Monday 14th May 2007

Top money stories 7 ~ 11 May 2007

Top Tip:

With interest rates on the rise, now is a great time to start saving. Many banks have already raised the rates on their savings account to take account of Thursday’s rate rise so now is a really good time to check out the deals that banks are offering and make a real effort to tuck some money away for a rainy day, then watch it steadily grow!

Tuesday 8th May 2007: A Cashfree Future?

Cash could be on the way out, with the launch of a new card that allows shoppers to pay for goods under £10 without using their pin. Leading British banks, including Barclays, Lloyds TSB and Royal Bank of Scotland, are to launch “tap and go” credit and debit cards this autumn. New “Contactless” technology means that shoppers will be able to pay for their purchases by simply tapping their new card on a secure reader.

So if transactions under £10 are no longer pin-protected, what if you lose your card? While you should still report your loss as quickly as possible, the UK Payments Association has been quick to re-assure customers that there will be fraud protection in place – as the reader will ask for your pin every 6 or 7 transactions or when a suspicious series of spending has taken place. Banks offering the new scheme will let consumers know how to get hold of a new card nearer the time. Our cash carrying days could soon be over . . . .

Thursday 10th May: Rates Rise Again

The Bank of England has increased interest rates to 5.5%, pushing up the cost of borrowing to its highest level in 6 years.

The Bank cited high levels of business investment, together with growth in consumer spending as responsible for maintaining inflationary pressures and so creating the need for another rate rise to help cool the economy down. So let’s take a look at the implications:

A bad blow for borrowers: Interest represents the cost you pay to a lender for letting you borrow money. So a rise in interest rates makes borrowing more expensive. For those who’ve already borrowed, this means higher monthly repayments.

A chance for savers to score: When you put money in a savings account, you’re effectively lending the bank money – so it has to pay you interest! So a rise in interest rates means the bank will have to pay you more – increasing the rewards from saving. With interest rates now at 5.5%, now is a great time to start putting money to one side.

And a mixed bag for homeowners: An increase in interest rates means higher monthly repayments for those on variable rate mortgages – as lenders put their rates up in line with the Bank’s decision. Two major lenders have already raised their SVR (standard variable rate – the interest rate charged on a normal residential mortgage) by 0.25%.

Yesterday’s rise represents the fourth increase in interest rates since last August. This constant rise in the cost of borrowing has led to fears that house prices might begin to fall – as higher interest rates discourage would be buyers from taking on a mortgage. This would be bad news for homeowners, who could see the value of their properties fall. The good news is that this hasn’t happened – yet. See “Housing Market Remains Resistant to Rate Rises” below for more details.

Friday 11 May: Housing Market Remains Resistant to Rate Rises

House prices across the UK continued to rise at an annual rate of 8.4% in April, according to the FT’s House Price Index published today. The results confirm the picture presented by the Land Registry’s House Price Survey published last week – that there are two housing markets in Britain, and that they are showing very different trends.

The London housing market continues to go from strength to strength, thanks to the City’s success as an international financial centre. House prices in the Capital are currently increasing at 13.3%, almost 5% above the national average.

In contrast house prices elsewhere may be starting to slow down. Although house prices outside of London are still rising, 6 out of 9 regions saw smaller rises than in March. Combined with the recent slowdown in mortgage approvals, this indicates that the housing market outside of London may be cooling. So for those living outside the Capital, don’t bet on your house price continuing to go up.

Last Call for 1p Flights

For those who’ve tried to book “1p” flights only to be hit by high airport taxes and other hidden charges, help is at hand. Following concerns that consumers were being misled by cheap deals with lots of hidden costs, the Office of Fair Trading, Britain’s consumer watchdog, has ordered airlines and travel companies to include all fixed, non optional costs in the price advertised for their service. This means the end of the “1p” flight era – where newspaper ads shouted out unbelievably cheap flight deals – and a new age of clarity where airlines and holiday companies will have to advertise how much it will actually cost you to take the flight or holiday (i.e. including airport tax, fuel surcharges etc).

Prepared for MoneyBasics by Adela Read