Top money stories - 21st - 27th July 2007

Top Tip:

We seem to have fallen out of love with saving – just as recent rate rises mean there are now some great deals available. The average Britain only sets aside 2% of their disposable income each month – down from 5% last year, according to recent Government data. This is despite the fact that many instant access accounts now offer over 6% interest, with fixed rate accounts and ISAs paying even more.

The news this week shows that many Britons rely on credit to tide them over tough times, with over 8 million Britons using an overdraft and 1 in 4 being fined for exceeding their credit card limits. With such great rates on offer, why not start saving to build up an emergency stash to rely on instead?

The financial week . . . .

Over 8 million Britons went overdrawn last year, according to a new survey published over the weekend. The report also revealed that 2.1 million workers are permanently in the red. Relying on your overdraft can be a very expensive way to manage your money, as other sources of borrowing are likely to offer cheaper credit while exceeding your overdraft limit may give rise to around £30 of penalty charges.

On Monday, top economists warned that the Government’s new grant system will fall short of helping those from the poorest backgrounds. A new report published by the Institute for Fiscal Studies highlighted that the reforms will only benefit students coming from families earning over £17,500. However for those that do qualify, 50,000 more full maintenance grants of £2,800 will be available whilst students starting Uni from 2008 will automatically benefit from a five-year repayment holiday from their student loan.

Leading insurers announced on Tuesday that the industry is struggling to stay afloat. The total bill for the summer’s flooding is now expected to top £2 billion whilst the extent and severity of the damage mean that despite bringing in new workers and equipment from abroad, there is still a shortage of key building staff and materials. Home-owners affected by the flooding could face a delay before their house becomes habitable again. 10,000 homes have been flooded, 50,000 have no power and 150,000 have no water, according to a report in The Times.

Meanwhile house prices in the Capital continue to reach for the skies, with Halifax announcing that the average price of a house in London has now hit £313,000. House prices in the capital are racing up at an annual rate of 21.7%, according to data from RightMove. A massive 60% of Britain’s wealth is tied up in the property market

Elsewhere in the country the housing market is starting to cool, according to the latest data released by Nationwide on Thursday. Although house prices are still rising, the pace of increase fell to 10% in July, down from 11.1% in June. Having been asked to swallow five interest rate rises in the past 12 months, it appears that borrowers are now starting to think twice before taking out a mortgage.

A quarter of us are paying penalty fees on our credit card borrowing, according to a new survey by moneysupermarket.com. Over 10.2 million consumers have together been charged over 3230mn for missing a monthly payment or exceeding their credit limit.

Yet despite the fact that Britons have borrowed a massive £1.3 trillion, our assets still outrank debts 4:1 according to new research by Alliance & Leicester. The study showed that together we’re worth £ 5.1 trillion - £ 4.3 trillion in our homes and £820bn held in bank accounts. This wealth is far from evenly spread, with almost two thirds of the nation’s assets in the hands of the over 55s – who tend to have higher savings as well as a foot on the property ladder.

Finally, news on Friday that the banks are back in the dock over overdraft fees. Over recent months banks have been flooded with letters from customers charged for exceeding their overdraft limit asking for their money back. In many cases the banks have paid up, in the hope of avoiding a court case which could go against them. Some country court judges have ruled in the banks’ favour – but as other courts aren’t bound by decisions made at this level, a different result could be reached at a court elsewhere. Hence the OFT, Britain’s consumer watchdog, has launched a case against eight of the biggest bank in the High Court. County courts will be bound to follow whatever the High Court decides. However the result could take years - especially if the banks exercise their right to appeal.

Prepared for Moneybasics by Adela Read