The whole Northern Rock affair has prompted a major review of the rights and wrongs of government intervention in the free markets, as well as potential changes to the protection offered to banking customers.  As the debate rages on, many people seem to have missed the fact the Gordon Brown was Chancellor of the Exchequer for 10 years, and had a very influential role in the set-up we have today.  How does he appear to have escaped any criticism?

There is also the much larger question as to whether it was correct for the authorities to intervene so heavily in what was, and still is, a publicly quoted company, with Northern Rock listed on the London Stock Exchange.  The authorities will quite rightly argue that they were forced to intervene due to the potential for the whole UK banking system to collapse, and the massive repercussions that would have had.  However, while many accept this point, some are starting to point the finger of blame at the authorities and the fact that they could “let” a company with such a risky business model become so prominent in the UK banking sector.

The authorities have also promised to review the protection laws for UK banking customers, although the “deposits are 100% backed” claim from the government some days ago is unravelling a little.  It appears that the small print is not quite as straight forward as it could have been - surprise, surprise.

While there will be many who are breathing a sigh of relief, if the signs from the US are correct this situation could be far from finished.  A falling housing market, increased financial pressure on yet more sub prime lenders and an economy that could stall do not bode well for the immediate future.  Stock markets have held up fairly well over the last week or so, but this short term revival may well be short lived if either the US or UK financial sectors continue to suffer.

Northern Rock have today announced that they are in talks regarding a number of potential transactions, one of which is a possible buyout of the troubled bank.  This comes hot on the tail of last weeks cancellation of the interim dividend to shareholders, which would have cost the bank in excess of £50 million, at a time when it is being bailed out by the Bank of England.  Quite how they really expected to be in a position to pay the dividend had shocked many in the City, but pressure from the Bank of England seems to have prompted the about turn in policy.

While a number of parties have been mentioned in connection with a takeover, merger or refunding of the group, there are many experts who feel that the company is just treading water at the moment, with not one of the major banks showing any interest.  There is no doubt that the brand is nearing a death, and while there are mortgages and banking customers to pick up, why bid for these when you could pick them up free if the company goes under?

In a separate development, the management of Northern Rock have been called to appear before an MP’s Treasury Select Committee next month, in what promises to be a stormy affair if the recent grilling of Bank of England governor Mervyn King is anything to go by.  Mr King’s own position has been the subject of much debate over the last few days, with Prime Minister Gordon Brown unwilling to answer questions on the subject.

It has emerged since the crash of Northern Rock that many UK financial establishments are actually turning down new business which they would normally have taken on at a seconds notice.  They seem to be under strict orders to keep assets as fully intact as possible, and not open themselves up to over stretching, such as in the case of Northern Rock.  So when will this change?

The credit crunch has not only effected the borrowing financials, it has effected the lending companies who are not as keen to let go of their money at the moment. Unless there is as near to zero risk as possible they have been seriously considering their positions, which will ultimately improve their bad debt situations but possibly reduce their short term profitability.

Those who thought that Northern Rock marked a turning point in the crisis are set to be sorely mistaken, with many analysts forecasting further sector difficulties in the short to medium term - indeed there are even reports that the industry may well let Northern Rock “die a sad death”.  None have been forthcoming to bail the company out, and the longer this goes on the less chance of the company making any kind of revival. 

There is even talk of the authorities stepping in again to finance the company, but this will never happen as that would mean crossing the line to the free market.  Sadly the days of Northern Rock are numbered, unless a bidder comes up very soon!

The credit crunch is set to claim more scalps in the States, with rumours that some of the big players may be experiencing difficulties.  Until the credit crunch has run its course, and no amount of State aid or extra liquidity will effect this, the system will still be on red alert for difficult situations.

In a sign of the current economic climate and general confusion in the financial sector, it has been announced that the cost of US homes fell by 0.6% in July this year.  The survey took in 10 of the largest US cities in order to give a balanced view, and the results do not make good reading.  Could this be a blessing in disguise, or is it too little too late?

The fact that the US economy is showing definite signs of weakness would normally be a worry, but the fall in the housing market may well stop those who are still over spending.  There has been talk of over exuberance in the US for some time, and while the Federal Bank have done their up most to try and balance the battle against inflation and the need to refrain from over spending, recent events have forced their hand of late.  While the so called credit crunch has been ongoing for some weeks now, there were no definite signs of this in July, so the fall over that period seems to have been as a result of the hike in US rates earlier in the year.

