The wave of interest shown by new buyers following the launch of the Government's Help to Buy scheme is supporting the latest rise in house prices.

Average UK house prices continued their upwards trajectory in May, rising by 0.4% to £166,898, according to the Halifax Building Society.

This represents an annual increase of 2.6% - the fastest rate since September 2010.

The figures are considerably more optimistic than the Nationwide’s latest index, which reported annual house price inflation of just 1.1% in May.

The Home Builders’ Federation said that over 4,000 homes have been reserved under the Government’s new Help to Buy equity loan scheme in the past two months, with interest growing on a weekly basis.

The scheme has had an instant impact in the number of first-time buyers, which rose by 15% in April on the previous month, according to LSL Property Services.

And the pace of house price growth has accelerated since the introduction of the Help to Buy scheme, according to Halifax’s index, with prices rising by 1.5% in the last three months alone.

The scheme allows homebuyers with deposits of just 5% to secure a mortgage by providing an additional equity loan of up to 20% of the property value.

(Don’t get caught out by misleading advertising. See our latest blog post for more.)

Annual house price rises reach their highest level since 2010, according to Halifax.

Stewart Baseley, executive chairman at the Home Builders' Federation, said: “The large deposits required in recent years to secure a mortgage have prevented many from buying.

“The Equity Loan scheme helps consumers overcome that deposit barrier.”

“Four thousand reservations in just two months shows both the consumer demand for the scheme, and developers' commitment to it,” he added.

Martin Ellis, housing economist at Halifax, warned against over-optimism, suggesting that the market was still subdued by structural weaknesses.

"Market activity has improved slightly in recent months although home sales remain low by historical standards,” he said.

“The subdued economic background and the accompanying weak income growth continue to be a significant constraint on housing demand and activity.”

The recent surge in interest from new homebuyers has fuelled concerns that the industry could be set to return to the boom-and-bust principles of old, if supply cannot rise to meet the increase in demand.

The construction industry remains confident, however, that it can meet the new demand to avoid prices rising to unaffordable levels again.

Keith McDonald
Which4U Editor

If you enjoyed this article:

• Check out the latest articles on our Finance Blog.
• Sign up for our free e-newsletter.
• Follow us on Twitter for regular updates.

{loadmodule php,TwitterButton}

A host of banks will change the way they process payments to offer customers some leeway when it comes to overdraft charges.

A snag in the current system allows banks to charge customers more than £25 for overdraft fees or bounced payments if debits are taken out of their bank accounts before funds are paid in.

Charges of this nature are thought to land banks £200 million a year from customers who have done nothing wrong other than suffering the misfortune of their credits and debits being processed in the wrong order.

The new City co-regulator, the Financial Conduct Authority (FCA), has pressured banks to make at least one repeat attempt to retrieve the payment before imposing a charge.

This should allow ample time for deposits on that day to clear before debits and standing order payments are made.

In a boost for consumers, Barclays, the Co-operative Bank, HSBC, Nationwide Building Society, RBS Group, Santander and National Australia Group, which owns Clydesdale and Yorkshire banks, have all agreed to adopt the changes.

To Clive Adamson, the FCA’s director of supervision, the agreement did not constitute new rules, but instead a way in which the industry could co-operate to improve the consumer experience of banking.

“This is a small adjustment, but one that will make a big difference”, he said.

Mr Adamson had suggested in January that the new regulator’s supervisory function would involve looking at problems through consumers’ eyes.

The ‘retry’ system is one of several initiatives that the regulator is considering in light of regular customer complaints.

"This is part of a wider focus by the FCA to ensure consumers get a better deal from everyday banking," Mr Adamson said.

Keith McDonald
Which4U Editor

If you enjoyed this article:

• Check out the latest articles on our Finance Blog.
• Sign up for our free e-newsletter.
• Follow us on Twitter for regular updates.

{loadmodule php,TwitterButton}

The National Union of Students (NUS) wants payday lenders to be banned from advertising at colleges and universities to prevent them from dragging vulnerable students into insurmountable levels of debt.

The campaign, supported by the Universities of Northampton, Northumbria and Swansea, follows major criticism of the payday loans sector by the Office of Fair Trading.

But the regulator itself has recently been branded 'timid' over its failures in regulating the sector effectively (read more).

The high-cost loans are designed to bridge a shortfall for a short period until a borrower’s next payday, but problems can quickly mount if those who are struggling to repay are encouraged to "roll-over" their loans at interest rates which can exceed 4,000% per year.

Last year, prominent payday lender Wonga was caught promoting its loans to students, suggesting that short-term loans could help towards incentives such as holidays (read more).

