Interest rate minutes released

The minutes from April’s monetary policy committee show that the Bank of England’s policy makers are in favour of keeping rates at the all time record low of half a percent.

The vote was recorded as being 6 to 3 in favour of keeping the current rates and holding them for now. This is the third month in a row that the same three members have voted to raise interest rates. The committee has however maintained that their view on inflation had not changed and that rates will remain the same. It is not expected that the Bank of England will increase that interest rate until august due to the risk that inflation could rise to or exceed 5%.

Two of the committee members, Mr Dale and Mr Weale voted for a raise of 25 basis points to 0.75% and Mr Sentance voted for a raise of 50 basis points to 1%. This comes after Februarys fall in the consumer price index to 4% was combined with a rise to 5.4% of the producerprice index. Mr Posen however, voted to increase the asset purchase programme by £50bn bringing the quantitative easing to a total of £250bn

Filed under: Economy

Home retail group profits down

The Home Retail Group has seen a drop in its yearly profit of just below 10%.

The group who own Argos and Homebase have posted full year profits of £265.2m which was expected as the group had posted a profit warning last month, the company has said revenue had fallen 2.8% to £5.85bn and the cash gross margin dropped 4% to £2.18bn. Last year they saw a profit of £292.9m however the DIY market that Homebase competes in has been shrinking.

A large proportion of the Home Retail Group’s business is moving in to online retail, reaching almost half of all sales in the case of Argos. Argos is all so launching a shopping channel to compete in the home buyer market.

The group have also cut the costs of distribution and operation by 3%. Share prices remain around the 200p mark with a rise of 5% in early trading.

Home Retail Group chairman Oliver Stocken said:

“Economic uncertainty and a low level of consumer confidence continue to adversely impact customer spending patterns, despite these challenges, the group continues to build on its strategic advantages to ensure that it will be well-positioned for the economic recovery over the longer term.”

Filed under: Business

Rightmove prices show property under pressure

The Telegraph reports on a recent release from Rightmove that there are now double the amount of properties on the market than mortgages being approved.

Of especial concern is that sellers are proving very reluctant to reduce prices to increase the chances of a sale.

The bottom line is that any property is only worth what someone is willing to pay, and the lack of First Time Buyers in the market means the number of buyers overall in the market is very much reduced.

The result is that there are too few people buying, and sellers are not making rational corrections in price for this.

While Rightmove also provides the following statement, “There is still a clear imbalance between supply left on the market and demand even taking this into account. Demand is restricted by mortgage availability and potential buyers economic circumstances.”

While demand is indeed restricted by mortgage availability, it’s important not to fall into the trap, oft parroted in the media, that the problem of slow market conditions is due to banks being more restrictive.

In fact the opposite is plainly true, and that property prices and not mortgage availability are the key problem.

Property prices experienced a boom as cheap lending – up to 125% mortgages – resulted in people over-reaching normal sensible spending. Property prices are also way ahead of normal trend curves such as the earnings to price ration.

Market conditions suggest that property prices will need to come down, the sooner the better to get this correction out of the way.

Otherwise, if we don’t see a clear orderly retreat from the current highs, then the twins dangers are extended stagnation, or a sudden house price crash as too many sellers knock down prices at the same time.

 

Filed under: Property

New FSA powers unlikely to stop property collapse

The BBC reports that the FSA has implemented new poers to ensure that repossessions are now a matter of last resort for mortgage lenders:

Under the new rules for treatment of borrowers in arrears, the FSA is insisting that:

• firms must not apply a monthly charge where a repayment agreement for arrears is already in place
• any payments made by customers must be first allocated to clearing the missed monthly payments, rather than to arrears charges which can be repaid later
• repossessions should always be the last resort.

In addition, firms will be obliged to record all telephone calls with customers in arrears and keep them for three years.

However, these steps are unlikely to stop the flow of repossessions likely in the future.

What few commentators are speaking about at present is that we are continuing to live with record low interest rates, but that these will inevitably have to rise soon enough. The current mortgage standard of around 4% is likely to rise to around 7%-8% and this is when the pain will really start to hit.

Not only that, but we are likely to see the general economic slowdown and rising interest rates impact the property market, dragging it down, resulting in negative equity as a real sting for many consumers with a mortgage. We’ve already seen a report of house prices falling this week, and I would expect the issue to be compounded through this year.

