The most important factor when choosing to manage your personal finances effectively is time. A greater time investment will almost always result in a greater financial return.

Therefore the sooner you start to manage your finances, the greater return and financial ease you will feel in the future. Many people fail to plan ahead, which results in struggling to juggle finances at a later point in life.

Money management should focus on four primary questions:

1.       What financial goals would you like to achieve?

2.       When can you expect to achieve them?

3.       What finances do you currently have?

4.       What level of risk would you make to achieve these targets?

Choosing somewhere to live is an essential in everybody’s lives, and therefore, buying a house will be the biggest financial purchase that people will make. The financial investment into a home will affect all your other finances.

Making big decisions on your lifestyle will affect your financial goals. If you consider a luxury holiday to be one of life’s essentials, you will have less money left over for savings and investments.

When do you want to retire? What expenses do you currently have? Deciding what your priorities are will help to determine what money you will have left.

It is worth assessing your current liabilities, as these expenditures and assets could be reduced or sold and free up money for the future.

Calculate how much spare money you have so that you can form an investment plan. Investments can vary dramatically. Some are high risk for higher reward or loss, and some are low risk for a steady growth on investment. It’s up to the individual to decide what level of risk you are prepared to make.

Once these considerations have been made and your plan is in places, it’s important to assess the decisions you’ve made and how they affect you on a day to day basis. You plan may be too restrictive, leaving you with not enough money to live on, or perhaps you could make greater short term sacrifices to benefit you in the long term.

A small amount of time spent on your current finances can be highly rewarding for your future.

The US economy saw its first growth in over a year, rising to an annual rate of 3.5% between July and September.

Experts believe that a major spending plan by the US government which featured a scrappage scheme to encourage the car sales market has been the main cause of the upturn.

Some economists believe that there could be more setbacks lurking ahead, despite the official statistics showing that the recession is over.

A spokesman at the White House announced that recent economic progression was “a welcome milestone” but it would take more time for a full recovery to be recognised.

The US economy had risen 0.9% in relation to the previous three months, whereas the UK economy remained in recession, unexpectedly dropping 0.4%.

Hugh Pym, the chief economics correspondent for the BBC, revealed that the growth rate of 3.5% was greater than the 3.3% predicted by most experts.

He continued:”The sheer scale of the stimulus in the US has made a big difference, it was much bigger in percentage terms than that in the UK.”

“That the US, the powerhouse of the world economy is growing once again, is good news for the global economy has a whole.”

The last time the US economy grew was in the second quarter of 2008, by an annual rate of 2,4%.

The National Bureau of Economic Research will reveal the full extent of the US economic climb from recession when it analyses all the factors.

Some factors were significantly responsible for helping US economy during the third quarter, according to the Commerce Department.

The spending on durable manufactured products rocketed up at an annual rate of 22.3% which was the highest quarterly figure since 2001 and was spearheaded by the ‘Cash for Clunkers’ scheme helping new car sales.

Consumer spending increased on housing products by 23.4%, the greatest quarterly surge in 23 years, and came as a result of an improving housing market.

The big increase is considered by many to be due to the government’s $8,000 tax credit provided to first-time house buyers.

Government spending increased by 7.9% as stimulus spending spread and exports saw their biggest rise since 1996, rising by 21.4%.

Brian Bethune, an economist for HIS Global Insight stated that “it’s good to have the economy growing again.”

“But we don’t think that rate of growth is sustainable because it is distorted by all the government stimulus.”

“The challenge here is to get organic growth - growth that isn’t helped by fiscal steroids.”

However, unemployment is at a rate of 9.8% and a sharp fall came in September in the car sales industry as a result of the popular car scrappage scheme coming to an end in August.

Dean Baker, co-director of the Centre of Economic Policy Research believes that “you can say that the recession is over, but it sure won’t feel like that.”

“There is a lot of downward momentum that isn’t going to go.”

Plans to split British bank Northen Rock in two which would allow for its partial sale has been granted by the European Union.

The divide would result in two separate banks forming and are already being described as the “good” and “bad” banks.

The “good” bank would offer new lending, retain some of the existing mortgages and hold its savers’ money.

The “bad” bank would be used to repay the existing government loans and hold the remaining loans.

 Decisions made by the EU to accept the move are seen by Northern Rock as “an important and positive step.”

Changes to the existing setup will be made towards the end of the year.

The EU revealed that the good portion of the bank would be expected to grow and then be sold to third party, with the bad bank allowing its assets to dissolve then becoming liquidated.

The good bank may be sold prior to the general election next year with potential buyers being speculated already, with Virgin and National Australia Bank, owner of Clydesdale and Yorkshire Bank, among the interested parties.

EU Competition Commissioner, Neelie Kroes, believes that the move would make the bank a good long-term option, revealing that “this decision demonstrates once again that the EU’s state aid rules provide an appropriate framework to allow state support for a sustainable restructuring of banks without giving individual banks an unfair competitive advantage.”

Whilst Jonathan Todd, European Commission spokesman, said caps would need to be applied for the duration that the good bank remains owned by the public.

Some of the caps include a balance sheet reduced to a quarter of its size prior to the crisis, not being the market leader for loan interest rates, a cap set to limit its lending to one-third of Northern Rock’s 2008 levels and also a cap on retail deposits to be slightly lower than the pre-crisis level.

An investigation was engaged by the EU into Northern Rock in April 2008, two months after its nationalisation.

The results from the investigation showed that the UK government was kept at a “necessary minimum”.

By 30 June, the bank had paid back approximately half the taxpayers’ £26.9bn loan and will gain a further £8bn from the government during the end of year restructuring.

The EU stated that the restructuring would reduce its market share to below half of its pre-crisis level and “correct the excessive expansion of Northern Rock pre-crisis.”

