Banks in the UK recoiled from commercial property lending, leaving investors in the sector facing record margins, rocketing arrangement fees and demands for greater equity.

On Friday a survey published by De Montfort University, recorded the highest ever interest rate margins for senior debt in every sector as well as the sharpest ever annual increase.

Average loan-to-value ratios for almost all sectors were the lowest recorded, and all organisations increased arrangement fees substantially, reaching their highest ever levels by the end of 2007. Since then, most investors report that conditions have not improved for borrowers.

According to the survey, bank lending to the property sector soared to record levels last year, before the market tightened as the credit crisis ended years of easy finance. Debt rose to a record £247bn in 2007, from £215bn in 2006, with around £200bn standing on the balance sheets of the lending banks.

The figure jumped 16 percent last year, partly owing to an estimated £11bn of debt that was intended to be scrutinised but that could not be distributed following the freeze on this market last summer.

RBS and HBOS are among the largest lenders to the marker, although the sector has been filled by banks and building societies of all types in recent years. HBOS, according to its 2007 accounts, amounted for 37 percent of total corporate lending to construction and property clients - around £40.4bn.

According to the Bank of England, Commercial property lending accounts for 38 percent of major UK banks’ lending to private non-financial companies, compared with 19 percent in 1998.

The fall in capital value of more than 20 per cent recorded in parts of the market over the past 12 months has got some analysts worried. There are fears that this is putting pressure on loans, potentially leading to defaults if the market decline continues.

The Bank of England, one of the sponsors of the survey, was relatively sanguine in its most recent financial stability report, saying that although property values may have increased the risk of commercial property loans held on balance sheets, there was no increase in defaults in spite of evidence of breaches of covenants.

While we hear news that inflation in the manufacturing sector has moved to its highest level since 1995, many people are starting to ask what inflation actually means to them. So what are the positive points and negative points of inflation?

Inflation is the change in the cost of an item or items over a given time span, normally 12 months, showing how the price of the said item has changed over the period. While it is safe to say that prolonged high inflation will ruin an economy, it is also safe to say that negative inflation or zero inflation also has the potential to cause major problems. Here we list some of the positive and negative aspects of inflation :-

Positive Aspects

Controlled inflation in any economy allows manufacturers and services providers to move the cost of the goods / service higher without pricing themselves out of the market. Inflation is a direct result of the supply and demand levels for a particular product. i.e. if there is little demand then the potential to move prices higher is smaller, yet if there is high demand and few providers, then those in the market can afford to increase their prices.

Increased prices mean increased income and so long as costs are kept under control it also allows the companies involved to increase the salaries of their workers. As incomes rises, more people will spend and the economy will continue to grow.

Inflation is also very important to the property market because inflation will allow rental charges to grow, and because the value of property is normally directly related to the rental income, this will keep the property market moving forward. Again, it is a controlled rate of inflation which is essential because when rental inflation moves out of synch with the market this can cause major problems.

Negative Aspects

While a controlled rate of inflation is good for the economy, a run away rate can have serious implications with costs racing ahead to levels which are unsustainable. The problem seems to occur when people have excess money in their pockets to spend and demand for products is pushed higher and higher. As the cost of the products moves higher there is a natural increase in costs with each element of the production chain wanting a share of the rise – including the workers.

When demand starts to fall many companies are left high and dry with costs which are unsustainable against the falling price of goods and competition. As more companies struggle we see more and more price reductions with many companies forced to sell goods at knock down prices. This can then move the economy into a vicious circle, where cost cutting means more jobs are lost, meaning less money for people to spend which then transfers into reduced sales then to more costs cutting, etc, etc.

Summary

While governments around the world will use different techniques to control inflation, one of the main tools in the UK has been interest rates where the authorities look to make borrowing more expensive to curb overspending, hence reducing demand and prices to acceptable levels. Where demand is falling the authorities would look to reduce interest rates to make borrowing cheaper, giving the consumer the opportunity to borrow and spend – increasing demand. At the moment we are in a very difficult situation in the UK because the cost of oil has increased, which has been passed down the line into business and onto consumers. So prices are rising while the economy is under pressure – a very very tricky situation.

