flight index this year amid a gloomy outlook for economies across the world.

Hefty overnight falls in Asian markets set the scene for today's decline, with indices in the region dropping by up to 4%.

Losses for the Dow Jones Industrial Average on Wall Street last Friday sparked the sell-off after investors were left unimpressed by President George Bush's plans to stimulate the all-important US economy.

Rumours today that Bank of China may become the latest banking giant to reveal a financial hit from the collapse of America's sub-prime mortgage market also tested investor nerves, according to experts.

The US stock market was closed for the Martin Luther King one-day holiday, but traders suggested America would be playing catch-up when it reopens tomorrow, which could lead to further volatility.

Martin Slaney, head of derivatives at GFT Global Markets, said: "The punches just keep coming. Ambivalence over Bush's rescue plan for the US economy was the trigger of this rout, causing fears of a global economic slowdown."

He added: "It's difficult to see where the turning point will come. With investors already pricing in a quarter-point cut in interest rates in the UK and as much as three quarters of a point in the US at the next meeting, it appears as though the usual fiscal stimuli are insufficient, as this can create an impression of panic."

Heavily-weighted banking and mining stocks were worst hit as concerns over a US economic slowdown gathered pace.

HSBC and Royal Bank of Scotland - both with heavy exposure to the US economy - fell 6% and 8% respectively.

FTSE 250 firm Northern Rock was one of only a few risers on the market, with shares up more than 46% as investors reacted positively to plans for a private-sector rescue for the mortgage lender.

Today's losses on the Footsie mean that the index is now down nearly 14% on this year's opening mark of 6456.9 - the worst start to a year since records began in 1935.

Richard Hunter, head of UK equities at broker Hargreaves Lansdown, said investors in London were "battening down the hatches" as US recession fears gripped the market.

He said: "People aren't buying the US bail-out story and that feeling has been exacerbated by the weakness overnight in the Asian markets.

"The other thing we have seen today is a lack of buying interest - people are battening down the hatches while they see what happens in the US."

Last week the Footsie dipped below the 6,000 barrier for the first time since the start of the credit crunch in August.

On Friday, President Bush unveiled plans for a special package of measures worth billions of dollars to help avoid a downturn in the US economy.

He said the growth package would have to be big enough to make a difference to the "large and dynamic" US economy.

Analysts are worried that the tax breaks and spending measures will do little to boost consumer spending in the US because of problems in the housing market.

    £70bn wiped off shares as FTSE plunges, I, 21.1.2008,
    http://news.independent.co.uk/business/news/article3356899.ece

Mortgage lending

hits a new record in 2007

Home loans reached a new record last year
but the UK housing market is on the wane,
with lending down 25%
 

January 21, 2008
From Times Online
Grainne Gilmor

Gross mortgage lending rose to its highest level last year. Figures from the Council of Mortgage Lenders (CML) show that banks lent a total of £362 billion to homeowners last year, up 5 per cent on 2006 and the highest level since records began in 1999.

But this record result comes as the market is slowing down. The CML said lending in December was £22.6 billion, down 25 per cent on November and the lowest level in any month since May 2005.

Michael Coogan, director general of the CML, said: “The credit crunch moved into its fourth month in December and continued to constrain the cost and availability of funds to lenders and, in turn, the cost and number of mortgage products available to borrowers.

“Looking forward, the recent decline in interbank lending rates and the prospect of further reductions in base rates in 2008 should provide some help to the market, although lending volumes are likely to remain weak for the next few months."

Rightmove, a homes search website, said that house prices slipped by 0.8 per cent this month, after a 3.2 per cent fall in December.

But Mr Coogan pointed out that the mortgage market was still competitive and would continue to offer good deals to lower risk borrowers.

Homeowners with credit problems are unlikely to be spoilt for choice when it comes to choosing a homeloan however. Many sub-prime lenders have tightened their lending criteria in the wake of the credit crunch, and this could leave sub-prime borrowers in a difficult situation as they struggle to get a new homeloan deal.

Simon Rubinsohn, senior economist at the Royal Institution of Chartered Surveyors, said market conditions could also prove problematic for first-time buyers. "Lower interest rates may provide some help as far as financing a mortgage is concerned but with many lenders scaling back on loan to value ratios, the need to find even larger deposits could prove a more powerful obstacle for those hoping to take their the first step on the property ladder."

    Mortgage lending hits a new record in 2007, Ts, 21.1.2008,
    http://business.timesonline.co.uk/tol/business/
    industry_sectors/construction_and_property/article3224415.ece

House prices tumble

January 20, 2008
From The Sunday Times

HOUSE prices fell in the last three months of 2007 in what was the first quarterly fall in seven years.

Average prices across the UK saw a 0.8% decrease, according to the latest Halifax house price index. The previous quarterly fall was in the second quarter of 2000, when prices fell by -0.1%. There are however some regional variations as prices in Scotland, the West Midlands, Wales and the North West went up.

The largest falls were in Greater London where prices dropped 6.3%. Values in the southeast and the east Midlands fell by 2.3%. Halifax expects values to stay flat this year.

Martin Ellis, Halifax chief economist, said: “The fact that we saw a rise in December gives us some hope we’re not at the start of a long and sustained period of decline. Sound economic fundamentals and lower interest rates will support house prices in 2008.”

    House prices tumble, STs, 20.1.2008,
    http://business.timesonline.co.uk/tol/business/money/
    property_and_mortgages/article3215254.ece

The banks' £4bn protection racket

After a record fine for an 'extortionate' loan protection scheme,
customers are urged to claim back what they are owed

Published: 17 January 2008
The Independent
By Martin Hickman,
Consumer Affairs Correspondent

A new scandal is brewing in the personal finance industry that could dwarf the revolt against overdraft charges which has tarnished the reputation of the banks and won customer refunds of £1bn. As the Office of Fair Trading begins a court case against those bank charges, thousands of customers are seeking, and winning, refunds of premiums for payment protection insurance (PPI).

PPI is meant to cover mortgage, personal loan and credit card borrowers if they lose their jobs or fall ill but the policies are riddled with exemptions and are often considered a waste of money. Taking out a policy can add £3,000 to the cost of a £7,500 loan.

About £4bn of the £5bn paid in premiums annually is kept by the industry, making PPI the most lucrative form of insurance in the UK. According to the personal finance campaigner Martin Lewis, half of the 20 million policies currently in force may have been mis-sold, amounting to £10bn.

In a warning that it will no longer tolerate the industry's failings, the Financial Services Authority yesterday imposed a record £1.1m fine on HFC Bank, which loans money to people with poor credit records. For two years to May 2007, HFC, a subsidiary of HSBC, sold PPI to 163,000 sub-prime customers, but its advisers failed to explain their recommendations or identify any of the many exemptions that would bar payments if they claimed through illness or redundancy.

The FSA, which warned last year that it would impose stiffer fines for mis-selling, said HFC's failings had in all likelihood caused its customers significant problems. "The fine against HFC – the biggest PPI fine to date and first since our September announcement – is evidence of our determination in this area," said Margaret Cole, the director of enforcement.

HFC joins 11 other companies fined for their selling of PPI, including two well-known finance companies, GE Capital Bank, which was fined £610,000, and Capital One Bank, which was fined £175,000.

Record numbers of PPI holders are complaining to the free Financial Ombudsman Service (FOS), emboldened by the growing internet campaign. Since last April, it has received 5,000 PPI cases, almost three times the total of 1,832 for the whole of the previous year. The monthly total has been rising sharply, from 237 in April to 970 in December. This month is expected to set a new record.

Emma Parker, the FOS's spokeswoman, said average payments of £3,000 were being awarded to the 80 per cent of customers who won their cases, adding: "We are upholding more consumer complaints about PPI than any other product." Campaigners say that although insuring loans can be sensible, customers should consider whether they should cancel or reclaim their existing PPI policy.

Seven million new policies are taken out every year and the profits overshadow the £2.7bn that banks make annually from overdraft charges, which the Office of Fair Trading hopes to limit in a case beginning today in the High Court in London.

Only 20 per cent of the money collected under PPI is returned to policyholders – a "shocking" figure, says the consumer group Which? – compared with more than half for home insurance and 80 per cent for car insurance.

Customers complain they have been told they will not be able to borrow money without the protection.