Payday lender Wonga previously targeted students for its loans.

The NUS has found that as many as one in ten vulnerable students were turning towards high-cost lenders rather than finding cheaper alternatives or seeking advice about financial hardship from university welfare offices.

Last month, 31 credit unions signed up last month to receive a share of government funds designed to help vulnerable people to access credit more affordably (read more).

The Consumer Finance Association (CFA), which represents several major payday lenders, said that reputable lenders would only consider students who were in regular employment.

Its chief executive, Russell Hamblin-Boone, accused the NUS and participating universities of "denying choices" to their "educated and intelligent" students.

"This campaign against advertising on campus will do little to tackle bad lending practice, and discredits the whole industry unjustifiably," he said.

But Pete Mercer, Vice President (Welfare) of the NUS, said it had been necessary to make a stand after it became clear that some lenders were targeting students and the government had failed to act.

"Students are struggling to make ends meet and this is having a real impact on their well-being and their education," he said.

"It's great that these institutions (Northampton, Northumbria, Swansea) have already joined our campaign and I hope that others will soon follow suit."

Keith McDonald
Which4U Editor

If you enjoyed this article:

• Check out the latest articles on our Finance Blog.
• Sign up for our free e-newsletter.
• Follow us on Twitter for regular updates.

{loadmodule php,TwitterButton}

A new system that will allow customers to switch current accounts within seven working days from September has moved a step closer to completion, with the publication of a customer guarantee.

The Payments Council, which created the £750 million system, has published a Current Account Switch Guarantee and Trustmark, which outline consumers' rights and the benefits of the new service.

The new switching system has been designed to cut the maximum transfer time between bank accounts from 30 days to just seven, and to boost consumer confidence in switching from one bank to another.

Currently, around 75% of the current account market is dominated by four major banks: Lloyds Group, RBS Group, HSBC and Barclays. It is a market that has become staid, with consumers often reluctant to embark upon a lengthy switching process.

Source: Payments Council, Account Switching – Quantitative Market Research Results, September 2012.

The new switching service, which builds upon a European directive, aims to improve competitiveness between banks by persuading customers that switching their current accounts is a smoother and faster process, with built-in safeguards.

This, it is hoped, will improve the service that banks provide to their customers.

The Payments Council's new guarantee promises that any payments sent to the old account will be automatically redirected to the new account for 13 months.

It also promises to refund any charges or lost interest that arise as a result of a problem with the switching system.

Current Account Switch Guarantee - select for full-size (opens in new tab).

Adrian Kamellard, chief executive of the Payments Council, said the switch had involved "massive system changes, both centrally and within individual financial institutions."

"Giving customers the confidence to switch current accounts is one of our main goals and the new Guarantee and Trustmark launched today should really help achieve this," he said.

For more details about the current account switch, see our recent banking guide.

Keith McDonald
Which4U Editor

If you enjoyed this article:

• Check out the latest articles on our Finance Blog.
• Sign up for our free e-newsletter.
• Follow us on Twitter for regular updates.

{loadmodule php,TwitterButton}

National Savings and Investments (NS&I), the government-backed savings facility, is heaping misery on over half a million savers by slashing interest rates on its three leading accounts by up to half a percentage point.

From 12 September 2013, the tax-free Direct ISA will fall from 2.25% to 1.75%. The Direct Saver account will be reduced from 1.5% to just 1.1% (0.88% net), and the return on income bonds will tumble from 1.75% to 1.25% (1% net).

NS&I had received plaudits from consumer groups after automatically transferring a host of old ISAs into the new 2.25% Direct ISA (read more). But it now finds itself on the defensive after its latest announcement.

NS&I attributed the decision to other banks and building societies having driven down the average savings rates, which has put the Treasury-backed institution under strain.

"Rates across the savings market have fallen over recent months," noted Jane Platt, NS&I’s chief executive (pictured, right).

“To ensure we continue to strike a balance between the needs of our savers, taxpayers and the stability of the broader financial sector, we have taken the difficult decision to reduce the rates on our Direct ISA, Direct Saver and income bonds accounts."

NS&I has proven popular with large deposit holders since the inception of the financial crisis because unlike regular banks, where deposits are protected to a maximum of £85,000 through the Financial Services Compensation Scheme, all NS&I deposits are guaranteed by the Treasury.

(Find out more about savings and security.)

But the accounts are clearly not immune to a descending market, and leave savers with increasingly fewer options as they attempt to find any substantial returns.

Keith McDonald
Which4U Editor

If you enjoyed this article:

• Check out the latest articles on our Finance Blog.
• Sign up for our free e-newsletter.
• Follow us on Twitter for regular updates.