Filed under: Economy, Property

Osbourne gives BoE full powers, but more is required

Last week one of the biggest financial stories was George Osbourne’s effective dismantling of the FSA and returning full supervisory powers to the Bank of England:

In his first Mansion House speech, Mr Osborne said he would abolish the current system of financial regulation.

The Financial Services Authority (FSA) will “cease to exist in its current form”, he told the City of London.

But he also revealed that Hector Sants, the chief executive of the FSA, would stay on to oversee the transition.

The chancellor added that Financial Secretary Mark Hoban would set out further details to parliament on Thursday.

The problem being, of course,as has been widely pointed out, no regulator across the world appears to have really seen the financial crisis coming, instead living in hope that while they made hay while the sun shined, that the sun would keep shining. The regulators were all fooled by complex inventment instruments, and so were the rating agencies, the sellers, and the buyers together. Only a few lone voices saw any real danger and they were ignored until too late.

The danger is that the change in regulatory structure is not simply too little too late, but that it will also cause restrictions on economic growth. If the Bank of England can now start to restrict mortgage lending, and lending to business, the resulting lack of credit in the economy can only constrain growth, and come at precisely the wrong time.

This is probably even more a salient point as Mervyn King has suggested that interest rates may have to rise sooner, rather than later. In which case, it can only create yet another additional pressure on credit in the economy. While too much credit has been proven to be a bad thing, too little credit is demonstratively counter-productive as well.

In the meantime, how effective can the Bank of England be with main regulatory powers under it’s main control, if no one in the decision-making process notices the real dangers anyway? And how likely is the Bank of England going to address existing economic imbalances, not least in the UK property market and its still extant bubble, after allowing it to develop for so long?

The real problem for many people is not regulatory supervision either, as unfortunately consumer-orientated needs are still being driven by smaller, daresay ineffective agencies. For example, the FSA will now become just Consumer Direct, an organisation that for all intents and purposes is simply a conduit for complaints, rather than a body that can truly address them in the first place. And then there are the other consumer bodies, weak and little effective, such as the Office of Fair Trading which has continued to give the green light to unscrupulous lenders, while the Ministry of Justice continues to licence debt claims management companies which have taken money from consumers for years, and yet never delivered a return for them.

There is a serious problem with regulation and supervision of the financial services industry being disjointed. While dismantling the FSA may seem like an initially helpful move, evidence suggests the real reform is required at the point where consumers meet service providers, and as yet, this area still remains disjointed and exposes consumers to unnecessary exploitation.

Filed under: Business, Economy

Offices almost set up for A1

It has been a while since I last posted due to the length of time required to set up the offices.

Finding suitable offices has proven to be a surprisingly difficult endeavour, with quite a number on the market, but few actually properly suitable because of their existing design, not least in older buildings.

However, it looks like we’re finally moving the A1 Loans Company into office space at Beechwood.

There are still a couple of issues to address first before we’re properly operational, though.

The first is that we still haven’t cleared a full list of representatives to send our leads through. We are still waiting for Central Trust to address some technical support queries to allow us to sort leads automatically for personal loans on our A1 loans website.

We’re also trying to get the business phone system sorted out so that we can automatically direct leads for different products to different phone lines automatically. There are plenty of phone systems available for office maintenance, but it requires bringing a number of third party providers together, not least BT and their inept support department.

However, it looks as though we’ll be setting up our broadband through a dedicated provider instead, and use a leased line internet connection to ensure we have plenty of spare capacity bandwidth. While it’s proving an expensive option, we need to ensure plenty of redundancy is built into the service due to much of it being sorted automatically either via the internet or the phone line, so it remains an essential trunk of the business.

Office furniture is not so much of a problem. Because of the financial crisis there is actually a lot of inventory available at present for second hand, and we’ve been able to pick up quite a bit of office equipment like this. However, all electronics are being bought new, not least the business computer system, as the last thing we’ll need is any of the main computers crashing and taking down our data or other essential operations.

Staffing is not a problem, either, as I’m bringing on board local contacts and freelance agents I’ve been working with for some time.

So all in all, it looks as though the office is almost ready. The pieces of the jigsaw are all in place, it’s just waiting now to bring them together.

Filed under: Business

Last days to set up ISA allowance

It’s that time of year again – when the deadline for last year’s ISA’s allowance comes up and is gone forever.