Policyholders are usually only covered for 12 months of the life of the policy, and then only for the first five years of any loan. And claims cannot be made on many common causes of illness, such as bad back or stress. People on short-term contracts or self-employed may not be covered for redundancy. "There is something wrong with the way PPI is sold. It is ridiculously extortionate and expensive," said Martin Lewis, from whose moneysavingexpert.com site customers have downloaded almost 200,000 letters demanding refunds.

"One of the problems is that banks have sold the policies to people without them knowing, so there are people who are not reclaiming because they do not know they have got PPI." The insurance industry says that it is improving and says that people need to be protected from a change in their circumstances.

In a statement, HFC said it was committed to ensuring that customers were sold suitable products: "It is, therefore, disappointing that... our procedures have been found to fall below the standards expected by the FSA and which we set ourselves." The Windsor-based bank promised to ensure customers had not been disadvantaged by writing to a "sample" of customers.

The claims management company portalclaims.com said 41 per cent of under-30s with personal loans mistakenly believed their policy was a condition of their loan. A further 12 per cent were given the impression that it would increase their chances of being lent money.

"This misunderstanding has been exploited by many banks," said the website's proprietor, Tim Moore. "At the moment, people can't reclaim their bank charges because of the court case.

"In the meantime, they should be reclaiming the thousands they are owed through mis-sold PPI."

Clare Powell, Willenhall, West Midlands: 'Bank conned me into taking out costly PPI on top of loan'

Clare Powell, Willenhall, West Midlands


"I fell into the trap of being told that I wouldn't get a loan unless I agreed to take out a PPI as well. In 1999 my husband and I decided we needed a new car and so we applied for a loan. I've been banking with HSBC since I was 16 so naturally I went straight to my usual bank. Perhaps I was a bit naïve not to have shopped around, but you like to think that regular customers get treated with respect. HSBC told me that I wouldn't be able to get my £5,000 loan unless I took out a PPI, so I did. It was a five-year loan and we paid it off on time every month. It was only in 2006 that I read that banks were not allowed to insist on customers taking out a PPI;I'd effectively been conned. I ended up filing a claim to HSBC and they reimbursed me for £1,300."

Rachel Hauxwell, Nottingham: 'It added a huge amount'

"I needed a loan to pay off debts. I divorced a few years back and met somebody new. We had very little money and had to start from scratch. We bought a house that needed repairs and just stuck everything on a credit card. Then I fell pregnant so had to quit my job. We decided to consolidate our debt into a £16,000 loan with First Plus. Even though our existing mortgage had adequate cover for further loans, it was hinted that we wouldn't be able to get the money unless we took out a PPI as well. Two years later, we remortgaged and, to our astonishment, found we owed £17,500 despite paying off the loan regularly for two years. The PPI had added a huge amount to the total. MoneySavingExpert.com advised us how to claim it back. The loan company offered us a £4,100 refund, which went on a new boiler."
 

Gemma Jones, Llanfairfechan, North Wales: 'They refused to pay twice'

"I took out a loan in 2004, to buy a car, from Lloyds TSB. The interest was 16.9 per cent. They told me I had to have payment protection. I was a naive 19-year-old. Since then I have claimed twice, but they refused it both times. In 2005, I was unexpectedly laid off and then in 2006 my employer went bust. Lloyds TSB said they would not pay out because they could not find him [the employer]. I couldn't sleep, lost weight and got very stressed because of my money troubles. After hearing about the campaign I wrote Lloyds a letter downloaded from moneysavingexpert.com. I got a letter back saying they were going to refund me £1,777 with interest, but about two months later I am still waiting. When I pay off my loan I'm changing banks. I haven't got a good word to say about Lloyds TSB."

Financial scandals

Pensions

During the late 1980s and early 1990s, members of company pension schemes were persuaded to join less lucrative private pension plans, missing out on payments from their employers. Two million people were affected.

Mortgage Endowments

Financial advisers working on commission sold borrowers endowment investment policies designed to pay back mortgages when they ended. But they did not generate the big lump sums expected, leaving five million people looking for extra money to pay off their home loans.

Bank Charges

Banks have been charging current account customers about £30 a time for breaching their overdraft limit or bouncing a cheque. The Office of Fair Trading believes the charges are so high they are illegal.

    The banks' £4bn protection racket, I, 17.1.2008,
    http://news.independent.co.uk/business/news/article3345155.ece

James Daley:

How to avoid being a victim of the rip-off

Published: 17 January 2008
The Independent

British consumers have been ripped off by overpriced and inadequate payment protection insurance (PPI) policies for well over a decade. Today, the industry is worth around £5bn-a-year and is estimated to account for as much as 20 per cent of UK consumer profits for some banks.

In spite of numerous inquiries – including a continuing Competition Commission investigation – thousands of loan, credit card and mortgage customers are still being strong-armed into buying these products every year, even though they are often unsuitable.

The idea behind PPI is a sound one, however. If you are out of work due to ill health or redundancy, the policies are designed to make sure you do not need to worry about your debt repayments. The problem is that most do not start paying out until you have been out of work for at least six months, while the providers make it remarkably difficult to make a claim.

Then, there is the issue of price. In many cases, banks' PPI policies can prove more expensive than the repayments on the loan.

However, it is possible to pick up policies for much less. Independent brokers such as British Insurance, (www.britishinsurance.com) sell policies for less than £3 a month. And whatever you are told when you take out a loan or a mortgage, remember it should never be compulsory to take out a PPI policy at the point of sale. If you are sure you want a policy, make sure you shop around.

Websites such as www.moneysupermarket.com allow you to compare the best prices on offer.

For most people, however, PPI will not be the best solution. If you are worried about being out of job due to sickness or redundancy, then why stop at simply insuring your loan or mortgage repayments? Income protection policies can offer you cover for your entire salary, ensuring you can pay all your bills if you are unable to work. Furthermore, unlike most PPI policies, income protection will continue to pay out for as long as you are out of work. Many PPI policies are only good for a year or two.

It may also be worth considering taking out critical illness cover, which pays a lump sum if you are diagnosed with a serious medical condition. Independent brokers such as Lifesearch (www.lifesearch.co.uk) will search the market to find the best-value protection products for your needs.

But before you buy protection, it is worth checking what your employer offers. Many large companies have insurance for their staff, and will pay a proportion of your salary if you cannot work because of illness.

Resist the hard sell from your bank or credit card provider. You will almost certainly find better value elsewhere.

    James Daley: How to avoid being a victim of the rip-off, I, 17.1.2008,
    http://www.independent.co.uk/

Housing market closest to slump for 15 years,

say chartered surveyors

· Tighter mortgage controls and interest rates to blame
· Professional body urges Bank to make rapid cuts

Wednesday January 16 2008
The Guardian
Angela Balakrishnan

House prices across the UK tumbled in December at the fastest pace in more than 15 years as tighter mortgage lending and higher interest rates pushed the property market closer to the biggest crash since the early 1990s, the Royal Institution of Chartered Surveyors says today.

Surveyors are urging the Bank of England to cut interest rates without delay to attract buyers and help stabilise the market. The latest monthly snapshot of the housing market by the RICS compares the proportion of surveyors reporting a drop in prices with those who saw the market climb. The study shows 49.1% more surveyors reported a fall than a rise. November's level was 40.6%.

The survey offers the bleakest picture since November 1992, when the UK last saw a severe slump in the housing market as properties shed almost 30% in value against a backdrop of soaring interest rates.

Price falls were seen across the country, with East Anglia and the West Midlands showing the heaviest decreases. Only surveyors in Scotland reported some subdued price rises.

"The Christmas slowdown started much earlier this year and hit harder," said Jeffrey Hazel, of Geoffrey Collings and Co in King's Lynn, Norfolk.

Even in London, which has been at the forefront of Britain's housing boom, surveyors said the outlook for 2008 was not promising. "We need one or two very urgent mortgage interest rate decreases," said Arwel Griffith of Lexicon Surveying Services in Walthamstow. "Even that might not assist very substantially in the currently gloomy market."

Ian Perry, a spokesman for the RICS, said: "The housing market is clearly feeling the pinch from the credit crunch and the round of interest rate hikes in 2007."

The Bank of England raised interest rates five times between August 2006 and August last year to 5.75% to cool the rampant expansion of the UK economy, double-digit house price growth and decade-high levels of inflation.

