While the UK has one of the best public service systems in the world, the cost of funding this continues to grow, often forcing an increase in taxes.  There are many in the UK who argue that even though taxes have gone up, the quality of public services has gone down.  However, surprisingly, a recent survey indicated that the majority of UK tax payers would actually agree to higher taxes if they could see where their money was going.  Will this ever happen?

The problem with the UK government is their record on wasting money, with computer systems billions of pounds over budget, the tax credit system in disarray - with billions of pounds outstanding, not to mention the mammoth cost of setting the system up.  There have also been hundreds of other schemes which have gone well over budget, including among others the infamous Millennium Dome.  How can the authorities regain the trust of the UK public?

Government, trust and the public are not three terms which normally go hand in hand, with the public often sceptical of where their taxes actually go to.  Perhaps a more transparent system would work better if the tax payer could actually see where their money was going, which departments and if it was working.  One of the main gripes against the government has been the fact that all of the many budget over spends actually come out of the tax payers pocket, when in business there would be compensation and penalty payments if projects were not brought in on time, and on budget.

A more transparent system would give the public more confidence - that is assuming that the government have nothing to hide!

While there are literally millions of people in the UK who at one time have over paid their taxes, it is never easy to claim your over payment refund.  Whenever you owe the government tax, they will be on to you in double quick time, but it is not quite so simple when it is the other way around.  This begs the question, are you paying the correct tax?

There are a number of reasons why your tax code may change throughout your life time, which include marriage, age, retirement, etc.  As you would expect, the authorities are very keen to put the onus onto you to ensure that your tax code is correct.  In the event that you have been charged too much tax, then you are able to apply for a rebate, but this can often be a long and tedious process bearing in mind there are potentially millions of UK residents in the same situation.

To ensure that your tax code is up to date, it is vital that you check the tax code on your next pay slip against the codes listed on the following internet page :-

UK Tax Codes

Is it correct? Does it relate to your situation?

There are also an array of tax free allowances which you may be able to utilise which are listed on the internet page below :-

UK Tax Allowances

It is essential that you monitor your tax situation, what you are paying and what you expected to be paying.  If you don’t help yourself, you can guarantee that the authorities wont!

While there have been numerous changes in the pensions market over the last few years, the SIPP has remained the number one pensions investment vehicle for many, but why? For those who have not come across a SIPP, it is a Self Invested Personal Pension, basically your own pension pot which you can use to invest in a wide range of authorised investments. 

The type of investment which you can bring into a SIPP include :-

1. Stocks and shares listed on a recognised investment exchange.
2. Options which are traded on a recognised investment exchange.
3. Authorised Units Trusts, OEICS and UCITS funds.
4. Unauthorised investment funds which do not invest in property.
5. Deposits accounts.
6. Commercial property.
7. Borrowings to fund part of future investments.
8. Traded endowment policies.

There are also a number of more obscure investments which are allowed, and the list can and does change on a regular basis.

The government have specifically precluded investments in social housing, as there is scope for misuse of the system, e.g. if you were to buy your own house with pension funds, what would happen if you missed the rent payments, what is a fair rent, etc.  Originally the authorities had intended to allow social housing investments, but they quickly changed their minds as weird and wonderful arrangements were being arranged to effectively abuse the system.

The main reason why SIPPs have become so popular is the fact that while administered by an authorised SIPP provider, you have the control over where and when your funds are invested (within the regulations).  This cuts out much of the extra cost associated with a paid adviser, but there is also the risk that you may actually get it wrong!

While there has been much talk of problems in the housing market, starting in the US and expected to move to the UK in due course, will this impact upon the buy to let market - the investment market for companies and individuals alike.

While there is an obvious threat of funding costs rising as pressure on the credit market continues, as well as the risk of property values falling, the buy to let market may just be able to hold out.  As the number of repossessions goes up, we will see more people looking for short term rented properties, which should allow rental income to stay relatively firm.  There are even those in the market who believe that those with buy to let properties at the moment will benefit from the general market turmoil.

However, perhaps one of the largest influences on the buy to let sector will be the price of homes in the UK, and the fact that many first time buyers are not able to grab hold of the ladder, never mind climb up the property ladder.  This has seen a major rush towards rented accommodation and “social housing”, both situations which the buy to let sector can benefit from.

