Credit crunch reprieve?

This week the Bank of England launched a new Special Liquidity Scheme in an attempt to relieve the strain placed on companies – with those in the financial services sector most badly affected – by banks and building societies choosing not to lend to each other: a phenomenon that has become known as the credit crunch.

The Special Liquidity Scheme, having started on April 21st, allows banks and building societies to swap their mortgage-backed securities – investments that have played a key role is the emergence and continuation of the credit crunch – for an asset that is considered not to carry any risk: UK Treasury Bills.

By allowing the banks and building societies to make this swap, the Bank of England hopes to lower the rate that banks and building societies lend money to each other, helping, eventually, to bring an end to the credit crunch.

Whether the Special Liquidity Scheme has a positive effect on helping banks to lend each other or not, it is important to make sure that you learn to borrow, and live, within your means. It is especially important if you are thinking of Starting a Family. Many have suggested that starting a family is the biggest single life-changing event in your life – make sure that you are clued up on how to manage the finances! For example, have you heard of a Child Trust Fund? If you are a lone parent, have a look at this free Single Parent Moneymanual.

Please read on for a summary of the top personal finances news stories that have hit the headlines for the week beginning 21st April 2008.

Wednesday 23rd April

Fall in mortgage approvals – According to the British Bankers’ Association (BBA), the number of mortgage approvals in March fell by 18% from February’s figure to 35,417. Furthermore, the number of mortgage approvals fell 46% when compared to March 2007. As the credit crunch continues to hit lenders, more and more consumers are feeling the effects. As well as mortgages being declined, the number of mortgage products available on the market has fallen significantly since December 2007 and the deposit required by most lenders now stands between 10% and 25% of the value of the mortgage.

Thursday 24th April

Overdraft charges ruled to be unfair – A judge has given the Office of Fair Trading (OFT) permission to investigate whether charges that banks have been putting on customers who go overdrawn are unfair.

With banks charging up to £39 for each unauthorised overdraft, this ruling could prove to be significant. Some have even suggested that this ruling signals the end of ‘free’ banking. However, this case does not bring an end to the issue of overdraft charges. Lawyers have suggested that the case could take years to resolve itself due to the right to appeal.

If this case has piqued your interest in banks and their role in business, it could prove to have some positive benefits irrespective of the outcome. Why? Many of us treat banks as if they exist to serve us. While, like all businesses, they no doubt try to provide a good service to their customers, the key point is that they exist to make a profit, not just to serve us.

It is very important then that when you go into a bank you treat it like any other high-street shop that you would go into. Expect them to try to sell you stuff. Try visiting price comparison websites such as uSwitch and Moneysupermarket before you sign up for anything at your local bank to see what prices and products are available and to try and find the best deal for your situation.

Retail Sales Fall – Information released by the Office for National Statistics (ONS) showed that retail sales fell by 0.4% in March. Although the drop was greater than some analysts’ expectations, a drop in retail sales was predicted thanks to the slowing housing market and credit crunch.

Prepared for Moneybasics by Jason Taylor, Advocacy Officer (Credit Action).