Last summer's credit crunch, sparked by the sub-prime mortgage crisis in the US, has gripped the world economy, making lenders more cautious. This has made it difficult for many buyers to get on to the property ladder, dampening demand.

Meanwhile, supply to the market is edging up. The balance of surveyors reporting a rise in new properties to sell turned positive for the first time since May. The RICS said the looser supply was partly due to the extension last month of home information packs to cover all properties as homeowners brought forward sales of their homes to avoid extra costs.

But Perry said the underlying economic conditions were vastly different from the early 1990s. "Supply would have to loosen considerably before prices experience a significant dip," he said. "The coming months will be of great importance to the market. The Bank of England may have to cut rates further if the market is to remain in a stable condition."

The Bank's quarter-point interest rate cut last month did little to bring Christmas cheer for buyers, the RICS said, with the survey showing that 25% more surveyors reported a fall than a rise in buyer inquiries. But this has eased from 31% in October as first-time buyers wait on the sidelines in the hope that interest rates will fall.

Policymakers decided to hold interest rates at 5.5% last week as they juggled a potential economic slowdown with fears of inflation ticking higher after oil prices flirted with $100 a barrel this month and as food prices creep higher. But analysts forecast that borrowing costs would start to fall next month by a quarter point, possibly ending the year as low as 4%.

Fallout

· London and the south-east, where million-pound homes became common and properties were snapped up in days, can no longer withstand the slowdown. Demand from the City is falling as bonuses and jobs suffer the effects of the credit crunch.

· The RICS says Scotland is the only region which saw price rises, albeit at the slowest pace since April 2005.

· While the RICS says the West Midlands is bearing the brunt of recent falls, Nationwide has said this was the most stable region last year.

· Northern Ireland, which is not covered by the RICS survey, was another red-hot market for housing, making it vulnerable to sharp corrections in prices.

· Northern Ireland and Yorkshire & Humberside were among the first areas to see price falls during the last quarter of 2007.

    Housing market closest to slump for 15 years, say chartered surveyors,
    G, 16.1.2008,
    http://www.guardian.co.uk/money/2008/jan/16/houseprices.interestrates

Gold surges above $900 to historic high

January 14, 2008
From Times Online
Patrick Foster

The price of gold today surged to an historic high, breaking through the $900 barrier to reach $914 an ounce.

The weakness of the dollar and the expectation of a sharp cut in US interest rates were behind the rush on the precious metal, analysts said.

Global economic uncertainty traditionally prompts investors to seek refuge in bullion, and the cheap dollar has made gold, which is traded in the US currency, more alluring to foreign investors.

Gold prices reached $914 per ounce in London this morning, up 50 per cent over the past year and 15 per cent in the past month.

The surge also prompted buyers to snap up other precious metals, with silver prices reaching a 27-year peak, platinum hitting a record, and palladium reaching a two-month high.

Analysts warned that the furious rise in the price of gold left the metal prone to sharp corrections.

Robin Bhar, metals analyst at UBS Investment Bank, said: “It’s human nature to buy into a market that is already showing strength. Most fund managers have a herd mentality and they are just attracted to gains. Gold could go higher still, but we don’t think this is a right time for buying.

“From a technical perspective, we would obviously need to see a close above $900 that would be construed as a bullish sign. But fundamentally, we are very cautious and would not advocate going long here because positioning is still extreme. There is a risk of $50-$100 correction at any time,” he said.

In London the price of spot gold was quoted at $9112.50 - $912.30 by 1130 GMT, compared with $895.70 - $896.50 in New York on Friday.

US gold futures reached $915.90 an ounce, surpassing Friday’s record of $900.10. The most active February contract was later quoted at $913.30, up $15.6 an ounce.

Darren Heathcote, of Investec Australia, said:”We are in an uncharted territory, really. We have a weaker dollar and that’s encouraged people to buy gold.”

The rising prices have already shown signs of filtering through to consumers, with high street jewellers H Samuel and Signet, owner of the Ernest Jones chain, reporting “substantial” increases in gold, platinum and diamond costs.

    Gold surges above $900 to historic high, Ts, 14.1.2008,
    http://business.timesonline.co.uk/tol/business/industry_sectors/
    natural_resources/article3184756.ece

Energy rip-off exposed

January 13, 2008
From The Sunday Times
Steven Swinford and Jon Ungoed-Thomas

BRITAIN’S biggest energy companies have stifled competition to raise prices and make record profits of more than £4.5 billion, a Sunday Times investigation has found.

The six companies that control Britain’s gas and electricity are now facing demands that they be referred to the Competition Commission.

Executives in charge of the six major companies were last week confirmed to be holding confidential meetings at least every two months to discuss market strategy. Smaller rivals are excluded.

The new disclosures come as a YouGov poll for The Sunday Times reveals that more than eight out of 10 customers believe they are being “ripped off” by the energy firms. Alistair Darling, the chancellor, is to meet Sir John Mogg, the head of regulator Ofgem, tomorrow for an explanation of the latest round of price rises.

Industry insiders said they are ready to give evidence about how the “big six” have driven up prices and boosted profits by:

- Keeping each other’s prices in step by raising and lowering tariffs within a few weeks of each other.

- Denying smaller rivals fair access to energy from their own power plants at affordable prices.

- Charging loyal customers significantly more than those who switch, so keeping up profits.

- Stifling competition by supporting laborious and expensive accreditation for new companies.

Allan Asher, chief executive of Energywatch, the consumer watchdog, said: “The problem with the energy market is that it’s lazy, complacent and uncompetitive. It has been able to drive out the possibility of any vigorous challenge to the prominence of the big six energy suppliers.”

The companies enjoyed a “bumper year” in 2007, profiting from a dramatic fall in the wholesale price of gas amid allegations they failed to pass on savings to householders. Analysts believe the companies are now poised to report record annual profits of more than £4.5 billion.

The companies last week confirmed that they were meeting regularly under the auspices of the Energy Retail Association. The association says market-sensitive issues are never talked about and pricing policies are discussed only in the context of a public debate about best practice. Rival energy companies say the association is a “closed shop” for the dominant companies and the minutes of meetings should be published.

The Sunday Times YouGov poll found that 85% of customers felt they were being ripped off by the energy firms. This compares to 76% of people who felt they were being ripped off by the railways; 74% by the petrol companies; and 59% by the banks and financial service industry.

    Energy rip-off exposed, STs, 13.1.2008,
    http://www.timesonline.co.uk/tol/news/uk/article3177612.ece

Big six energy firms

keep domestic bills inflated

Consumers lose out as giant firms stifle competition

January 13, 2008
From The Sunday Times
Jon Ungoed-Thomas and Steven Swinford

ON the fourth floor of a porticoed building a short stroll from Trafalgar Square, in central London, is a meeting room for one of the most exclusive clubs in the world. This is where the “big six” that dominate Britain’s gas and electricity industry regularly convene to agree market strategy, billing and sales techniques.

Among the small elite who attend these “private and confidential” meetings are Ian Peters, chief operating officer of British Gas, David Threlfall, chief executive of Npower, and Eva Eisen-schimmel, who launched the ice cream H�agen-Dazs in Europe and is now chief operating officer at EDF.

A laminated print-out reminds the six executives not to use language such as “stitch up the market”, although this is a forum to which smaller rivals are never invited. The members of this exclusive club have prospered in recent years while one by one most of their less powerful competitors have gone bust.

The meetings are held under the auspices of the Energy Retail Association, which says the six executives never discuss or agree price rises - that would be illegal. Instead, the members of the association - who pay an annual subscription fee of about £100,000 each - are meant to work for the “common good” without trying to secure competitive advantage.

But with Npower - owned by the German utility group RWE - announcing hefty price rises this month and others expected to follow suit, the companies face questions over whether they have been engaged in “tacit collusion”. Last week rivals accused the big six of jointly pursuing strategies to crush smaller competitors and bolster an anticompetitive market. The allegations are strongly denied.

Allan Asher, chief executive of Energywatch, which represents the interests of gas and electricity consumers, said: “British householders are a captive market. The energy companies should be fighting for market share, fighting for customers and fighting to offer the best value they can. But what they do is behave and price in almost exactly the same way.”