To be part of this year’s allowance, the transaction will need to be completed by 6 April 2010.

However, due to the Easter Bank Holiday, savers and investors only have until Saturday 3 April to do this.

Therefore if you haven’t already put your ISA money away, you have only days to get the situation addressed.

According to CityWire, the following are the best ISA’s currently on the market:

Leeds Building Society ISA – five-year fixed rate paying 4.6%
Nationwide Building Society cash ISA – five year fixed paying 4.25%
Saga at 3.9%
Coventry Building Society – one-year fixed rate at 3.25%
Santander Flexible ISA – 3.2%
Barclays Golden ISA – 3.10%.
Cheltenham & Gloucester – two year fix at 3.5%
Post Office – one-year fixed-rate at 3%

Filed under: Savings , ISA

US job losses increase

It’s of no surprise to read the BBC news about job losses in the US increasing again.

One of the big problems already highlighted is that the unemployment figures relate only to those claiming unemployment benefit – and this is a temporary benefit.

While Barack Obama did increase the term to six months, it remains a problem that after these six months are over, the unemployed no longer appear in the US employment data.

I’ve long been expecting the US employment figures to go positive on this technical issue alone, so the December jump was hardly entirely surprising, as we were left looking at a more realistic picture of unemployment.

One thing is for sure – we’re going to see these figures undergo an ugly rise through 2010.

ADDED: Ambrose Evans covers the same picture in more detail here.

Filed under: Economy , unemployment

The fundamental change in savings

The way people save has undergone a fundamental shift, but not a lot of people have noticed the change.

Traditionally, savers would put their money away into a savings account, where the interest rate would be reasonably competitive, could vary from time to time, with higher rate accounts offering higher returns the less you touched your money (ie, notice accounts).

Those people with a lot of money to save would often look to save their money in multiple accounts with multiple savings providers, and those in the higher income bracket saving into an offshore bank account.

While there were additional savings options for tax-free interest, such as TESSA’s, PEP’s, then ISA’s, and variations on savings such as the premium bonds, that was as complicated as it got.

Those who did not want to invest in stocks and shares, mutual funds or index funds, futures, bonds, or other investment vehicles as part of a portfolio, remained just savers.

What has happened since the financial crisis impacted is now those savers have become investors, without realising it.

Savings rates have been slashed as the Bank of England dropped central banking rates through the floor to the record lows of 0.5% – with both current account and savings account rates following suit.

The result? Most current accounts now pay 0% interest, and savings accounts rarely offer more than 1.5% .

However, many savings providers are now offering higher rate savings through fixed rate bond accounts, where interest rates can be 4% or more above the Bank of England’s base rate, so long as you lock you money in to the account for two, three, or five years.

The result is a major change in the savings landscape that few have even noticed, as savers are now finding themselves forced into putting their money into bonds for a fixed term. In effect, they are now investing in investment products, rather than saving in savings products.

The surprise is that only a few savings and investment brokers have noticed this change.

While some commentators have suggested that 2009 saw the growth of green shoots in the economy, others remain adamant that we are looking at a W shaped recession.

Either way, it looks like the savings landscape is not going to change any time soon, and that fixed term plans will continue to force savers to become investors in all but name.

Filed under: Economy, Savings , Economy, investments, Savings, uk

Changing broadband provider

Well, it looks as though I’m finally moving ISP from Zen back to BT broadband, as I just called Zen for a MAC code.

It’s a shame, really, as Zen has a far better reputation for service and support than BT, but the problem of wireless interference is a constant and annoying problem.

Plus BT are offering mobile broadband with their new broadband packages, and free BT openzone minutes, which will be very useful for business travel.

The caveat is that the pricing on the BT website is quite misleading, as those shown only apply to certain exchanges (apparently) plus they include 24-month pricing, which can take as much as 25%-30% off the 12-month price (so Option 3 is £45+VAT over 24 months, or £30+VAT over 12 months).

Still, at least I know from experience that the BT router supplied is far less susceptible to wireless intereference.

Which is very important, because if I couldn’t get decent business broadband, I’d have to consider more serious broadband connection packages, such as a leased line or custom business SDSL, both of which are priced higher than normal mass-market broadband packages.

In the meantime, I can only hope the move to BT goes smoothly, and that I don’t end up getting caught up in their cold automated support process – as BT customer service is not renown for being good.

Filed under: Miscellaneous , broadband, internet, tech