{loadmodule php,TwitterButton}

UK unemployment figures improved in the three months to April, but there are still record numbers in work beyond retirement age, as the pensions crisis keeps people in the workplace for longer.

Data from the Office of National Statistics (ONS) shows that the number of people in employment rose by 24,000, to 29.76 million, while the number of people out of work has fallen by 5,000, to 2.51 million.

Unemployment fell by 6,000 in Scotland and by 5,000 in Northern Island, while it rose by 6,000 in England.

Other ONS figures show that government cutbacks are impacting public sector employment, which fell by 22,000 in Q1 to its lowest level since 2001.

The private sector is taking the strain at the moment, though an increase in self-employment is the biggest contributor to job growth.

The official unemployment rate remained unmoved, at 7.8%, while a sharp drop of 8,600 in Jobseeker’s Allowance claimants in May took the total to 1.51 million.

Wages were up 1.3% on the same three-month period in 2012, with bonus payments delayed until April to take advantage of the fall in the top tax rate, from 50% to 45%.

But this still falls considerably below standard inflation, which measured at 2.4% for April.

Pensioners in Work

The figures also revealed that the number still in work beyond the age of 65 has reached a record 1 million, as the severe shortfall in retirement plans forces ever greater numbers to stay in work.

Almost one in ten pensioners have stayed in employment, with 615,000 men and 388,000 remaining in the workforce – an increase of around 12% in the last year and almost double the number from ten years ago.

The increase is being attributed to a growing life expectancy and the depreciation of annuity rates.

The Bank of England's 'Quantitative Easing' programme means that male retirees need almost 30% more in savings to generate the same retirement income that they would have accrued four years ago.

Keith McDonald
Which4U Editor

If you enjoyed this article:

• Check out the latest articles on our Finance Blog.
• Sign up for our free e-newsletter.
• Follow us on Twitter for regular updates.

{loadmodule php,TwitterButton}

Some financial groups are having their banking facilities withdrawn at short notice as high-street banks seek to cut down on possible money-laundering routes.

Money-service businesses, which include online payment services and pre-paid cards, have been identified as a money-laundering risk by the UK Serious Organised Crime Agency.

Banks are now moving swiftly to distance themselves from the sector, with HSBC set to quit following the money-laundering storm, and Barclays giving a host of companies – including long-term customers – two months to find another bank.

Last year, HSBC set aside $2 billion for fines, saying in July that it had sidelined $700 million to cover money-laundering accusations in the US.

The bank said it had recouped bonuses paid to staff responsible for the security lapses in the North American arm of the business that had made it vulnerable to money laundering activity (read more).

But money-service businesses are now at risk of operating illegally if they cannot find alternative banking facilities, as they are required to operate business bank accounts to hold deposits.

HSBC was heavily fined for security lapses that enabled money-laundering in North America.

Defending their position, banks have said that the risk of fraud is high, and that they are simply cutting down activity where the businesses don’t have adequate filters in place to root out illegal transactions.

“The regulatory regime requires robust policies and systems, and we work with our customers to ensure they have these controls in place,” said a spokesperson from the Royal Bank of Scotland.

The Prepaid International Forum (PIF), which represents a number of money-service businesses, has reported the banks’ decisive actions to the Financial Conduct Authority.

The PIF expressed its concerns that the shrinking competition in the market will put firms at the mercy of a small number of large banks who will dominate the sector.

James Booker
Which4U

If you enjoyed this article:

• Check out the latest articles on our Finance Blog.
• Sign up for our free e-newsletter.
• Follow us on Twitter for regular updates.

{loadmodule php,TwitterButton}

The chances of taxpayers recovering the £45 billion rescue package from the Royal Bank of Scotland have been dealt a blow after share prices fell following the shock announcement of Stephen Hester's departure.

Mr Hester will leave the bank this year after a whirlwind five-year tenure as chief executive.

He is highly regarded in the City after diligent work to stabilise a crisis-ridden institution, relieving its bloated balance sheet of assets worth a colossal £900 billion.

The announcement of his departure saw shares in the RBS Group fall by up to 8% at one stage yesterday.

Any sustained fall in share price value would have severe consequences for the government, which holds an 81% stake in the bank following a £45 billion bailout at the height of the financial crisis.

Just days ago, Mr Hester appeared confident that taxpayers would be fully reimbursed when the bank is re-privatised.

"We are now in a position where the Government can begin to prepare for privatising RBS,” he said.

“While leading that process would be the end of an incredible chapter for me, ideally for the company it should be led by someone at the beginning of their journey.”

RBS share prices fell on the announcement of chief executive Stephen Hester's departure.