The most recent profits figures for the six main companies, which also include Eon, Scottish Power, and Scottish and Southern, reveal they made more than £2 billion in six months last year. Average household energy bills are expected to exceed £1,000 this year, compared with £572 in 2003.

According to well-placed industry insiders, the practices used by the big six to rack up profits include keeping domestic bills broadly “in line” with one another, restricting energy supplies to competitors and demanding laborious accreditation and creditre-quirements for new companies.

When deregulation was introduced in the late 1990s, it promised a new era of vigorous competition. There is still an array of deals on offer, but most smaller companies have gone bust and Energywatch says the big companies are reluctant to undercut each other by large margins. An analysis of price rises since September 2004 shows that on at least four occasions the big six announced increases within a few weeks of each other, even though they have very different costs on a monthly basis.

It is also claimed that the companies fail to pass on savings made when wholesale prices fall. Last year, when the cost of gas fell by 60%, household bills fell by only 13%. The companies say this is because they buy their energy in advance, insulating customers from the peaks and troughs of the market.

While those who switch get better deals, the profit margins are usually still considerable for the power companies. The consumers who remain loyal to their suppliers often face heftier bills than new customers. It has meant rising profits for the big six, who now control about 98% of the marketplace.

Keith Munday, commercial director of BizzEnergy, a Worces-tershire company that provides business with electricity and wants to break into the residential market, said: “Consumers are paying inflated prices because of the control these companies exert over the market. They are getting a very poor deal compared with the true costs of generating power and servicing customers.”

One of the biggest problems for rivals is that the big six have their own power stations, with direct access to gas and electricity. By restricting rival firms’ supplies, it is claimed, they can keep the wholesale market price higher, which ultimately means bigger bills for consumers.

Smaller companies also complain that the big companies support operating protocols and accreditation processes that are often too cumbersome and costly for rivals. Companies have complained to the regulator, but say little has been done.

The regulator Ofgem says the evidence of “churn”, as about 100,000 customers switch accounts each month, indicates a competitive industry. It says it has also tried to remove unnecessary barriers to companies wanting to break into the market.

Alistair Darling, the chancellor, wrote to Sir John Mogg, chairman of Ofgem, this month, asking him to explain why fuel prices were rising so markedly. They are due to meet tomorrow.

Duncan Sedgwick, chief executive of the Energy Retail Association, said the group discussed issues such as carbon emissions, smart meters, best standards in sales practices and billing processes, but discussion of specific price rises and profits was strictly prohibited. Pricing policy had been discussed in relation to the public debate on fuel poverty, but not in relation to any potentially competitive issues.

He said: “We want competition to work and it’s a fallacy to say there isn’t a difference in price. But we have to stop thinking so much about just the price, and more about how much we use.”

    Big six energy firms keep domestic bills inflated, STs, 13.1.2008,
    http://www.timesonline.co.uk/tol/news/uk/article3177628.ece

Rip-off Britain is back

January 13, 2008
From The Sunday Times


Remember rip-off Britain? This was when British consumers were routinely fleeced, paying higher prices than anybody else in Europe for food, clothing, cars and just about everything else. The car firms christened Britain Treasure Island because they could get away with charging much higher prices here. Then, thanks to intense consumer pressure, spearheaded by this newspaper’s rip-off Britain campaign, things improved.

For most goods, consumers now get a pretty good deal. Marks & Spencer shocked the stock market last week by announcing weak sales for the run-up to Christmas but it also said that it had cut its non-food prices by 6%. In the age of the £49 cashmere jumper and bargain basement figures at Primark, prices are pretty competitive on Britain’s high streets and in the car showrooms.

Unfortunately, like the hydra of ancient myth, rip-off Britain is hard to destroy. Chop off a few of its heads and more will grow back. They are back with a vengeance now, not in the shops but in a whole range of other areas, mainly services, that are squeezing household budgets and adding to economic uncertainty and gloom.

Npower has just increased its gas prices by 17% and electricity by 12% - with much bigger increases in some regions – and other utility firms seem certain to follow. The companies blame rising wholesale prices for energy. They have, however, developed a neat habit of passing on such rises but depriving customers of the benefits of any falls. More to the point, Npower and some of the other big energy suppliers have European parent companies. Strange then, or perhaps not, that British customers are facing bigger increases than consumers in their home markets.

For gas and electricity, read petrol and diesel. The recent record oil price of $100 a barrel has been felt by every country. But thanks to greedy oil companies and a greedy Treasury, it is felt particularly in Britain. Britain’s prices are close to being the highest in Europe.

Those who are tempted to leave the car at home, however, face a nasty shock. Even before winter really got going rail passengers were hit with a combination of service disruptions and sharp January fare increases. The government may have an inflation target of 2% but train operators have been allowed to raise regulated fares by an average of nearly 5% and unregulated fares by as much as 11%. If there is a logic in bumping up fares at a time when the government is trying to encourage passengers to shift from road to rail, it is hard to see it.

The list of rip-offs is long and growing. The government preaches low inflation and encourages responsible pay settlements for its workers but it routinely pushes through big price rises of its own. Council tax bills are headed for another above-inflation rise. Britain’s dentists are the most expensive in Europe, thanks to the disintegration of National Health Service provision.

For banks, rip-offs are a way of life. Tomorrow they will go to court to defend themselves against the Office of Fair Trading’s charge that they fleeced £5 billion from customers with excessive overdraft charges. Buying goods in the high street is easy compared with their confusion marketing and hidden charges, all designed to make unjustified profits. Our YouGov poll today shows an overwhelming proportion of the pubic believes it is being ripped off.

Why is this? Competition is tough in the high street but barely exists in other areas. Even if consumers can switch firms, the tacit collusion among providers means many decide it is not worthwhile. Too often, as in the case of rail fares, customers are captive. They may be angry, but they are impotent.

When Gordon Brown became chancellor more than 10 years ago, he promised consumers a better deal through tough regulation and a beefed-up competition regime. His watchdogs have not had enough bite, so another promise was broken. Rip-off Britain is back.

    Rip-off Britain is back, STs, 13.1.2008, http://www.timesonline.co.uk/tol/comment/leading_article/article3177707.ece

Northern Rock pension fund reveals £100m hole

The bank offloads £2bn mortgage book
as Goldman Sachs mulls plan to turn
its emergency borrowings into bonds

January 11, 2008
From Times Online
Gary Duncan

New obstacles were thrown up today to a potential rescue takeover of Northern Rock as trustees of the stricken lender’s final salary pension scheme revealed a £100 million hole in the pension fund’s assets.

It came as Goldman Sachs, which is advising the Treasury, prepares a list of possible financial structures for a rescue. It is understood this includes a plan to convert some of the Rock's emergency borrowings from the Bank of England into bonds, which could be sold on to third party investors.

Separately, Northern Rock also announced that it will sell its portfolio of Lifetime equity release mortgages, which holds assets worth some £2.2 billion, or 2 per cent of Rock’s total asset base, to JP Morgan, the US investment bank.

Rock said that the proceeds of the sale, for a premium of 2.25 per cent or £50 million above the portfolio’s balance sheet value, would be used to pay down some of its borrowing of about £26 billion from the Bank.

The emergence of a substantial deficit on the pension fund confronts would-be bidders for Rock with the prospect of having to find additional capital to plug this funding gap.

It may also place the pension fund trustees in a more powerful role where they could exercise substantial sway over any agreement between Rock, the Government and potential bidders on clinching a rescue package.

News of the deficit emerged in a letter to Rock staff who are members of its final salary pension fund, in which the trustees announced a shift in investment strategy to protect contributors and existing pensionsers, as well as a revaluation of the fund’s assets using more conservative assumptions.

The trustees said that they had asked for the pension fund to be revalued on a more conservative basis to reflect “the significant deterioration in the financial position of Northern Rock, which necessarily implies a more pessimistic view of the company’s ability to support the scheme in future”.

The result was the emergence of the £100 million deficit in what is still a draft valuation that has to be “agreed and finalised in formal discussions with the company”.

It may also be discussed with the two potential bidders who are in talks with Rock, Olivant and Virgin, the letter added. “We will of course emphasise to them our concerns and seek from them a commitment to provide the additional funding that is required,” the trustees said.

The trustees made clear that, were a rescue to leave Rock in a more secure financial position, and they then felt able to revert to their previous more aggressive investment strategy, then the draft valuation would show “a substantially improved position, and perhaps even a small surplus”.