If we say that almost everything in this world is based on finance then it won’t be incorrect. Whether you talk about an individual or an organisation the finance is the backbone to run the system. Even a house wife also plans for her finances as she needs to manage money to run the house. Similarly a big businessman and also has finance managers who are hired for this purpose only. There are special schools that teach finance as a subject which has improved so many things in business. Things are now improving and so due to these special finance schools finance management is improving.

If we see the term finance in broad view, we see that it incorporates the study of money and other assets, the management and control of those assets, profiling and managing project risk, and the science of managing money. As a verb the term to finance means is to provide funds for business or for an individual’s grand purchases like a car or a home.

Business Loans

There are many types of finance like personal finance, business finances and public finance and others. If the finance is used by individuals then it is called personal finance, if it is used by the governments is called public finance and if it is used by businesses it is called corporate finance. There are special techniques and tools that are used by the individuals and organizations to manage their finances and money.

Bad Credit Business Loans are a perfect way to help business get back on there feet.

When a person plans to start a business, at initial level of planning g the management of finance is very important without which it is not a good idea to start a business. In other words, a good planning and good finance management is a key to success of a business. When you manage money or finance properly you can secure future this way and so it is beneficial in both the case of individual or organization. Also see how do the taxes affect personal financial decisions. The expenses that are included in the category of perusal finance includes paying for education, financing durable goods such as proper and real estate, and automobile, buying insurance deals, investing and saving for retirements and so much more.

As an individual or head of the family there are few things that he or she must keep in mind. The questions that are important in personal finance includes that how much money will be needed by an individual or family at various points in the future. Where will this money come from? How can people protect themselves against unforeseen events in their life, and risk in the financial market? Another question is that how can family assets be best transferred across generations.

In case of corporate finance it is a task of providing the funds for corporation activities. If we talk about small business then this is called SME Finance. The finance is a huge topic and in order to know more about it’s the web is the best source to gather information. It is quite interesting to learn about finance and its related topics.

As we head towards 2008 retailers are reporting one of their strongest Christmas periods for some time and online shopping is up by almost two hundred percent. So why were all of the doom and gloom merchants so wrong? Are we really heading for a recession?

The sad truth is that Christmas spending has, and continues, to go against all reason as people get caught up in the festive spirit. The option to buy now and pay later seems so easy for many, although they seem to put the issue of actually finding money to pay to one side. It is true that Christmas is a time for family, a time for friends and a time to enjoy but many people will not be enjoying the other 364 days of next year when the credit card and bank overdraft statements come falling through the door.

Be honest, have you over spent at Christmas? Have you blown your budget and more?

Rest assured that you will not be alone, and you will not be alone when you are still paying this Christmas off this time next year! Such is the financial hardship that many feel as the New Year approaches that we see a major rise in debt counselling programs, IVAs and bankruptcies. It seems that while many can maybe afford to pay off their spending over time, there are also a significant number who know that 2008 will see them in serious financial trouble, and seem intent on going out with a bang.

Unfortunately for the more reckless spenders of society, the option of IVAs and bankruptcy may not be as simple as they thought with many creditors taking into account recent spending patterns before deciding what to do. Can you really expect the finance companies to sit back and let you rack up more debt in the knowledge that you can’t actually afford to pay it back?

As we move into 2008 analysts are also expecting a further 50,000 homes to be reprocessed this year, hundreds of thousands of people to be moving from cheap discount mortgage rate offers onto rates which could be double what they were on, and many jobs put at risk by falling consumer demand. Many people are asking themselves if they would be able to survive in such an environment without professional debt counselling – would you?

Home equity loan also known as a second mortgage is a loan that allows the house owners to refinance their first mortgage. If you have taken fixed rate mortgage on your house property few years back, then the interest rates may be higher than the prevailing rates. So, you may want to get rid of the loans within a shorter period in order to save some money and also due to the desire of getting some extra cash to meet your financial problems.

If you are availing an equity loan, there are two options available – you can get a second mortgage or you can get a line of credit. The choice has to be made by you and also it depends on the way you will be spending your money. If you are opting for a second mortgage, then you will get a huge amount with a fixed rate of interest and you have to repay the loan in installments for a fixed period. You can also use the extra money you get out of your second mortgage for home renovation, education, vacation etc.