Good / Bad Split

There have been calls from the Parliamentary Commission on Banking Standards to split the institution into ‘good’ and ‘bad’ banks.

The premise behind the move is that the bank would become liberated if it were no longer weighed down by its toxic assets.

The Commission’s finalised report, which was completed this week, stopped short of insisting that this was done, but recommended that the Treasury looked further into the practicalities of such a split.

But the cabinet is thought to be opposed to a split, believing that it would delay privatisation and have negative consequences for its 81% stake.

Mr Hester’s departure, together with a new insistence on business lending, has prompted claims that relations between himself and the Government were strained, with fund managers suggesting that the Chancellor is now effectively controlling the bank from Whitehall.

Keith McDonald
Which4U Editor

If you enjoyed this article:

• Check out the latest articles on our Finance Blog.
• Sign up for our free e-newsletter.
• Follow us on Twitter for regular updates.

{loadmodule php,TwitterButton}

Glasgow council is to thwart the rise of payday lending in the city by opening credit union accounts for young people.

From the beginning of the next school year, every new secondary school pupil will receive £10 in a community credit union account as part of a move to reduce the culture of debt by educating teenagers about money management.

Councillors had discovered that around 100,000 Glaswegians were regularly turning towards high-cost loans to make ends meet, with poorer residents borrowing a total of £57 million last year.

Glasgow council's initiative to open credit union accounts for its students is one of a number of measures designed to reduce the stranglehold that lenders have upon the city.

The council will also refrain from leasing its property to payday lenders, and will continue to press the English and Scottish parliaments to do more to counteract the social consequences of high-cost lending.

"I think we all suspected that the use of these loans would be relatively high in Glasgow, but the figures are startling”, said Glasgow City Treasurer, Paul Rooney.

The Office of Fair Trading has recently warned 50 lenders to straighten their practice or face sanctions.

But Councillor Rooney doesn’t think this goes far enough, and called for an urgent revamp in market regulation.

"There is also an urgent need to reform and limit the use of Continuous Payment Authorities, which can allow a lender to raid their customers' bank accounts whenever they choose, for as much as they like," he said.

Credit Unions

Earlier this year, the Government unveiled a £38 million pot for the Association of British Credit Unions (ABCUL) to help the not-for-profit institutions to establish themselves as a substantial alternative to payday lenders (read more).

ABCUL reported last month that 31 unions had signed up to the first trench of funding for the project, which should double credit union membership to two million over the next five years (read more).

Glasgow council’s move will add up to 6,000 new users every autumn.

Estimates suggest that if the targets in credit union outreach are met, the reduction in payday lending will allow over a million hard-pressed consumers to save a collective total of £1 billion in interest payments by 2019.

Keith McDonald
Which4U Editor

If you enjoyed this article:

• Check out the latest articles on our Finance Blog.
• Sign up for our free e-newsletter.
• Follow us on Twitter for regular updates.

{loadmodule php,TwitterButton}

If you buy property over a certain value anywhere in the UK, you are liable to pay Stamp Duty Land Tax (SDLT). Find out more below.

The amount of tax varies according to a number of factors: the price that the property has sold for; whether the property is for residential or commercial use; and whether it is freehold or leasehold.

Residential Use

For residential use, stamp duty becomes due on property bought for over £125,000. Above this amount, it rises in bands, starting at 1%.

(Properties deemed to be in disadvantaged areas previously had a higher starting threshold of £150,000, but this was abolished in April 2013.)

The Bands

Once the property value falls into a band, the stamp duty rate applies to the whole value, not just the increment above the previous threshold.

So, while a property bought at £125,000 incurs no stamp duty, a property bought at £126,000 incurs a 1% charge on the whole amount (£1,260).

Need help crunching the figures? Use our Stamp Duty calculator here.

Adding to a Mortgage

It is possible to add the cost of stamp duty to your mortgage, but there are two main disadvantages to doing so.

• Firstly, the interest accrued on this additional amount over the lifespan of a mortgage is substantial.

• Secondly, it may affect the loan-to-value tier that you had planned for your mortgage. If you’re planning to apply for an 85% LTV mortgage, you might find that the extra lending required to cover the cost of stamp duty pushes you towards a more expensive 90% LTV mortgage instead.

Residential Lease

If the residential lease exceeds £125,000, you will pay 1% in Stamp Duty on amounts above the threshold.

Non-Residential / Mixed-Use Property

Non-Residential / Mixed-Use Leases

If the non-residential or mixed-use lease is for more than £150,000, you pay 1% Stamp Duty on the amount above the £150,000 threshold.

All of the information provided is for use as an overview only and should not be the basis for any mortgage decision.