In the meantime, the trustees concerns about the security of the pension fund meant that they had decided to transfer assets out of equities and into government bonds. The letter indicated that about 93 per cent of the fund is now investment in gilt-edged securities, bonds and cash deposits, with the remainder in property and private equity investments.

Northern Rock said it was selling its mortgages as, although they had earned it net interest after costs of £34 million in the last financial year to June 2007, the heavy costs of its Bank loans, at a penal interest rate, meant that these returns would be heavily reduced once the extra funding costs were taken into account.

It said it would continue to sell its Lifetime mortgage products to equity release customers cashing in on the value of their homes, and to service existing loans, on behalf of the US banking group.

Andy Kuipers, the chief executive of Northern Rock, said: “This is a relatively small transaction, representing around 2 per cent of gross assets.

“But it is a positive development int he company’s ongoing strategic review. It illustrates the quality of our assets, which has enabled us to achieve a sale at a small premium despite continuing difficult financial markets, and will allow the company to reduce its debt to the Bank of England.”

Yesterday, Alistair Darling paved the way for a nationalisation of Northern Rock as he told the bank’s shareholders that he would not allow them to stand in his way if a private sector rescue could not be found.

The Chancellor said that a sale of the stricken bank was still his preferred option, but conceded for the first time that a sale may not be achieved by his self-imposed deadline of February 29.

“I want to find a private sector solution if that is at all possible. It may not be possible,” he told MPs on the Commons Treasury Committee. “We are reaching a stage where we have to come to a conclusion one way or another.”

His comments came as it emerged that the Financial Services Authority is planning to keep private the detail of its internal review into the Northern Rock debacle, publishing only its conclusion.

Hector Sants, the chief executive of the main City regulator, told The Times yesterday that some details would have to be held back to protect the legal rights of any FSA staff who might be criticised in the report and to respect the confidentiality of other banks mentioned for comparison purposes.

    Northern Rock pension fund reveals £100m hole, Ts, 11.1.2008,
    http://business.timesonline.co.uk/tol/business/industry_sectors/
    banking_and_finance/article3169969.ece

Buy-to-let Paragon resorts to crisis funding

The troubled buy-to-let specialist
raises £287 million through 25-for-one-rights issue
as credit squeeze continues
 

January 11, 2008
From Times Online
Angela Jameson

Paragon, the  today moved to shore up its troubled business by announcing that it would raise £287 million of working capital through a deeply discounted rights issue.

The lender, which has become the first in the UK to resort to a hugely discounted rights issue, is offering shares to investors at a 90.2 per cent discount to yesterday's closing price of 102p.

The rights issue takes place as the lender expects its main financing facility to stop advancing funds from the end of February leading to a moratorium on the writing of most new business.

Shares in the company plunged 38 per cent in early trading to 63p, giving the company a market value of £72.5 million.

Paragon said that the proceeds will be used to repay a £280 million loan that falls due on Feburary 27, after it failed to find alternative sources of cash. The rights issue has been fully underwritten by investment bank UBS.

The third biggest buy-to-let lender first signalled its problems raising funding in November. Like Northern Rock, it relied entirely on the wholesale markets to finance its mortgage lending but was unable to continue raising finance since worries over US sub-prime loans prompted the credit markets to cease up in August.

"Since November 2007 the corporate facility banks have informed the company that they will not renew or extend the corporate facility and require full repayment on or before 27 February 2008 in accordance with its terms,” Paragon said in a statement.

“The board believes the rights issue will provide Paragon with a platform from which it can pursue further funding, so the company can return to writing significant volumes of profitable business when credit markets reopen,” Robert Dench, the chairman of Paragon, said in a statement.

Paragon is continuing to seek new sources of funding in order to write new loan business. However, if these are not forthcoming then new mortgage business will be restricted to further advances on existing mortgages financed by available redemption funds in Paragon's special purpose vehicles and a little new consumer lending using existing financing vehicles.

Paragon has already withdrawn some products from the market during November and December, however the board intends to maintain the group's brands, pending a return to more normal credit market conditions.

Since first alerting the market to its problems, the lender's business had continued to operate profitably as 90 per cent of its profits are made on the back of its existing loan book.

Paragon's shares have plunged by 78 per cent in the past year.

The company's crisis rights issue, which offers investors 25 shares for one, comes at a time when the housing market is slowing and as the crisis around Northern Rock, which was forced to borrow from the Bank of England, continues.

There are also concerns that a large number of buy-to-let owners will pull out of the market or reduce the size of their portfolios in the face of rising costs and falling values.

If a qualifying shareholder does not take up the entitlement to new shares, their proportionate shareholding will be diluted by 96.2 per cent, Paragon said.

In its statement, the company referred to the current uncertainty in the housing market but said that it believed that long term prospects for the private rented sector remained sound given demographic demand factors and supply restrictions in the UK market.

An emergency meeting of investors will be held on January 28 to approve the rights issue and it is expected that dealing in the new shares will begin on January 29.

    Buy-to-let Paragon resorts to crisis funding, Ts, 11.1.2008,
    http://business.timesonline.co.uk/tol/business/industry_sectors/
    banking_and_finance/article3170128.ece

Midday

Interest rates held at 5.5%

Thursday January 10 2008
Guardian
Angela Balakrishnan, economics reporter

The Bank of England held interest rates today at 5.5% as it chose to take a "wait-and-see" approach after mixed data over the last month left an unclear picture of the British economy.

The decision was a close-call as the monetary policy committee (MPC) juggled the risk of a slowing economy with rising inflation.

"The Bank of England is not yet out of the inflation woods," said Howard Archer at Global Insight. "Ideally, the MPC would like to see evidence that wage moderation is continuing in the early pay settlements for 2008 before trimming interest rates further."

The no-change decision comes as a blow to retailers, which had been hoping for a January cut to encourage consumers to spend after a gloomy festive trading season.

Households have also been hoping for some new year cheer as they start 2008 faced with higher utility bills, petrol costs, sluggish earnings growth and ongoing tight lending conditions.

However, sharp jumps in electricity and gas bills after energy providers such as npower announced price rises last week have renewed concern among policymakers that price pressures still pose a threat to the economy, especially with double-digit price increases by other companies expected to follow.

The pound has also weakened considerably, shedding 9% on a trade-weighted basis since August. This potentially feeds inflationary pressures by making imported raw materials more expensive. This is not welcome news for the Bank at a time when oil prices have touched new all-time highs and commodity prices are also hitting records.

Analysts said signs that credit conditions were beginning to ease would lessen the urgency to cut borrowing costs again immediately.

Interbank rates have fallen sharply on money markets in recent weeks to just 18 basis points above the base rate. This compares with December when interbank rates settled at about 110 basis points above the Bank rate, prompting all nine MPC members to vote for a rate cut in December amid fresh jitters in financial markets.

The last time the MPC cut interest rates for two months in a row was in the aftermath of the September 11 attacks in 2001.

"To get back-to-back rate cuts when the data haven't changed radically risks signalling a fundamental shift in the Bank's thinking," said Ross Walker, economist at RBS.

Most economists predict that interest rates will start to fall next month by a quarter point as the housing market cools, consumer spending softens and economic growth slows markedly.

Marks & Spencer yesterday sent shockwaves through the retail sector after reporting its first fall in sales for two-and-a-half-years, and warning that things would remain difficult until 2009.

The revelation echoed that of DSG International, the group behind Curry's and PC World, which issued a profit warning, as did furniture retailer Land of Leather. Department stores group John Lewis, which managed to buck the trend of bleak Christmas trading, also warned that this year would be tough.

Some analysts are forecasting that rates will end the year as low as 4.5%.

    Interest rates held at 5.5%, G, 10.1.2008,
    http://www.guardian.co.uk/business/2008/jan/10/interestrates.interestrates2

Midday update

Sainsbury's Christmas sales figures

better than expected

Thursday January 10 2008
Guardian
Fiona Walsh, business editor guardian.co.uk

Supermarkets group J Sainsbury brought some relief to the City today with news of better-than-expected Christmas sales, although Britain's third largest grocer joined the growing chorus of retailers warning of a tough year ahead.

