As you would expect from a period in which worldwide economies have been battered by the credit crunch, there has been much comment about a possible fall in the UK housing market. While on the surface the signs and elements are there for a significant fall, what is the situation underneath the surface?

While the doom and gloom merchants are having a field day, the situation under the surface is no where near as bad as you might think because of a number of factors which include :-

Demand v Supply

Even though there has obviously been a fall in demand for houses with fewer buyers in the market, there has also been a fall in the number of people looking to sell. So in relative terms the fall in demand has to some extent been offset by the fall in the supply of houses to the market.

Result : Neutral

Interest Rates

There is no doubt that the recent worldwide trend of falling interest rates is set to continue, with UK rates set to fall in February and possibly later on in the year. A lot may depend upon inflation and the state of the housing market with regards to further falls, but the trend is definitely down.

Result : Positive

Housing Associations

More and more people are using housing associations as a vehicle for the purchase of their homes, whereby the housing association will fund part of the purchase price of the property for a share in the asset.

Result : Positive

The only real unknown factor which will come into play at some stage is the economy and how it will perform over the next couple of years. If the economy were to slowdown significantly then this would hit the employment market which would have a negative impact on the housing market. This could possibly overshadow all of the elements we have mentioned above.

There is no doubt that the UK economy is entering a very tricky period, but the housing market for the moment is holding fairly steady to the surprise of many.

Over the last few weeks we have seen a concerted effort by the vast majority of central banks around the world to breathe some life back into the credit market, the internal market which provides vital funding for business. While there have been rate reductions in both the US and the UK, many UK mortgage holders have complained that their mortgage rates have not moved in line with base rates. How can this happen?

While on the surface a reduction in UK base rates would normally be the leader for a fall in UK mortgage rates, but these are not normal times in which the finance industry is operating. Behind the scenes the credit market is still in disarray with a vast number of traditional lenders not present, or at the very least not present to the same levels as prior to the credit crunch. This means that internal lending rates are still higher than base rates which is why many mortgage providers have yet to pass on any major reductions to their customers.

The ongoing reduction in worldwide interest rates will kick in at some stage and we will see lending rates return to more traditional level, but as ever with interest rate movements there can often be a substantial delay between the rates moving and the effect it has on the world of business. While there is no doubt that even the indication that rates will fall further in the short term will be well received by the markets, we are in a fairly unique position which many people may not have experienced before.

So is the worst over?

Too many people called the end of the credit crunch too early and it came back to bite them, so anyone who predicts the end of the current situation can only be guessing. The gradual reduction in interest rates on a worldwide basis is a major help, as is the indication that the central banks are willing to be proactive rather than reactive, but it will take some time yet to return to a more traditional market arena.

Pensions are always a very tricky subject for the masses with people not sure when to start, how much to put aside or even what they can expect to receive in retirement. These factors seem to combine and result in many people ignoring their pension planning until very much later in life when it can mean a substantial fall in their income upon retirement. So when should you start your pension plan?

In simple terms you should be thinking of your pension arrangements as soon as you start earning an income. While there are many who believe that a pension should only be considered when you have an established career and your income has grown substantially from the early days, this is not really the case. As more and more company pension schemes struggle to fulfil their obligations it has never been more essential to have your own personal pension arrangements, whether you go for a stocks and shares based long term pension plan, savings plan or some other type of pension, the whole risk / reward spectrum is available to you.

Let’s not forget that even if you are only able to put aside a relatively small amount in the early days, your net contributions will be increased by assistance from the tax authorities, and you may be investing that money for 40 years or more – depending upon when you actually retire. Many people also forget that any income which your pension arrangements produce will also be reinvested into your pension pot, so not only will you hopefully see your initial contributions grow in value over time, but any dividends or income from your pension investments should also grow over time. It is this point which may people seem unable to grasp, the re-investment of income – a very powerful and potentially lucrative element in the longer term.

In summary you are never too young to start a pension plan and even just a few pounds a month can make a massive difference in the long term, and it will also give you experience of saving money – something which could prove vital in later life!

While money can be tight for many people as we enter a difficulty period in the economic cycle, now more than ever we should all be considering our life insurance cover to ensure that our families are cared for in the event of any accidents or terminal illness. But why are so many people ignoring the life insurance sector and not planning ahead for the future?

Like so many long term investment tools, it can be difficult for some people to see the benefits of financial products such as life insurance which may not actually be “required”. While these products offer much need support and back up to our loved ones many people seem to see them as “non essential”. With this in mind the number of people who are ignoring this area of the market looks set to grow as the economic downturn starts to bite, but is it really the sensible option? For only a few pounds a month is it worth the risk?

Some people seem to fall into the trap of believing that either their employer insurance (if applicable) or their mortgage life insurance element will be enough to support their families if something were to occur. In reality this is not the case and it is likely that any employer insurance will be very small in the overall picture, and any mortgage cover will just be used to pay off any outstanding mortgage.

When you consider that you may have a family and your partner may not be able to work for some time if they are bringing up the children, even paying off the mortgage and a little extra from an employer policy will not be enough. These policies may well assist in the short term but the long term picture may still be very bleak without your own life insurance cover. While the costs of this cover will vary from person to person and situation to situation, in the over scheme of things it is not very expensive at all.

For the sake of just a few pounds a month is it worth the risk that the family you leave behind may not be financially secure? On top of any trauma in the event of your death is it fair to heap yet more pressure on with regards to finance? Life insurance may be an “option” but for many families it is actually a necessity.

Over the last few years the UK government (and other governments around the world) have pledged to try and reduce the massive cost of the UK benefits system which has spiralled out of all control to somewhere in the region of £120 billion a year. While the authorities have taken a number of courses of action they seem to been depending up a system whereby claimants are “means” tested to see what assets and income they already have, where upon their claim may be reduced. But is the means testing system counter productive?