City regulators have pledged not to give in to banks over new liquidity rules and to stop banks from lobbying politicians into watering down proposals.

Senior members of the Bank of England have brushed aside complaints from banks about new regulations designed to improve stability.

They are insisting that the latest measures, which require financial institutions to hold a 3% “leverage ratio” of assets against loans, is paramount to the stability of British banks, and should be implemented at the end of the year, five years ahead of the international deadline.

British banks have complained that the latest radical shift in the goalposts could deter them from lending at a crucial time for the economic recovery (read more).

Barclays and Nationwide have made the biggest inroads in net lending since the Funding for Lending Scheme began in August 2012. But this still only partially offsets the huge falls in lending posted by taxpayer-owned RBS and Lloyds.

(See our blog on the lending impact of the Funding for Lending Scheme.)

Nevertheless, the Bank of England has said that the two most proactive lenders are the only two to fall shy of the regulations, and senior officials are adamant that the institutions conform to the safety measures rather than pursuing backdoor tactics to have them reduced.

The current deputy governor of the Bank of England, Paul Tucker, told MPs that the rules needed to be implemented before the end of 2013 to reduce the exposure to risk of Britain's highly leveraged banks.

He described suspected political lobbying of regulators and politicians as "pointless" and "completely unacceptable", adding that regulators would not be deflected "one iota" from their goal.

Andrew Bailey, head of the Prudential Regulation Authority, said he would draw up rules for lobbying, amid concerns that underhand tactics and scaremongering are undermining the culture of transparency that regulators are seeking to improve.

Keith McDonald
Which4U Editor

If you enjoyed this article:

• Check out the latest articles on our Finance Blog.
• Sign up for our free e-newsletter.
• Follow us on Twitter for regular updates.

{loadmodule php,TwitterButton}

Savers continue to be hit hard by falling rates, as another round of cuts to cash ISAs leaves hard-pressed consumers even deeper in the quagmire.

Cuts to savings products at Virgin Money, the Cheshire Building Society, and its parent institution, the Nationwide, present a further blow for savers attempting to keep pace with inflation.

The Cheshire’s easy-access ISA has been slashed from 2.3% to 1.7%. The Virgin Money cash ISA rate tumbles from 2.15% to just 1.75%, though it remains among the best products available for those seeking to transfer their ISAs.

(See our guide to transferring cash ISAs.)

Nationwide’s Web ISA has crashed to just 1.50%, though the society maintains its Flexclusive ISA for current account holders, at 2.25%.

The Value of ISAs

Cash ISAs, which allow savers to save £5,760 tax-free during the current tax year, are among the most efficient form of savings.

With standard savings accounts, basic rate taxpayers currently need a return of almost 3.4% to beat the current rate of inflation. The best available easy-access account on the market (NS&I) currently offers just over half that amount.

While five-year fixed-rate bonds currently stand at 2.90% (FirstSave / Shawbrook), savers will have to lock away their funds until 2018 and will only receive 2.3% after tax.

As it stands, the First Direct cash ISA does beat inflation, at 3%, but savers will need a hefty £40,000 to achieve this rate.

Virgin Money’s five-year fixed-rate ISA is also a stand-out product in the current market, at 2.75%, but savers won’t see their funds until 2018.

The collapse in savings accounts is largely attributed to the government’s Funding for Lending Scheme, which has provided a cheap source of funds for institutions and reduced their need to offer competitive deals on retail deposits.

Keith McDonald
Which4U Editor

If you enjoyed this article:

• Check out the latest articles on our Finance Blog.
• Sign up for our free e-newsletter.
• Follow us on Twitter for regular updates.

{loadmodule php,TwitterButton}

The Financial Services Compensation Scheme paid out £326 million in compensation to consumers during the latest financial year.

The latest annual report from the not-for-profit scheme showed that the number of new claims (62,030) fell by more than a third in 2012/13 from the previous financial year, while it also handled 14% fewer enquiries.

But the number of PPI claimants increased to 19,000, with four in ten of these claims initiated by claims management companies.

Recoveries

The FSCS reported that it had recovered £777 million from failed firms, including an 8% rise in the amount recovered from banks which failed in 2008/2009.

The scheme recovered £35 million from London Scottish, £39 million from Heritable, £282 million from Icesave and £373 million from KSF. It said it expected to recover more from the institutions which collapsed during the global financial crisis.

The Icesave fund from Landsbanki has made the most headlines over the past year after the UK government joined forces with the Netherlands in an attempt to compel the Icelandic state to provide compensation for state-backed bailouts (read more).

The FSCS recovered over quarter of a billion from Icesave in 2012/2013.