Where will the US economy go from here?

Those who say that the credit crunch is over are sadly mistaken, and there is still more bad news to come out of the sector at some stage.  The sector has been over populated for some time, resulting in some crazy investment decisions by some lenders.  The mortgage sector is set to go through a period of natural culling of certain firms whose business model and lending guidelines have no place in the current environment.  Not only will this reduce the number of players in the market, it will also reduce the competition.

A reduction in competition will reduce the need for firms to look at transactions which are not tenable going forward, which will in time increase the quality of loans, even to the sub prime sector.  No pain no gain as they say, and while the pain has only just started, the long term gains will be very much welcomed!

While many of us thought that we would never see the day, it seems as though the credit card companies are starting to feel the pinch.  Confirmation came yesterday that Barclay Card have been writing to a number of their customers actually reducing their credit card limits.  A big change from the constantly increasing credit card limits which we have come accustomed to in the past!

Even though the whole financial industry is still feeling the pinch, the depth of problems in the sector are reflected by this unprecedented move by a major credit card company.  As the finance houses limit the amount of funding to the public, this may perversely increase their earning and profits, with the chance of less (or smaller) client debt problems.

It will be interesting to see which other areas of finance are next to baton down the hatches and try and ride the storm.  The insurance sector may be an area which is ripe for some kind of credit crunch, with less funding available, there should be less competition for reinsurance offers.  This may mean a rise in reinsurance costs, which would then filter through to the public and higher premiums in due course?

Again, the financial press seemed to have swallowed the belief that the Northern Rock will be the only casualty in this credit crunch - that will not be the case.  It may takes months for the full impact of the situation to filter through, but there will be more casualties, although whether they will be as high profile as Northern Rock remains to be seen.

If you have ever been to college, university or some other form of further education, you will no doubt be aware that the banks have a tendency to chase students to open accounts, offering free overdrafts, interest deferred loans and more.  Why do they do this, and who really benefits?
 
The banking industry see those in further education as potential customers for the future, and the sooner they grab you the better.  The average student will probably be forced to get into some form of debt in their further education years, thus many will not really be able to move banks once they have signed up.  This gives the bank in question a big hold over you for a potentially long time, and they can make a substantial amount of money out of you while you struggle to pay off your debts!
 
So who is the real benefactor of this pursuit of students?
 
In all honesty, the initial “investment” by the banks can make life easier for a student in their years of further education, but there is no such thing a free lunch in this world - you will pay for it some time!
 
The banks have worked out how much they could make off you, the chances that you may be successful in the business world and they want to keep you sweet from day one.  While it is very easy to get into debt, it can be very very difficult to get out of it, and you will incur masses of interest and charges - just what the banks like!
 
But why don’t people just move banks when they get into employment?
 
The main reason why people do not  change banks is because of laziness, and the fear of more and more paperwork, potential problems with direct debits, etc.  While many do not realise that a new bank will sort all of your direct debts, etc for you, the fear factor still remains.  That in a nut shell is why the banks make a big play for students - future income!

While there are millions of people in the UK who have considerable mortgages, and are likely to do so for the next 25 years or so, there are some who may find themselves in a position to pay off their mortgage early - but is it the right thing to do?

While on the face of it, the chance to pay off a sizeable debt would normally be grasped with both hands, there are other issues to consider, especially where a mortgage is concerned.  We hereby list a few questions which you should ask yourself :-

· Are there any penalties for early repayment, and how would these effect the amount which you had to pay off? While the authorities have come down fairly hard on mortgage penalty fees, they are still around and you need to be aware of the full facts.

· If I pay off my mortgage, will that leave me short for the future? Many people prefer to retain their mortgages, if they are affordable, and perhaps invest or keep any excess funds on deposit.  This way they will have a “rainy day” fund if needed at short notice.

· Would it not be sensible to pay off some of you outstanding mortgage, and retain some on deposit as back up for any future requirements - or even to invest the balance?

· When taking into account the relevant tax relief on mortgage interest, could you obtain a better rate of return by investing the money rather than paying off your mortgage?