Chief executive Justin King said underlying sales over the third quarter were up by 3.7%, excluding petrol. This compares with 3.1% in the second quarter and is Sainsbury's 12th consecutive quarter of growth. Total sales for the 12-week period ended December 29 were up by 4.7%.

Sainsbury's performance is in stark contrast to Marks & Spencer, which sent shockwaves through the retail sector yesterday when it reported a slump in sales, both in its core clothing business and in foods. Underlying sales on M&S's foods side were down by 1.5%.

At Sainsbury's, King said the strong Christmas performance was "particularly pleasing given the level of competition during this period".

It means the group has now met its three-year sales target to grow sales by £2.5bn. The target was reached earlier this month, three months ahead of schedule.

Over 21.5 million customers shopped at Sainsbury's in the seven days before Christmas, with more than 300,000 an hour going through the checkouts on the busiest day, December 23. Growth was seen across the range, from its basics range to its Taste the Difference premium products.

Like other retailers, King sounded a note of caution for the year ahead, although he feels the "doom and gloom" has been somewhat overdone in recent days.

While consumer budgets "are clearly under pressure" and there is evidence of "belt-tightening," consumers are still prepared to spend. "They are looking for value for money but are quite prepared to splash out when they want to treat themselves," he said. "Half the time when they buy the basics range they buy Taste the Difference as well."

Increased promotional activity in the supermarkets sector means that while the headline figure for food inflation is around 3-4%, the real figure is only around 1%, King said. "We're seeing a lot of competitive activity to grab the [consumer's] tightly held penny."

Online sales were strong, with the number of stores offering home delivery expected to rise from 140 to 200 by March 2010. Sainsbury's continues to increase the proportion of non-food products offered in its stores and said there was strong growth in homeware, toys, electrical, entertainment and clothing.

Sainsbury's shares jumped almost 8% today, reaching 393.25p by noon. Rival Morrisons, which is expected to have fared particularly well over Christmas, added 2%, and Tesco was up 1.2%.

    Sainsbury's Christmas sales figures better than expected, G, 10.1.2008, http://www.guardian.co.uk/business/2008/jan/10/sainsburys.supermarkets

11.15am update

Fall in M&S sales

sends shockwaves through retail sector

Wednesday January 9 2008
Guardian Unlimited
Fiona Walsh

Marks & Spencer sent shockwaves though the retail sector today as it revealed its first fall in sales in two-and-a-half years and warned that trading could remain difficult into 2009.

Its shares slumped 20% in early trading - wiping £1.7bn from its stock market value - as it said a poor performance over the crucial Christmas period pushed underlying sales down by 2.2% in the third quarter, well short of City forecasts.

Analysts had been hoping for continued sales growth at the group but today's figures show the core clothing and general merchandise side down by 3.2% and food by 1.5%.

Newly knighted chief executive Sir Stuart Rose said M&S is now "battening down the hatches" in the face of the consumer spending slowdown.

"There's a squeeze going on and everyone is feeling that," he told BBC Radio 4's Today programme.

"UK businesses, not just Marks & Spencer, are facing a real crunch which is your costs are going up (but) your ability to put up the price of goods is not going up."

Rose said he was concerned about the slowdown in the market: "We are saying that we think that 2008, and possibly into the first part of 2009, is going to be tough out there."

His gloomy view of the year ahead echoes the warning last week from fashion retailer Next, which said it was "extremely cautious" on 2008.

Marks & Spencer joins a lengthening list of retailers to be hit by the consumer spending squeeze. Electrical retailer DSG, which takes in Dixons, Currys and PC World, last week warned profits would fall £50m short of expectations, while furniture group Land of Leather saw its shares more than halved as it issued a stark profit warning.

But there have been some winners on the high street - John Lewis turned in a sparkling performance over Christmas, both on its department stores side and in its Waitrose supermarkets chain, although it also warned that 2008 will be a tough year.

M&S finance director Ian Dyson said he believed the company had done "a pretty good job" in challenging conditions and that it has held its recent market share gains.

Its growth plans are still in place, he said. "We have had nine quarters of like-for-like growth; this is one quarter of decline. This business is in as good a shape as it has ever been."

Retail analysts had been hoping M&S would push profits back through the £1bn mark for the first time in a decade but the poor Christmas performance and warning on the year ahead will now see those forecasts cut back. Analyst Philip Dorgan at Panmure Gordon, who described the figures as "dreadful", cut his forecast by 7% this morning, to £988m.

Rose added his voice to the growing calls for a cut in interest rates to relieve the pressure on consumers. The Bank of England's monetary policy committee begins its two-day meeting today and will announce its rates decision at noon tomorrow.

By 11am, M&S shares were down 99.5p to 404p, a fall of 17.5%. This is its biggest daily fall in 19 years, and wiped £1.5bn off its market capitalisation, valuing it at £6.9bn. At one stage, the shares hit 398p.

Shares tumbled across the retail sector, with Debenhams shedding 12% and Next dropping 8% at one stage. The FTSE index of leading shares was down 1% at 6,293.1, also weighed down by losses on Wall Street last night.

    Fall in M&S sales sends shockwaves through retail sector, G, 9.1.2008,
    http://www.guardian.co.uk/business/2008/jan/09/marksspencer.christmas2007

Revealed: a new bank rip-off

Published: 08 January 2008
The Independent
By James Daley, Personal Finance Editor

Some of Britain's biggest banks have unscrupulously exploited last month's base rate cut by failing to pass on the benefits to mortgage holders, yet at the same time imposing even bigger cuts on interest accruing to savings accounts.

The double whammy means banks are squeezing their customers tighter than ever this winter, as they fight to protect their dwindling profits from the credit crunch and potential legal action over bank charges.

New figures from the financial advisers Chase de Vere reveal that 18 banks and building societies – including high street names such as Alliance & Leicester, Halifax, Lloyds TSB and NatWest – have within the past month cut the rate on one or more of their savings accounts by more than December's 0.25 per cent cut in the Bank of England base rate. Over the same period, 14 lenders also failed to reduce their standard variable mortgage rates by the full 0.25 per cent, according to comparison service Moneyfacts, including Egg and, once again, Alliance & Leicester.

Meanwhile, banks have been busy raising their charges and fees, as they desperately try to recoup the income they are losing as a result of the credit crunch. Most of the big banks have restructured their overdraft charges in the past few months, introducing an ever-more complex web of fees designed to catch out consumers.

Although customers are no longer able to reclaim unfair charges through the courts – pending the outcome of a test case between the Office of Fair Trading and eight of the country's biggest banks, due to begin next week – consumers are still being hit with fees as high as £60 for exceeding their overdraft by only £50.

The squeeze has sparked a renewed backlash from politicians and consumer groups. Vince Cable, the deputy leader and Treasury spokesman for the Liberal Democrats, said it was time for much greater regulation of the banking sector, saying it was no longer acceptable to let banks earn " supernormal" profits at the expense of the consumer. "What's happening is that banks are securing as much money as they can for their shareholders on the upswing, and on the downswing they're running to the Government for help," he said. "And that's not an acceptable situation.

"The Cruickshank report [in 2000] pointed out that, if you evened out the cycle, the banks were making supernormal profits but they also have regulatory privileges, including a lender of last resort. Yet they're allowed to take consumers as far as they possibly can.

"The retail banking sector is effectively equivalent to a utility – pumping money around the economy – and it should be regulated like a utility. That means having a rate of return like utility companies and accepting regulation of their margins, and the amount they can earn on charges. Their profits must be reasonable."

Meanwhile, the banking backlash is set to gain even greater profile this week, as folk band Oystar releases a single "I fought the Lloyds and won ", telling the story of how one band member successfully reclaimed £530 in charges. It is expected to make it into the top 40 this weekend. The consumer group Which? is also planning a demonstration against the banks outside the courthouse on the first day of the OFT trial next week.

Nick White, head of personal finance at the comparison site Uswitch.com, said consumers should expect banks to continue to increasing charges in spite of the increased pressure, predicting consumers will only begin to get a better deal if the OFT wins its court case.

Lloyds TSB has been one of the worst offenders with its overdraft charges, hitting consumers with fees of up to £20 a day for exceeding their limit.

"Quite simply, the banks are making less money than they were before," said Mr White, "and they need to find new ways of making it back. As a consumer, it's more important than ever to keep an eye on how much you're being charged – and if you don't like it, use your power as a consumer, and switch."