Line of credit is just like getting money out of your credit card. You will get approval for a certain sum and you can draw the cash whenever you felt the need and the current interest rate will be charged. A home equity loan is an easy source of cash for those who are tired of facing financial crunch now and then. Sometimes, the interest rates charged on your equity loan is slightly higher than your first mortgage, but they are much lesser than the interest rates charged on personal loans or credit card. If you are consolidating your debts through home equity, then this will also provide you with some extra savings on the monthly installments. You can collect this money to pay a part of your principal in order to reduce your mortgage burden.

You will be also benefited with the tax deductibility that comes along with the home equity loan. So, you can opt for equity loan for some major expenditure like education, consumer goods and trips. But, those who are spendthrift should not opt for home equity loan because it also carries some risks. If they are unable to pay their monthly dues, they may have to lose their home or they have to face big penalties. Also, some equity loans come with a mandatory lump sum payment to be made at the end of the mortgage term. Though a home equity loan is a great tool to finance your urgent needs, you should not fall into the bait of easy money and should plan before hand to avoid bad credit history.

UK credit card holders may locate that their credit limits are considerably reduced in this Christmas season. Many financial institutions are focusing on lessening the exposure to poor debt by improving the quality of their lending, subsequent to the worldwide financial markets credit disaster. Many lenders are facing difficulties in US due to the collapse of the sub-prime market. So, now the companies are thinking about the quality of their lending and hence are slashing the credit limits of their customers considerably. Also, they are not accepting new applications and as a result many people are compelled to reduce their Christmas spending plans.

Many credit card companies in UK are suffering from declining profits and also due to the mounting bad debt histories. Credit card companies are still being broadly advertised however many companies are currently picking their fresh customers with great care, and they are taking in only those who have first-rate credit ratings so as to enhance the quality of their consumer base. Few years back, the customers are the king and they can compare the rates offered by various credit cards before selecting the best deal. But, now the credit card companies are choosing their customers carefully from the numerous applications they are getting every day.

Whatever the market situation may be, Britains are not worried about the changes in the market when they need finance for their Christmas spending. The tapering loan conditions and elevated interest rates are not deterring their spirits of the merry season. According to a survey, they are likely to spend more on shopping than the last year.

Many people opt for personal loans to meet their Christmas spending. But, one should make it a habit to get personal loans to meet the expenditure. If they have taken loans higher than what they can actually afford, then they have to suffer from bad debt. So, Christmas spending should be done with proper planning and budgeting.

A borrower may find the deals difficult to understand as there are so many types of loans with diverse rate of interests available in the market. Different companies offer different rate of interest and terms and conditions on their personal loans. So, the borrower should have some idea of the market before availing loan for his Christmas spending. They can get information from the internet or they can even consult a local financial advisor.

Many households are struggling under growing debt and also due to the increased mortgage payments. They are stretching their borrowing limit beyond their capacity. This may result in bad credit history resulting in mental agony and difficult life pattern. So, the Christmas spending should be done wisely and the gifts should be chosen with care and precaution. If they can defy the temptation to overspend during the festive period, then they can even save a small fortune in their bank account. So, choose the Christmas gifts wisely and spend your hard earned money after thoroughly analyzing your credit limit to enjoy the festive time with great peace of mind.

As we move towards a decline in worldwide business activity, a time when interest rates around the world will fall, many are starting to ask when they should consider re-financing their debts.  Is it time to do it now, or wait as long as possible?

While it may be tempting to take advantage of the recent reduction in interest rates in some areas of the world, those who can may well benefit from waiting a few months longer.  The UK for one is expected to see interest rates start to decline very soon, with recent indications by the Bank of England seemingly confirming this.  We are also in a situation where finance is still more expensive in real terms than it was 6 months ago, because there is less liquidity in markets, which has pushed money market lending rates higher.

If you are looking for a fixed rate refinancing of your debt, and you are able to hold on for a little longer without impacting upon your credit rating, it may well be beneficial to hold off any action for a little while.  We could see UK rates fall by more than one percentage point over the next 12 to 18 months, depending upon the performance f the economy.  Even this relatively small fall will offer many consumers, who have built up substantial debts, the chance to reduce their future debt repayments.

Each person’s situation will be different and there is no simple answer to the question, but it seems inevitable that the UK, US and other major countries around the world will be seeing lower interest rates in the not too distant future.