As taxes continue to rise, employment prospects get a little bleaker and the UK economy looks set to take a breather at best many people are being drawn into the world of benefits. While there are many who will agree that the means testing system awards those who need funds most with a larger slice of the benefits pie, many people are now wondering why they are being penalised for being successful . This has prompted a wave of “give aways” whereby those of older years are looking to pass on their asset to their family and friends while they are alive in the knowledge that they will lose these assets any way in the event that they need extra medical care or indeed move into a care home for the elderly.

This passing of assets is covered under strict government rules but there are ways and means of doing it, thereby ensuring that the person giving the gifts will receive full assistance from the state in later life. There are many who would rather not go down this route, the millions who have paid taxes and feel that this is the only way to protect their family’s inheritance. We have all seen stories of families being forced to sell homes and spend savings to cover care which many believe the state should provide.

In many ways it seems that those who are proactive and create their own income are the ones who are bring penalised and those who may not have had employment for some time are benefitting most. Obviously there are occasions where a claimant is unable to take up regular employment or may need extra assistance in some way, but there is no way that the millions who are claiming a whole host of benefits on offer are all unable to work.

As if the Nick Leeson “rogue trader” episode of 1995 was not enough for the financial markets to digest, we have today seen inter-market fraud taken to a new level with news that ONE rogue trader has taken a $7 billion gamble with the funds of establish French Bank Societe Generale - and lost the lot!

The person in question is believed to be Frenchman Jerome Kerviel, a 31-year-old trader who worked on the firms Delta One products team, which basically involved taking large positions on the future movement of share prices. The fraudulent transactions seem to have taken place between 2007 and 2008, and using a number of techniques which he seems to have gleaned from his time in the back office, the trader has managed to conceal his position until now.

While the Bank will still report a profit for the year, the massive hit on the bank’s asset base will force them into the market to raise more capital to shore up their balance sheet. The banks shares were suspended at the opening of today’s market trading but soon resumed after the announcement, immediately falling 3.6%. Societe Generale are unwilling to give away much detail until a full review has been carried out, but there are major question about how a trader earning less that 100,000 Euros a year has been able to rack up such large positions, apparently unnoticed by the company’s accounts department.

There is also a secondary problem for the bank now that this situation has been released to the public – if one trader could hold the bank over a barrel to the tune of $7 billion, are there any more skeletons in the cupboard?

Until a full review of the banks positions and internal procedures has been carried out – not to mention probable intervention by the regulators – there will be a sense of uncertainty regarding the company and the share price is likely to suffer further during this period.

As we hear news that US interest rates have been slashed by three quarters of one percent there are high hopes that we may see similar action in the UK. However, will the Bank of England really see the need to take such action? Is the UK economy as bad as the US economy?

While there is no doubt that we will see further ongoing reductions in UK interest rates over the coming weeks and months, it seem very unlikely at this moment in time that we will see such a knee jerk reactions as that seen in the States. Let’s not forget that the credit crunch began in the US and it is the US housing market which is currently bearing the brunt, with record numbers of home owners on the verge of being evicted, personal debt at record levels and unemployment starting to move upwards.

Only this week we have seen massive billion dollar write-offs by some of America’s largest financial companies, many of whom where left with massive losses on bonds and other financial instruments when the sub-prime credit market collapsed. As yet we have not seen such large write-offs in the UK, but that does not mean that the UK financial sector has remained unscathed, more that loses (all be it smaller) have not yet been quantified.

So why is the UK economy potentially different to the US economy?

While there is, and always has been, a close correlation between the UK and US economies they are not currently at the same levels in the boom and bust cycles. Indeed the UK authorities have managed to reduce the often wild swings between the boom and bust cycles, where perhaps the US authorities have not been as successful. This has resulted in a stronger core UK economy although that said there will be a marked downturn in 2008, with many areas of business already seeing reduced demand.

The UK authorities need to strike a balance between pain for the economy and the consumer against a need to keep the rate of inflation under tight control. However, it looks as thought the government’s core target rate of around 2% will be breached within the next 12 months with the Bank of England suggesting that the rate could climb above 3% during this next phase of the economic cycle.

Either way the UK economy is in much better shape than its US counter-part where further over exuberance on behalf of the financial sector and the consumer has led us into the current situation. The UK consumer has long been a little more reserved that the US consumer, but there is still no doubt that 2008 will be a difficult period all round.

While the news on both the property and finance fronts continues to get worse there are still people in need of new mortgages, but where can you spot the best rates now? Everyone seems to be diving for cover with the credit crunch still ploughing on and all of the discount offers have disappeared.

Now is not the best time to be taking out a mortgage with the internal bank lending market still under pressure and many mortgage lenders looking to avoid all but the lowest of credit risk customers. Many are asking if the UK mortgage market could actually grind to a halt if there are any more financial troubles in Europe or the US. But could it really happen?

The truth of the matter is that while there is much pressure at the moment the situation will not drag on forever. It is in the best interests of all governments around the world to ensure there is sufficient liquidity for lenders and that rates are attractive enough for borrowers. If we were to see any further financial troubles in the money markets then the chances are that we would see a concerted effort by central banks around the world to ensure liquidity did not disappear, as well as a short sharp fall in interest rate to stimulate demand.

As for finding the best mortgages currently on the market this is still a case of looking around the major financial comparison sites and seeing what is on offer. Some lenders are still offering attractive rates although for how long remains to be seen, with uncertainty about the short and medium term direction of interest rates. There are still attractive rates out there but they may not be as much in the public eye as they have been over the last couple of years. Look and you shall find…..