Mission and Targets

The FSCS protects consumers of registered financial institutions for up to £85,000 in deposits. (See our guide on secure savings and compensation for more details).

It said that it had met service delivery standards for compensating customers as a result of banking failure, but that it had narrowly missed its target for turning around PPI claims.

It added that it was committed to increasing awareness about its work, following the embarrassing revelation last year that only 3% knew about the securities made available on savings despite a £1 million advertising campaign.

New disclosure rules now require financial institutions to display information about the FSCS prominently inside their branches and within relevant brochures, such as the notice displayed above (read more).

{loadmodule php,News Video - FSCS Explained}

Keith McDonald
Which4U Editor

If you enjoyed this article:

• Check out the latest articles on our Finance Blog.
• Sign up for our free e-newsletter.
• Follow us on Twitter for regular updates.

{loadmodule php,TwitterButton}

Chancellor George Osborne is set to announce sweeping changes in the City in an attempt to revolutionise standards in the banking industry.

The chancellor is expected to endorse the majority of the measures proposed by the cross-party Banking Standards Committee in its 571-page report, “Changing Banking for Good”.

Such measures include the imposition of criminal charges for errant bankers, with a new offence of reckless misconduct in banking management to be passed on to the House of Lords for approval.

And the inclusion of peers within the commission suggests that there is unlikely to be any obstructions to implementing the new measures, even though some of the details – such as a definition of “reckless misconduct” – have yet to be made clear.

The committee acknowledged that though the recent spate of banking scandals has cost some executives their jobs – albeit at vast payouts – it has been far too easy for managers to shift the burden of responsibility.

The report, penned by committee chairman Andrew Tyrie, also suggested that the problems within the industry were pervasive rather than consigned to a few errant individuals.

Andrew Tyrie, chair of the committee, chastises Barclays chairman Sir David Walker over disclosure.

It said that banks had exploited their position as institutions that were deemed too big to fail, and that public trust in them had collapsed to a new low.

Amongst its proposals are radical changes in bonuses, which should provide rewards for long-term profitability rather than short-term; changes to existing regulation to provide accountability; and a dedication to improve competition within the financial system (read more).

Mr Osborne’s announcement will follow warnings last week from regulators that they are ready to crackdown on the lobbying of politicians by banks in an attempt to water down new proposals relating to financial prudence (read more).

Keith McDonald
Which4U Editor

If you enjoyed this article:

• Check out the latest articles on our Finance Blog.
• Sign up for our free e-newsletter.
• Follow us on Twitter for regular updates.

{loadmodule php,TwitterButton}

The City regulator is set to launch a review into the insurance industry amid concerns that customers are being duped when it comes to the "add-ons" offered on selected consumer products.

The Financial Conduct Authority will spend the next six months reviewing the £4 billion insurance market, examining the sales policies, legitimacy, and value of ‘cover’ products such as warranties, as it takes a more progressive approach to tracking down mis-selling practices.

Chief executive Martin Wheatley (pictured, right) said it was time to shift the regulatory focus onto the insurance sector.

He described such "add-on" insurance policies as "an after-thought" and said that they were mostly "profit-making machines."

"It’s different to when you go shopping for home or car insurance. Then, companies have to explain what you are getting and compete for you," he told the Telegraph.

“Our concern is that the products are generally poor value, and by and large people don’t pay too much attention to the terms and conditions.”

One possible outcome of the review could be improved transparency for consumers, Mr Wheatley suggested.

Insurance companies could be forced to display their profit margins on such policies and list competitors’ prices to quash anti-competitive practices.

A Distinctly New Regulator

The new dual-regulatory system encountered a baptism of fire following its takeover from the Financial Services Authority in April.

Andrew Tyrie, chairman of the Treasury Select Committee, demanded more from the new regulator over the Bank of Ireland’s controversial decision to invoke a clause in its small-print to hike its mortgage rates.

Andrew Tyrie questions the agenda of the new regulator in March over the Bank of Ireland.

But Mr Wheatley believes that the new conduct authority is beginning to establish its differences from the previous system of regulation.

He is expected to tell insurance bosses today that the FCA is "a very different animal".

The new regulator is not merely concerned about product compliance, he will say, but also about the competitiveness of markets and the fairness of products within an ethical consumer environment.

"We understand why people reserved judgement - the FSA needed to change," he says, with the insurance sector now set to become subject to these new standards.

Keith McDonald
Which4U Editor

If you enjoyed this article:

• Check out the latest articles on our Finance Blog.
• Sign up for our free e-newsletter.
• Follow us on Twitter for regular updates.

{loadmodule php,TwitterButton}

Leeds Building Society is offering a one-of-a-kind mortgage that offers zero interest for up to six months.

