Monday 23rd April

Weekly Money Stories 16 ~ 20 April

Monday 16th April: The hidden costs of holidaying abroad

Before you take out cash or make a card payment abroad, stop and think twice about what it will cost you as some banks have increased their charges on using a debit card abroad.

Some banks are set to increase the cost of using their debit cards overseas by up to two thirds. So over this summer you could pay an extra 2.75% transaction fee (up from 2.65%).

And to take out cash, some banks will charge you an extra 2% of the amount withdrawn, up to a maximum of £5. For example, taking £200 out of a cash point on the French Riviera will actually cost you £209.50.

So if you’re planning your summer holiday, don’t forget to plan your spending as well, so you can take out enough cash or travellers cheques to cover your needs before you go.

Tuesday 17th April: Inflation spikes to 3.1%

The latest inflation data revealed that the Consumer Price Inflation (CPI) jumped to 3.1% in March. Inflation is roughly a measure of the increase in the cost of living, so in other words, this means that the cost of living in the UK is currently rising at an annual rate of 3.1%.

This might not seem like such bad news at first, as average earnings (excluding bonuses) rose at a rate of 3.6% over March. So if you’re just looking at these figures, then average incomes are rising faster than average living costs.

But the CPI does not include the cost of council tax or mortgage repayments. Taking these into account, the cost of living in the UK is currently rising at 4.8% per year. This means that increases in the cost of living are likely to outstrip increases in income for many homeowners this year.

This spike in inflation is also bad news for borrowers, as it is now extremely likely that base interest rates will rise by at least 0.25% in May, making mortgage and loan repayments more expensive. Indeed, analysts expect rates to hit 0.5% by the autumn. If rates do rise to 6%, this would mean that the monthly repayment on a £200,000 home with an interest only mortgage would rise to £125.

But there is some good news for borrowers with fixed rate mortgages, who are protected from any interest rate increases. If you’ve borrowed at a fixed rate, this means that the bank can’t increase the interest rate they’re charging you even if the base rate does go up as anticipated.

However this means that banks with many customers with fixed rate mortgages could find their costs increasing but their income staying the same. Therefore this week has also seen the big mortgage lenders race to withdraw their fixed rate deals.

So if you’re thinking of taking out a mortgage in the near future, act now to search out the few remaining lenders who are still offering fixed rate deals with rates below 5.5%.

Payback for Penalty Bank Charges

Most banks impose charges for going over your overdraft limit, or making a payment (either by cheque or by direct debit) when you don’t have enough money in your account to cover it. These penalty fees can be as high as £40.

In the past six months thousands of consumers have downloaded template letters to send to their banks, asking for these charges to be paid back and threatening legal action should the bank fail to do so.

It is not clear whether the penalty fees imposed by the banks are so high they are actually unlawful. So currently the banks aren’t under any obligation to refund these charges, but if this has happened to you, and you feel that the charges made were unfair, then it might be worth writing to ask for your money back.

Wednesday 18th April : Pound breaks through $2 barrier

The pound jumped to $2.01 on Wednesday. This means in the foreign exchange markets you can buy 2 dollars for a pound for the first time in 15 years. Although you are likely to get a slightly worse exchange rate than this on the high street, a strong pound against the dollar does mean it will be cheaper for Brits to buy American goods and that a holiday in the US might be a good bet this year, as a pile of sterling will take you a long way.

So if you’re thinking of going to the US, it might be wise to book and change your money now to benefit from the £1:$2 exchange rate.

Friday April 20th: Mortgage Hurdles for First Time Buyers

It’s a tough time to get on the property ladder. Rising property prices combined with rising interest rates are making mortgages more expensive. According to a report by a homelessness charity published today, monthly mortgage payments eat up 21% of average household income in the UK compared with 11% in 1996. The situation is even worse in London, where the average household must spend a quarter of their income on their monthly mortgage payment.

The result, according to Shelter, is a widening gap between those who can afford a home and those who can’t.

Slowdown in UK Retail Sales

UK retail sales only increased 0.3% between February and March, according to the Office for National Statistics. In contrast between January and February retail sales in the UK grew by 1.6%.

Although the rate of retail sales growth may be slowing, the level of sales is still up from this time last year. Retail sales for the first three months of 2007 were 4.5% higher than over the same period in 2006.

So although consumer spending might have slowed down a bit last month, overall the level of spending is still high, contributing to the likelihood that the MPC will raise interest rates on May 9th.

prepared for MoneyBasics by Adela Read