Friday 23rd March 2007

Top money stories - 19 ~ 23 March 2007

Top Tip: This week, plan how to make the most of the financial incentives offered by this year’s budget – think about buying a fuel efficient car to benefit from lower tax, look into buying a new “zero carbon” home, save the maximum amount in an ISA each year. And if you’re near the lower end of the income scale, be sure to check out whether you could claim any tax credits.

Wednesday March 21st:

BUDGET DAY

At 12pm on Wednesday Gordon Brown, Chancellor of the Exchequer, presented his final budget to Parliament. The 2007-2008 Budget increases spending on health and education, contains a raft of incentives to encourage consumers to go green and cuts the basic rate of income tax from 22% to 20%. However, don’t rush out to spend your extra income all at once. Overall, taxes have neither fallen nor risen, rather they have been shuffled around so slightly different people are paying slightly different amounts. So whether you will be paying more or less tax depends on your individual financial circumstances. The Budget is explained in more detail here.

MPC voted 8-1 to hold rates

The latest report from the Monetary Policy Committee, the independent body responsible for setting the base interest rate, showed that a clear majority voted in favour of holding interest rates at 5.25% at their last meeting on March 8th.

The report indicated that the Committee had noted the slowdown in house prices and moderation in wage claims (which would argue against a further increase in rates) but would wait to see how these and other key indicators further develop before making another move.

So will interest rates rise again in April? The debate continues ...

Thursday March 22nd

A Cautionary Tale: Mortgages Across the Atlantic

Following the recent crash of the US sub-prime mortgage market (the mortgage market for those with poor credit ratings), the hunt is on to find someone to blame. Thus far, the Senate has pointed the finger at mortgage lenders and the Federal Bank.

But regardless of who is responsible, current estimates indicate that over $2.2million Americans will lose their homes over the next few years. Those likely to be hardest hit are borrowers with poor credit ratings who were tempted by low initial repayments into taking out “adjustable rate mortgages”, only to find repayments escalating rapidly at a later date whilst over the same period US interest rates consistently rose. The result? Borrowers, attracted by low initial repayment rates, thought they were getting a good deal only to find themselves later hit with substantial repayment demands.

The warning is clear: If you’re thinking of taking out a mortgage with an adjustable rate, check out how much the repayment rate can be adjusted upwards during the term of the mortgage. And if the repayment rate is expressed as “base rate + . . .” remember that the base interest rate might well increase again as well.

Prepared by Adela Read for MoneyBasics