The “Welcome Mortgage”, available as a three- or five-year fixed-rate deal between 80% and 90% LTV, gives customers the choice of paying no interest for the first three or six months and taking a higher subsequent rate to catch up.

Described by the society as “a completely unique product”, the Welcome mortgage is designed to cut the initial payments to grant new homeowners the extra cash they might need for improvements or furniture after moving into their new property.

The society said the total interest paid by a borrower over the term of the mortgage was roughly the same as that paid by someone who took out a standard fixed-rate loan.

On a three-year fix, at 90% LTV, a three-month interest-free period would be followed by a rate of 4.71% until September 2016, while a six-month interest-free period would be followed by a rate of 5.22%.

On a five-year fix at the same loan-to-value, the three-month interest-free period would be followed by a rate of 5.08%, while the six-month deal is followed by a rate of 5.40%.

Leeds BS says its 'Welcome Mortgage' is different from 'deferred interest' mortgages of the 1980s.

Even accounting for the initial interest-free perk, these subsequent costs are reasonably competitive when compared to standard fixed-rate deals in the sector.

The society’s standard variable rate of 5.69% is higher than a number of larger competitors, though, which will ramp up the costs for borrowers following the expiry of the fixed term.

But while lenders have moved to recoup lower rates through higher arrangement fees – even if many have been sympathetic to first-time buyers – Leeds’ booking fee of £199 across the Welcome mortgage range remains affordable and highly competitive.

Flexible and Transparent

Leeds Building Society’s marketing director, Kim Rebecchi, said that the products were designed to offer flexibility.

"These products offer excellent value and support borrowers in the early months in their new home," she said.

"Depending on the size of the mortgage and the 0% period chosen, borrowers can initially reduce their outgoings by thousands of pounds, allowing them the flexibility to improve their property and manage their cashflow.

"Furthermore, their monthly payment after the 0% period does not increase significantly compared to a standard fixed-rate product, avoiding a payment shock."

David Hollingworth of London & County Mortgages welcomed the innovative and transparent nature of the new products.

"It gives borrowers a short period with a lower mortgage payment; people can see exactly what their payment is going to rise to.

"But actually I think a lot of people will use it as a way to try and keep on the paying the same amount to try and reduce the mortgage more quickly," he said.

Keith McDonald
Which4U Editor

If you enjoyed this article:

• Check out the latest articles on our Finance Blog.
• Sign up for our free e-newsletter.
• Follow us on Twitter for regular updates.

{loadmodule php,TwitterButton}

The launch of two best-buy fixed-rate bonds has signalled a rare piece of good news for savers this week, though returns still remain far shy of inflation.

Kent Reliance Banking Services (KRBS) will today release new issues of its one-year and two-year fixed rate bonds with improved rates.

The one-year and two-year bonds, at 2.05% at 2.35% respectively, now top the tables when compared to similar term products.

The bonds require a minimum deposit of £1,000 and can be opened in branches, by post, or online.

KRBS is followed closely behind by the Britannia, which has also hiked rates on its one- and two-year bonds to 2.03% and 2.21% respectively.

The clock is already ticking for savers on the "strictly limited edition" market-leading bonds from KRBS.

Slim Pickings for Savers

The outlook for savers has been grim over the past 12 months, following the launch of the Funding for Lending Scheme in August 2012.

The availability of cheap funds from the Government has encouraged banks and building societies to offer lower returns on standard retail deposits.

Such has been the deterioration that savers who fix for two years now receive an average of just 1.8% on their bonds – over a whole percentage point below inflation after tax has been deducted.

Accordingly, savers' eagerness to snap up market-leading rates has meant that leading deals have a precariously short lifespan – a caveat that KRBS has acknowledged.

John Eastgate, KRBS’s marketing director, said that the new bond issues were available "on a strictly limited edition basis".

“These products are limited edition and can be withdrawn at any time without notice and no further applications will be accepted,” the society said.

KBRS

KRBS is best known for its inflation-busting regular saver accounts. At 4.00% (3.20% net), these accounts offer rare protection against the rising cost of living, but allow only a small amount to be deposited each month.

Though not particularly well-known, depositors with KRBS are given the same protection by the Financial Services Compensation Scheme (up to £85,000 per person) as any other mainstream bank.

(See our latest blog article for some of the benefits of smaller banks.)

Keith McDonald
Which4U Editor

If you enjoyed this article:

• Check out the latest articles on our Finance Blog.
• Sign up for our free e-newsletter.
• Follow us on Twitter for regular updates.