These are just a few of the more obvious questions which you should ask yourself before even thinking about paying off your mortgage early.  While it will depend on your personal situation, there are many options and arrangements to consider.

In this world of instant finance, it seems that everyone is in debt, but where did it all come from? When did it all start? And we are not talking about mortgages! 

Over the last 20 years we have seen a gradual increase in personal debt all over the world, and while many people are having trouble financing some of their debts, it seems to be on the up and up.  When you consider that one of the recent growth markets in the finance industry was advice on Bankruptcy and Individual Voluntary Arrangements (before the rules changed), you may well get the picture.

So how far back can we trace the build up of debt, and who’s fault is it?

While it has always been easy to obtain debt for the masses, whether via credit cards, loans, etc it seems that many people joined the slippery slope with such a simple thing as an interest free overdraft.  These have been dished out by the banks to almost any customer which they have come across, in the knowledge that it can lead to many more lucrative sales. 

We have seen massive increases in overdrafts which incur a monthly charge as well as an interest payment.  Many of these will lead to personal loans when they get out of hand, or even push the customer towards the credit card market.  Once they are in the clutches of the credit card industry, the ease with which a card can be used seems to appeal to the masses.  Slowly but surely larger and larger amounts are left unpaid at the end of each month, as slowly but surely the interest payments rise.

When people are in employment they are very often able to service their debts at a struggle, but with the property market showing signs of cracking, and the economy set to fall back next year, the UK consumer may be about to hit the buffers.  There have been numerous calls for debt to be curbed but the banks just keep releasing offer after offer and offer. 

Judgement day is coming for many, and while the banks will squeeze as much out of you as possible, the customer will be the one who suffers most, with their credit rating tarnished forever, and worse.  However, at the end of the day, it is for the consumer to say no, to look at their finances and see that trouble is brewing, but as they say “its easy to make hay while the sun is shining”. 

A mortgage is probably the largest loan that you will ever take out in our life, and traditionally it will hang around your neck for anything up to 25 years.  Imagine if there was a way that you could reduce your total mortgage payments and reduce the term of your mortgage, and still only pay the same amount of money.  Impossible? No, read on…..

When setting up a mortgage, traditionally you would probably be expected to pay monthly, say one payment when the mortgage is agreed and one each month on the same date.  The revised process works best for interest and capital repayment mortgages  which are the more popular nowadays.  The traditional monthly payment you make will reduce your interest payments on an ongoing basis, and the amount of capital outstanding is also being reduced each month.  But why do you pay once a month? Why not pay every two weeks? Would it make a difference?

It could potentially make a massive difference, and all because of the fact that you will be paying down the capital quicker, which in turn reduces your interest payments.  Lets say at the start of next month you pay your full mortgage payment, and then two weeks later you pay half again, then half again two weeks later, and so on and so no.

By doing so, each two weekly payment is reducing your capital quicker than one payment every month, thus by reducing your capital amount quicker, your interest payments will then be reduced.  If you payment figure is set, then as your interest payments reduce, your capital payment increases and the rate at which you payoff your capital gets quicker and quicker. 

This type of simple payment plan can take literally years off your mortgage term, and save you ten of thousands of pounds into the bargain.  Just by changing you payment dates, and paying half early and half on the scheduled date, it can take a  real weight off your mind.  Ask you adviser next time you are discussing your mortgage, and watch their face!

While if you listen to the main stream press you would think that the days of negotiating are well and truly dead in the financial industry, this is not always the case.  Even now in the current climate there is still scope to squeeze that extra few pounds out for yourself, whether a delayed payment schedule, a rebate on the set-up fee, or some other perk.  So how do you actually go about doing it?

In order to get the best deal for yourself, you need to be a little up front, but in a controlled manner.  Ask what they can offer you, and how they can assist in reducing the cost a little, because many financial institutions will see set-up fees as their basis for negotiating.  But, don’t expect them to rollover and give your a discount without a fight, it wont happen.  They are in business, and in it to make as much profit as possible!

If negotiating is so wide spread why is it never in the press, and why do advisers never encourage you to look around for the best discounts? This is a regular argument for those who say that discounting does not go on (i.e. the financial industry), and they will do their best to ensure that they can squeeze the last penny of profit out of you.