Nationwide Building Society yesterday launched a campaign to force the banks to provide customers with greater transparency and better value on their savings accounts, complaining too many are manipulating their interest rates to put themselves at the top of "best buy" tables. The building society said too many savings accounts had artificially high headline rates, which drop back to ordinary rates after the first few months, while an increasing number of accounts are also subject to onerous conditions, such as removing all interest payments in any month where a withdrawal is made.

Matthew Carter, the director for savings at Nationwide, said: "Some providers seem more interested in boosting profit and achieving best-buy status than offering long-term good value to their customers."

    Revealed: a new bank rip-off, I, 8.1.2008,
    http://money.independent.co.uk/personal_finance/
    invest_save/article3318006.ece

Every UK home

to face 15pc energy price rise

Sunday January 6 2008
The Observer
Nick Mathiason and Jo Revill

A massive increase in gas and electricity bills for all of Britain's 24 million homes is to be announced by all the major energy companies in the next few weeks.

The country's energy giants are preparing to increase fuel bills by 15 per cent. This follows the decision by Npower, the fourth largest supplier, to raise prices by as much as 27 per cent on certain tariffs last week.

With rising food, petrol and borrowing costs eating into household budgets, there is a growing fear among economists that a leap in fuel bills will spark a consumer downturn which in turn could see layoffs in the retail and construction sectors.

Senior executives from some of the UK's biggest energy suppliers told The Observer that sharp price rises are virtually certain and will be announced next month. Around 24 million homes in Britain are served by the six major companies, and the increases will make household gas and electricity bills almost double what they were five years ago.

Officially, firms say they are 'monitoring movements in the energy markets' where oil surged through the $100-a-barrel level for the first time last week. But in private they admit price rises are inevitable in the next four weeks.

'In the recent past, one supplier goes [for a rise] and four to six weeks later the rest of the market goes,' said a senior figure at one supplier. 'I expect that by mid-February we will follow suit. We were shocked by the 27 per cent figure. Everyone knows oil is $100 a barrel and that pushes up gas prices. Most of the suppliers will look for prices rises of 15 per cent.'

The government acknowledged there is little it can do. Energy Minister Malcolm Wicks said: 'Price changes are commercial decisions for the companies involved and we must recognise the fact the global demand is pushing up energy costs worldwide.' He added: 'The competitive energy market has delivered over the last decade significant savings for UK consumers and is monitored by an independent regulator, Ofgem.'

But he said the government recognised the effects price rises can have on businesses, 'especially on vulnerable customers. Tackling fuel poverty is a priority and since 2000, we have spent £20bn on benefits and programmes including winter fuel payments and funding for heating and insulation in low income homes.'

Karl Brookes, spokesman at consumer watchdog Energywatch, said the rises would 'wreak havoc' on consumers. He attacked firms which ratcheted up prices at the rate of 'an Olympic sprinter once harsh winds of rising costs start but drop prices at a snail's pace as energy prices ease'. Last week the Bank of England warned that one million home owners face a £1,000 'credit crunch tax' as the cost of borrowing rises after the US sub-prime mortgage disaster and the Northern Rock crisis.

Britons have £222bn of outstanding credit card bills as lenders refuse to pass on cheaper interest rates. The Citizens Advice service has already reported a sharp increase in inquiries from the public facing severe financial difficulties and it expects the situation to get worse this year.

Liberal Democrat environment spokesman Steve Webb said: 'Energy price increases on this scale, if repeated by other suppliers, will drag well over half a million people into fuel poverty. Meanwhile, far too many elderly people are having to pay a fortune to heat draughty and poorly insulated houses. This drives pensioners further into poverty and is bad news for the planet.'

Fears are growing that a retail and construction downturn could spark an increase in unemployment.

The UK is particularly prone to gas price rises, say energy experts, because European power monopolies like Germany's E.ON and Gaz de France, which supply British consumers, buy North Sea gas during the summer months to put into storage to replenish reserves used up during winter. But instead of releasing the gas for sale in the UK during winter, much of it is often held back for their French and German customers.

    Every UK home to face 15pc energy price rise, O, 6.1.2008,
    http://www.guardian.co.uk/money/2008/jan/06/householdbills.utilities

Bank of England

issues gloomy credit forecast

as high street shops suffer

Thursday January 3 2008
Guardian Unlimited
Ashley Seager 

The supply and price of credit to both businesses and households has already tightened and the situation is likely to get worse in the early months of this year, the Bank of England warned today.

As it released its quarterly credit conditions survey, DSG International, owner of Currys and PC World, said it had suffered bad Christmas sales and warned that its profits would fall sharply during 2008 while Next warned that it was "extremely cautious" about the year ahead.

The Bank's survey showed that lenders had said that the amount of secured credit they had made available to consumers in the fourth quarter had "reduced materially" as a result of the global credit crunch which did for Northern Rock in September.

Crucially, banks said they expected the situation to continue or worsen in the first three months of 2008.

Firms also reported that they were suffering the effects of tighter credit, with the availability of borrowing already down "significantly" during the past three months.

Economists said the survey was not unexpected, but did show that the Bank of England's monetary policy committee had been right to cut interest rates last month to counteract the tighter credit conditions. Several urged the MPC to act again when it meets next week, especially as its latest survey was considerably worse than had been envisaged in its previous survey.

"The conclusion should be that the report provides concrete evidence that the effects of the credit crunch are spreading to the wider economy including households. We view this as further ammunition for an interest rate cut at the January meeting and there is no reason to wait until February," said Alan Clarke, economist at BNP Paribas in the City.

The survey also showed that mortgage defaults were likely to increase in the coming months. Over a million borrowers are set to come off cheap fixed-rate deals on their mortgages this year and will face considerably higher interest rates.

And the reports from the high street looked equally gloomy.

DSG said sales of computers, in particular, had been disappointing over the Christmas period. It also said its profits in 2008 were likely to be £50m lower than last year, an admission which caused the retailer's shares to plunge 22%.

In a sign of growing pressure on retailers, Next also warned that like-for-like sales from its high street outlets would shrink for the fourth year in a row during 2008. The gloomy news saw B&Q owner Kingfisher worst hit in the FTSE 100 Index, with shares down more than 7%. Home Retail Group, which owns Argos and Homebase, also fell nearly 7%, while Marks & Spencer was down more than 3%.

Alongside DSG in the FTSE 250 Index, Comet owner Kesa Electricals and H Samuel jeweller Signet were also under pressure, with 8% and 7% falls respectively.

    Bank of England issues gloomy credit forecast as high street shops suffer,
    G, 3.1.2008,
    http://www.guardian.co.uk/business/2008/jan/03/bankofenglandgovernor

Christmas bills herald sharp rise

in debt and bankruptcies

Thursday January 3 2008
The Guardian
Rupert Jones and Ashley Seager

The spending binge over Christmas looks likely to be followed by a big rise in personal insolvencies, falling house prices and debt problems for a quarter of the population, it emerged yesterday.

Accountants Grant Thornton warned that excessive Christmas spending will account for up to a third of all the people who declare themselves bankrupt in the first three months of this year.

The firm estimates that 28,000 people will be unable to cope with their debts during the first three months of 2008, and will either file for bankruptcy or take out an individual voluntary arrangement. It predicts a total of 120,000 people will go insolvent during this year, or 10,000 people a month. This would beat its predictions for 110,000 insolvencies for 2007. In 2006 the number of people going insolvent broke through the 100,000 barrier for the first time to reach 107,288.

Mike Gerrard, head of Grant Thornton's personal insolvency practice, said: "Sadly, many individuals spend up on credit at Christmas and pay no heed to the financial warning bells.

"Come January, they find themselves in a situation where previous financial woes are compounded by the bills arriving from the festive season and in these situations insolvency becomes the only way out."

The warnings come after a run of weak data from the housing market over Christmas suggesting prices have been falling for the past three months while mortgage approvals - a good guide to where the market is heading - have tumbled 44% from the same period last year.

Other research showed almost one in four people are finding their debts "unmanageable", prompting fears that last month's interest rate cut could be too little, too late for some of those in severe financial difficulty.

Britain's total personal debt now totals £1.39 trillion, and consumers are paying out £93bn a year in interest on loans, credit cards, overdrafts and mortgages, according to the comparison website uSwitch.com.