{loadmodule php,TwitterButton}

Some Barclaycard customers could face rising bills after the credit card provider decided to move Platinum customers to variable rates from September 1st.

Barclaycard announced that the credit cards issued to around 1.7% of its 10 million customer base would no longer track the Bank of England base rate at the end of the summer.

This will allow the provider to review and change its rates for individual customers with much greater ease.

Barclaycard described the change as “beneficial to customers” in the context of a climate where average credit card rates have soared despite a rigid Bank of England base rate.

“Their new rates are set at the current rate, which is at its historic low,” a spokesman said.

The provider may also set a period during which existing Platinum customers are excluded from rate reviews based upon risk.

Barclaycard is keen to avoid being seen as cashing in on its recently announced adjustment, which followed an announcement from the Bank of England that interest rates were unlikely to rise in the foreseeable future.

Its 27 month 0% balance transfer card is an ideal choice for customers looking to consolidate and reduce their credit card debts affordably, though only those with excellent credit ratings are likely to be eligible for the full term.

James Booker
Which4U

If you enjoyed this article:

• Check out the latest articles on our Finance Blog.
• Sign up for our free e-newsletter.
• Follow us on Twitter for regular updates.

{loadmodule php,TwitterButton}

Payday loans company QuickQuid has apologised for sending an email that threatened to send debt collecting agencies after people who had not even taken out loans with the firm.

The lender said that the emails demanding repayment were "inadvertently" sent to email addresses on its system.

Complaining customers said that the telephone numbers provided on the email were not working, and that the message constituted little more than scaremongering.

The company said that it was planning to contact everyone who was sent the message to clear the air.

“This message email was sent in error and should be disregarded by anyone who received it,” a spokesman said.

"We are currently investigating how this email was sent in error and apologise for any alarm this message may have caused."

Cleaning up the payday lending industry

The news follows the revelation that eleven lenders have ceased trading in short-term loans since the Office of Fair Trading (OFT) laid down an ultimatum earlier in the year. It is waiting to hear from at least twenty more regarding its ultimatum.

Following a year-long review of the sector, the regulator contacted the 50 largest companies in the spring, demanding that firms clean up their act.

It said that it had found evidence of inadequate affordability checks, inadequate security protocols, and aggressive debt-retrieval practices.

The Consumer Finance Association said the sector was determined to rise its game, and that it had hired a former standards committee chief, Seymour Fortescue, to help it turn its reputation around.

But the turnaround has not occurred fast enough, with the OFT referring the sector to the Competition Commission last month (read more).

Lenders including Wonga were then summoned to a government summit last week, with consumer minister Jo Swinson calling upon the industry to “get its house in order” (read more).

Keith McDonald
Which4U Editor

If you enjoyed this article:

• Check out the latest articles on our Finance Blog.
• Sign up for our free e-newsletter.
• Follow us on Twitter for regular updates.

{loadmodule php,TwitterButton}

Mortgage lending at 85% loan-to-value or above has risen to a four-and-a-half year high, providing more optimism that new stimulatory measures are benefitting first-time buyers.

According to the latest Mortgage Monitor from e.surv, over 7,000 mortgages were approved in June for borrowers with a deposit of 15% or lower.

This represents a considerable rise of 47% on June last year, and the highest level since September 2008.

The rise was indicative of stronger performance across the market. Around 58,000 mortgages were approved last month, e.surv’s monitor said – an increase of 23% from the previous year.

Higher LTV Lending in Recent Months

The figures support those from the Council of Mortgage Lenders (CML), which found a 42% increase in the number of loans advanced to first-time buyers in May from the previous year.

The CML said it had observed an increase in the number of first-time buyers entering the market with smaller deposits over the last few months.

The average first-time buyer loan-to-value ratio rose to 83% in May, it said – the highest ratio since November 2008.

First-time buyers are also borrowing more, taking out an average of £113,400 in May compared with £105,000 during the same month last year.

The age of the typical first-time buyer remained at 29, it added.

Lenders Easing Conditions

Chartered surveyors e.surv said that a significant and sustained improvement to higher LTV mortgages, aided by schemes such as Funding for Lending and Help to Buy, had improved conditions for first-time buyers.

"Last year the lending market was thorny for first-time buyers," explained e.surv director Richard Sexton.

"Banks eyed them with caution. Property prices need only fall a little before a high LTV borrower falls into negative equity, and the bank stands to lose.

"But over the last year, lenders have softened the process for them to get a house purchase loan," he said.

Keith McDonald
Which4U Editor

If you enjoyed this article:

• Check out the latest articles on our Finance Blog.
• Sign up for our free e-newsletter.
• Follow us on Twitter for regular updates.

{loadmodule php,TwitterButton}