In summary, no matter what happens in the UK property market over the coming months, years, etc, there will always be a need for homes.  Social housing is becoming ever more popular, but the demand for spaces is moving much quicker than the number of new builds.  This will at some stage play into the hands of the buy to let owners, with many people likely to look for short / medium term rental arrangements. 

For the first time ever, the number of internet based banking customers now tops the number who use telephone banking.  It has been reported that there are 17 million live internet banking customers, against “only” 16 million who use telephone banking. 

It seems that the biggest change has come from the over 55s group, who have slowly but surely taken to internet banking, as the group also show the largest increase in internet literacy of late.  It seems that a mixture of robot like telephone banking systems, and easier and easier access to the internet have pushed many towards online banking.  What does this mean for the banking industry?

While it is good news for the financial industry from a costs point of view, with internet costs very much lower than those for the telephone system, it does open the industry up a little more to online fraud.  Over the next few years we should see a mixture of greater online security, and a number of advertisements detailing how to spot these cons and how to ensure your user details and savings are safe.  This in itself may be a major battle for the financial industry!

This move towards online banking just serves to show how advanced the UK market has become, and cemented our position as on of the most internet literate countries in the world - a position which seems sure to get stronger and stronger. 

Will mobile banking ever be as successful as internet banking? Time will tell, but there will need to be a massive increase in the quality of mobile internet connectivity, and quicker data transfer speeds - which both seem some way off at the moment.

In a move which was expected, but is set to be the first of many from the main mortgage providers, Northern Rock have today announced an increase of 1.25% in their sub-prime mortgage rate.  This on the same day that US house sales fell to a five year low, is a reflection of the current market turmoil - something which is far from over.

While there had been concerns that Northern Rock were at risk from the sub-prime mortgage turmoil, they have announced that their more risky mortgages are managed by broking giant Lehman Brothers, for a set fee.  This effectively covers the former Building Society from any major fall-out in the market, and allowed many investors to breath a huge sign of relief.

Even though Northern Rock seem to have protected themselves, the same cannot be said of Barlcays who are rumoured to have some major exposure to the troubled sector.  The departure of one of Barclays Capital’s major deal makers last week has added further fuel to the fire.  Until they (and other banks) come out and confirm their exposure, the rumours will continue and grow in strength.

The financial sector is currently under a cloud, and until the situation is resolved there seems little likelihood of any sunshine!

While there are many ways in which the internet has helped the everyday consumer, not all has gone to plan with regards to customer services available - especially in the financial industry.  There are many bank customers from years gone by who were very friendly with their local bank manager, but are they as friendly now? Do they have the same characteristics? Have you actually seen your bank manager?

The chances are that if you opened up an account in the last 10 years you have probably never met your local branch manager, and your relationship with them will be nothing like that of years gone by.  In the 1980s and before, the local bank branch was often the centre of many rural and town communities, everyone seemed to know everyone else and there was always somebody to answer your questions - times have certainly changed!

It is basically since the internet began to play a part in financial services that we have seen the demise of the bank manager / customer relationship.  The old style managers have been replaced by pen pushing figure heads, who do not have any actual control over what they can authorise - everything is now computer driven and cleared by “Head Office”.  Customers seem to just be numbers and there is no real effort to get to “know you customer”.

Costs have been cut to the bare bones, which has instigated the demise of many bank branches, and the heavy promotion of telephone and internet banking.  The banks of today are run purely on financial formulas, dictating how many of a certain product they can sell, what the preferred mix is and issuing targets, targets, targets - so now you may understand why they ship you in and ship you out as soon as possible.

It is looking more likely that if you want to see a representative of your local bank, not necessarily someone who will know you, you are going to have to pay a fee in the future.  The bank manager / customer relationship has gone for good and is highly unlikely to return in any form approaching that of the 1980s and before.

The internet has been excellent for some things, but for others, well……..

While there are very few areas of finance which will not be directly effected by the ongoing credit crunch, which originated in the US but has since spread to all of the major economies of the world.  The fact that the lack of liquidity is having an immediate impact upon the supply of credit, and may well see short term money market rates pushed higher, will have a major impact upon credit cards.  But why?