YouGov research for the company found that an estimated 9.5 million people in Britain had "maxed out" on at least one form of credit over the past six months, and that 23% of the population were finding their current level of debt unmanageable.

Many people could save money by opting for cheaper forms of borrowing - but with many banks and other loan providers tightening their lending criteria in response to the credit crunch, those with less than perfect credit histories are finding it increasingly difficult to obtain credit.

The average household is paying about £3,744 in interest a year (on all borrowing including mortgages), which is £517 more than last year, and has amassed unsecured debts of £4,281, made up of £2,684 owed through loans, £1,204 on credit cards and £393 on overdrafts.

    Christmas bills herald sharp rise in debt and bankruptcies, G, 3.1.2008,
    http://www.guardian.co.uk/money/2008/jan/03/debt.personalfinancenews

Broke Britain: millions face struggle

to stay afloat as financial crisis hits home

Published: 02 January 2008
The Independent
By Martin Hickman,
Consumer Affairs Correspondent
 

Debt experts are predicting a record number of personal insolvencies this year as excessive Christmas shopping, rising mortgage payments and soaring food and fuel costs force thousands of people over the financial edge and into bankruptcy.

More than nine million individuals in Britain are now believed to be struggling to pay credit card bills and mortgages, with the average owed by problem debtors hitting £30,000.

In alarming figures to be released tomorrow, the accountancy firm Grant Thornton predicts the total number of personal insolvencies will jump to at least 120,000 this year, almost triple the equivalent figure in 2004, when just under 47,000 people went bankrupt.

Insolvency experts say people have been readily loading large amounts of debt on to credit cards and personal loans, despite the economic slowdown.

High-street shops and online retailers reported higher-than-forecast takings in December, while the new year sales have also been busier than expected. One commentator described the Christmas shopping spree as one last hurrah before a tougher 12 months ahead.

Although the economy is still vibrant and employment plentiful, the supply of cheap and easy credit that has revved the economy for years is being turned off as a result of the sub-prime lending crisis in the United States. Fewer mortgages are being granted to people in Britain with poor credit records. Credit card limits are being lowered and personal loans are becoming harder to obtain.

According to a poll conducted by Uswitch.com in November, 38 per cent of new applicants for credit cards and 19 per cent of applicants for new personal loans were rejected, while 6 per cent have had their credit card limit cut. With food and fuel prices also set to rise in the new year, levels of disposable income are likely to drop, deepening the difficulties of those attempting to repay debts.

Those already in debt will find themselves at the mercy of collection agencies more determined than ever to recoup money for clients. According to one industry journal, the coming crisis means that "debt collection agencies will need to adopt more sophisticated methods in order to deliver value back to their clients".

The latest figures indicate that 23 per cent of people – 9.5 million adults – were finding their current level of debt "unmanageable". Although the Bank of England cut the base rate of interest last month, an estimated 1.4 million people will still have to pay more for their home loans when their fixed-rate deals come to an end this year, costing an extra £150 to £250 a month.

Tomorrow, Grant Thornton will forecast that 10,000 individuals will hit the financial wall each month in 2008, with 28,000 individuals sliding into insolvency in the first quarter. As many as one third of bankruptcies in the first three months of the year will be caused by "excessive Christmas spending".

Mike Gerrard, the head of Grant Thornton's personal insolvency practice, said: "Sadly, many individuals spend up on credit at Christmas and pay no heed to the financial warning bells. Come January, they find themselves in a situation where previous financial woes are compounded by the bills arriving from the festive season and in these situations insolvency becomes the only way out."

Mike Naylor, a personal finance expert at uSwitch.com, remarked: "People have enjoyed easy access to cheap credit for quite some time, but for some, the party really could be over." He said those with a poor credit record would experience a particularly tough time.

In a survey last month, the Bank of England found that more than one fifth of those whose mortgage deals had come to an end last year struggled to meet higher payments.

Experts predict a rise in Individual Voluntary Agreements (IVAs), a less stringent form of bankruptcy, because banks are once again accepting them after quibbling with their terms last year. Bankruptcies are also expected to be more readily accepted by individuals because they have become so commonplace and so their stigma has fallen.

Malcolm Hurlston, the chairman of the Consumer Credit Counselling Service (CCCS), predicted there would be a small rise in IVAs and a "quite substantial" rise in bankruptcies.

When individuals are declared bankrupt their debts are written off, but they are often credit- blacklisted for years and may have difficulty finding a job.

Debt agencies said they had been busy during December, which is usually a quiet time.

On average, people approaching the CCCS have debts of £30,000. About 45 per cent of that is from personal loans, 40 per cent from credit cards and 5 per cent from store cards and other lending. The organisation estimates that 7 per cent of the adult population is experiencing serious debt problems, which would represent about 3.3 million people in the UK.

"Nearly all of them have lost control," said Mr Hurlston. "Some of them can sort their finances out but some of them need some kind of solution, which might be making voluntary payments; it could be IVAs or it might be bankruptcy."

Steady increases in the cost of living are expected to tighten the screw. In only 12 months, Grant Thornton said the cost of filling up a vehicle with unleaded petrol had increased by 16 per cent, which meant the public was having to find an extra £155 a year to fill up the car.

Mr Gerrard said: "Coupled with rapidly increasing gas and electricity prices, which are forecast to jump by more than 10 per cent early this year, it's easy to see how those already struggling to pay off credit, particularly those servicing mortgages, are caving in to the pressure." He warned: "I believe personal insolvency numbers will move forward at a much faster pace than anticipated."

Howard Archer, the chief UK economist at Global Insight, suggested that in general people would have to be more frugal this year. "Household purchasing power is likely to be dented by higher energy and food prices over the coming months, while many home owners face having to re-fix their mortgages at significantly higher rates.

"Furthermore, increasing concerns about the economic outlook are likely to further encourage consumers to tighten their belts," he said.

The British Bankers' Association urged people to check their finances carefully and to get in touch with lenders as soon as they got into difficulty.

How to keep on top of your cash

Five money-managing tips from the British Bankers' Association

* Keep an eye on your spending – check your bank statements;

* Don't ignore the bills – where you can, arrange to pay monthly so you can spread the cost;

* Be careful with the credit card – if you're tempted to overdo it, leave the card at home;

* Start to save, or save a bit more – there are some good offers as banks compete for your cash;

* If you think you are heading for difficult financial times, go and talk to your bank sooner rather than later

    Broke Britain: millions face struggle to stay afloat as financial crisis hits home,
    I, 2.1.2008,
    http://news.independent.co.uk/uk/this_britain/article3300968.ece

Robert Verkaik:

Meanwhile, business is booming

for the debt collectors

Published: 02 January 2008
The Independent

The first contact with a debt collection agency is usually a bright red envelope in the post. The second is a late-night phone call informing the debtor of the agency's involvement. And the third is the dreaded knock on the door.

It is an experience that is becoming more common for the over-stretched consumer. The debt collection industry grew sharply last year as higher borrowing costs and fallout from the credit crunch forced more people closer to the financial brink.

There are now estimated to be 5,200 enforcement agents in England and Wales, including 600 county court bailiffs and more than 1,000 unregistered debt collection companies. Since 2003 the size of the industry has almost trebled, growing from £8.6bn of debt sold on to professional collection agencies to £22.7bn by the end of last year. It is forecast to grow to £24.1bn by the end of this year.

Newly published figures from the Credit Services Association, which represents 95 per cent of the debt collection industry, underline the growing problems of personal debt in Britain, which has been exacerbated by the credit squeeze as troubles in the financial markets spread to the wider economy. More borrowers are being refused credit cards and loans but many are paying the price for over-extending themselves in the past.

There are two kinds of debt collectors – those acting on a court order and those instructed by a business or bank to recover money without the need for legal action. Court-appointed agencies must comply with a strict code of conduct which means bailiffs cannot, for example, "levy distress" if the debtor appears to be suffering a severe physical or mental disability, is heavily pregnant or recently bereaved.

Guidance issued by the Office of Fair Trading also protects debtors who are confronted by business-appointed debt collection agencies which rely on fraud or sharp practices to obtain money.

Robert Verkaik: Meanwhile, business is booming for the debt collectors,
I, 2.1.2008,
http://comment.independent.co.uk/commentators/article3300967.ece