As we approach what for many people can be a very stressful time of year, many people are now starting to panic about Christmas and where they will get the money from to pay for it! While this is an annual event for many, it is something which is becoming more and more difficult to finance, leading to people getting into more and more debt.  But what will happen this year?

For those families who maybe have a limited income coming into their home, or may have had financial problems in the recent past, the main stream finance industry may be beyond their reach.  The recent credit crunch has also focused the minds of the banks, many of whom have been turning away business over the last few weeks.  While some may see them as a life saver at this time of the year, we are set to see an increase in activity among the so called “door step” lenders.  Many will be offering cash on the day, but their interest rates even after the recent tightening of the laws will still be enormous.  So is there a real solution?

Unfortunately for those in a situation where income is minimal and they do not own their own home, the “door step” lenders are their last resort.  Many end up paying back their original loan amount many times over, but because of the pay back period they may feel it is the lesser of two evils - forgetting Christmas or getting into debt!

While there are some of these lenders who offer a very good and professional service, the history of the industry is littered with firms who have taken advantage of their customers situation, signing them up to loans they will take years to pay back - with massive interest payments.  If at all possible it is best to steer clear of these lenders, but for many at this time of the year that may be easier said than done!

While the announcement today that the UK Treasury will guarantee all Northern Rock customer deposits has been fairly well received - probably a case of better late than never - it does beg the question, why have the government changed their policy? Are they aware of more bad news in the sector?

Properties bought for cash

As we have mentioned on some of our earlier posts, the main component of any financial market is confidence. As we are seeing now, confidence is easy to smash but not so easy to build back up over a short space of time. The move by the Treasury today, which effectively guarantees that all Northern Rock customer deposits are safe, surprised many in the market due in the main to the historic role of the authorities not to become directly involved in free market business.

Many in the markets are asking why they performed such a major u-turn, after only hours early indicating that they were not prepared to step in above and beyond the current compensation arrangements available. Do they know something that will rock the sector again? Are they so desperate to restore confidence that this is the only action they can take?

We have regularly seen authorities in the US use such a tactic to try and soften the blow of future shocks and disappointments, but this is the first time we would have seen such action in the UK, if this is the case. No matter how hard the government try, they are not able to convince the financial markets that the worst is over. Such major changes in policy can also upset markets, with suspicion and a lack of direction being pushed to the forefront.

As the interest rate cycle continues to move still higher, we are regularly hit with the news that this is good for savers who are feeling the full benefit, but who really makes the money as interest rates rise?

You will not be surprised to see that the banking corporations can very often increase their profit margins in a rising interest rate market, and the chances are that you will not even notice it.  This is done using a very simple trick - increase borrowing costs by more than savings rates, thereby increasing your profit margins in an instant - but does it really have a major impact?

Let us show you how the situation can work :-

Prior to the last interest rate rise, let us assume the following :-

Base Rates   5.50%

Consumer Saving Rates   5.25%

Consumer Borrowing Rates 6.50%

In this situation a bank would make 0.25% on each pound of savings, if they were to put that straight back on deposit, however if they were to lend that to a customer  they would make 1.25%.  The profit margin for each situation would be :-

Placing consumer savings on deposit :-

100 * (0.25/5.25) = 4.76% profit margin

Lending consumer savings to borrowers :-

100 * (1.25/5.25) = 23.8% profit margin

However, let us assume that interest rates rise to 5.75% (as they have), and consider the following changes :-

Base Rates   5.75%

Consumer Saving Rates   5.40%

Consumer Borrowing Rates 6.80%

As you will see, in this situation savings rates have increased by less than the rise in base rates, while borrowing rates have been increased by slightly more.

The calculations are now :-

Placing consumer savings on deposit :-

100 * (0.35/5.40) = 6.48% profit margin

Lending consumer savings to borrowers :-

100 * (1.40/5.40) = 25.92% profit margin

While these increases in the profit margin of the banks may not sound much on the face of it, when you consider that the industry deals in billions of pounds each year, even a small increase in profit margins can have a massive impact upon the profitability of a company. 

This is just one of the ways that the banks use interest rate rises to increase their profitability, a technique which very often goes unnoticed unless you actually sit down and work out the figures!