Credit cards themselves are the most basic of debt instrument, and for each customers debt there needs to be a funding arrangement in place to cover that liability, if the person were not able to play.  The fact that short term credit rates have increased in the money markets, will soon impact upon everyday life - unless the situation can resolved as soon as possible.

While the financial institutions will try to resist any major changes for as long as possible, they cannot carry this short term increase in cost forever. There are many optimists in the market who feel the effects will be short lived, but we have only just seen the start.  Those companies already effected deeply by the situation, such as the original sub-prime lenders, will be trying desperately to reorganise their finances.  Those that fail will soon make their bad news public, which will see a sharp drop in confidence in the sector, putting yet more pressure on other companies.

The news that China and other areas of the Far East have become embroiled in these complicated financial instruments does not bode well, with a number of prominent American institutions originally looking at Far Eastern finance to bail them out of their current predicament.  It may take some time to unravel, but slowly but surely we will soon see more bad news filtering through.

In a move which has rocked the banking industry, a judge has ordered Barclays Bank to stop issuing penalty charges to a customer who is suing for repayment of “illegal” charges.  In a  welcome move for the consumer, Judge Abrahams at Luton County Court issued the order against Barclays in relation to a case involving Nadine Fry, who is looking to reclaim £1500 in charges from the financial giant.  So what does this mean?

There are two real issues to consider here which include :-

The Consumer’s Position

Over the last few weeks there have been reports of banks adopting aggressive strategies to try and stop customers pushing through with their claims.  People have seen charges added to their accounts, accounts frozen and in some case accounts have been closed altogether.

This freezing of additional overdraft of penalty charges has given many consumers some breathing space, and allows them to push forward with their claims without the threat of further repercussions.

The Banking Sector’s Position

The last 12 months have seen the banks adopt a number of strategies to try and influence the cases against them including, delaying tactics, the threat of chasing customers for court costs and an often heavy handed approach to the consumer.  The ruling by Judge Abrahams will have one major effect, it will ensure that the stalling tactics stop, and we finally get towards some kind of test case to clarify the situation once and for all.

Conclusion

While the recent ruling by Judge Abrahams has been welcomed, it is not an approach which all judges will take. However, it will have the effect of focusing the mind of financial sector a little more, and ensuring that we arrive at a definitive ruling in the not too distant future.  If the recent ruling was adopted by more judges, then the banks would see much of their profits on hold - something that would please neither the management nor shareholders alike!

The mortgage crisis is truly wreaking havoc in the financial world and while it is causing problems on Wall Street and around the world it is really affecting small banks. In fact, the affect is so strong that it is possible that when you want to buy a home that you can afford the bank will be unable to loan you the money. This may occur because investors are shying away from mortgages so banks are stuck with 30-year mortgage loans on their books and may be unable to make new loans despite your credit or income. This does not seem possible but it actually is and if the banking sector does not bounce back soon small banks will really suffer. Plenty of home mortgage companies have already gone bankrupt so the outlook for small banks could be bleak if things don’t get better soon. So, what does this mean for you as a homebuyer?

It means that you need to ensure that you are the best possible applicant before you apply for a home loan. There are quite a few ways to ensure you are a good candidate for a home loan. First, you want to ensure that you have excellent credit. If your credit isn’t perfect that is okay because you have time to improve it. You should allow yourself six months to a year before applying for credit to improve your credit score. This includes making all payments on time, reducing your debt to credit ratio, and simply trying to improve your credit score. As your debt goes down and your credit goes up as well as making on time payments you will see your credit score inching forward. Keep in mind that taking the time to improve your credit score is important because with excellent credit you will get the best interest rates and it may be what encourages the bank to lend you the money in the first place. So, no matter how long it takes you to improve your credit focus on that first before you apply for a home loan.

The next thing you should focus on is saving for a down payment. In the past many loans were made without a down payment but in the current mortgage market crisis you want to make yourself the best possible candidate. Having a down payment will reduce your risk so focus on that. While you are working on improving your credit focus on saving as much as you can each month. That way when your credit is ready to apply for a home loan your down payment is as well. Having as little as $5,000 will help but you should really aim for about $10,000 to improve the odds of receiving a home loan.

Only time will tell what will happen with the mortgage market and what qualifications will be required in the future. One thing is for certain, however, and that is that qualifications will be much stricter than they were in the past so prepare yourself.