Northern Rock released a statement, saying “this approval is an essential requirement of the planned legal and capital restructure, which is central to the business plan for Northern Rock.”

“The restructure will strengthen the capital and liquidity position of Northern Rock significantly, and offers value for money to taxpayers” and it would be “business as usual” for its customers.

The Council of Mortgage Lenders (CML) has revealed that the number of new mortgages granted for August is down by 3,000 from 56,000 in July to just 53,000.

Despite such a large fall in granted mortgages, this is still 29% higher than last year’s figure for August.

The CML believe that house sales may have reached a plateau, as most first-time buyers still have to provide large deposits.

Overall, the total value of mortgage lending for buy-to-let and remortgaging for the past year is down by 36% on last years figures.

Long Recovery

The CML’s economist, Paul Samter believes “house purchase activity has revived from its moribund state at the beginning of the year.”

“It will be a drawn-out recovery process with seasonal ups and downs, but house purchase activity is now on a firmer footing.”

According to the CML’s figures, first-time buyers need to find on average 25% deposit in order to receive a home loan.

Regardless of whether a borrower is a first-time buyer or not, two-thirds of all mortgage deals require at least a 25% initial payment.

Relaxing

The Bank of England has claimed that the number of new mortgages approved in August, but not lent, has fallen for the first time in eight months.

From 52,317 approvals, down from 52,404 in July, is a sign that levels may be beginning to level off in the coming months.

Data shows that the number and value of house purchase loans is higher than a year ago, the total value of mortgage lending has dropped by a third.

Standard variable rates are very low, giving borrowers much less incentive to remortgage their house or seek out fixed rate mortgages elsewhere. Buy-to-let mortgages are also down  on a year ago.

“At £12.3bn, gross mortgage lending - which encapsulates all mortgage lending activity, including house purchase, remortgage and buy-to-let lending - declined 36% from August 2008,” the CML reports.

House Prices

The autumn of 2007 saw the onset of the credit crunch, with house prices taking a sudden downturn. Over the past few months, house prices have been steadily rising, giving hope that the recent recovery may become more prolonged.

House prices rose by 2.8% in the 3 months leading up to September, in contrast to the 3 months prior according to the Halifax; the first quarterly increase for two years. Further support to the encouraging recover was made when the Nationwide confirmed that house prices have risen continuously for the past 5 months and have returned to the level of September 2008.

Sales have doubled between January and August and the market seems much more stable in comparison.

Experts have warned, however, that the rise in house prices is supported by the shortage in new properties being put on the market. If there is a sharp rise in houses placed on the property market, the rise in house prices may come to a sudden halt.

‘Dramatic Changes’

Council of Mortgage Lenders (CML) data shows that six mortgage lenders increased their hold on the new homes market in the UK in 2008.

The top six lenders, led by Lloyds, accounted for a total of 78% of all new loans last year compared to 72% the year previous.

The CML says that the credit crunch, which began back in 2007, had dried up the supply of mortgage finance.

Last year overall, lending fell by 28% and specialist lenders were driven out completely.

The CML explains: “The lending community itself has undergone… dramatic changes.

“With so many lenders either merging or ceasing lending, this year’s largest lenders’ table has changed more than in other years.”

What Factors Are Involved?

After Northern Rocks’ insolvency back in 2007, they dropped out of the top-ten mortgage lenders – a key factor changing the world of mortgage lending. Northern Rock lent only 1.1% of new mortgage funds in 2008.

However, the CML believes another factor is that specialist lenders (those that didn’t depend on savers’ money to finance to finance their lending) had fallen from an already small 7% share of lending, to just 2%.

The CML commented that: “In effect, many specialist lenders ceased new lending in 2008.”

Mortgage broker for John Charcol, Ray Boulger, says that borrowers are now receiving the worst of all worlds: “If you have fewer lenders you have less competition.

“Those lenders still in the market have only limited amounts to lend, so they aren’t competing hard with each other if borrowers have less than 25% deposit.”

Mergers Saving The Day

Lloyds was the biggest mortgage lender in 2008, followed by Santander, Nationwide, Barclays, RBS and HSBC.

The drying up of the wholesale banking market has also affected banks and building societies badly.

Housing prices fell, which then undermined the value of past loans, and the recession also led to many borrowers defaulting on their mortgage.

This all led to lots of take-overs and mergers, with the more financially unstable companies having to be rescued by larger operators. For example, Lloyds TSB took over HBOS, thus combining the first and third largest lenders in Britain.

Santander, a Spanish bank, took over Alliance & Leicester, after previously taking over Abbey. And Nationwide building society took over Cheshire and Derbyshire building societies. Other building societies have also merged in order to survive the recession.

“We may not have seen the end of the current wave of consolidation. So, next year’s table is likely to look different again, with more new names and even larger market share in the hands of the larger firms,” warns the CML.

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Deliberate Undervaluing

Estate agents are warning that property sales and remortgage deals are collapsing due to some mortgage lenders and surveyors deliberately undervaluing homes.

Homes are currently thought to be undervalued by an average of 10% according to the National Association of Estate Agents (NAEA), due to surveyors being overcautious.

The Royal Institution of Chartered Surveyors denies this, saying that the housing market is constantly changing and had lots of ‘imperfections’.

If the valuation a lender places on a property is lower than the agreed price, the lender may choose to offer a smaller mortgage, leaving the buyer without enough money to cover the asking price and causing the deal to collapse.

Lenders can also check property value when it is being re-mortgaged in order to make sure they aren’t lending more than it’s worth.

Same Valuer, Two Different Values

Peter Bolton King of the NAEA said: “They are perhaps worrying about the market and almost deliberately knocking off 10% almost regardless of what the property sold for.

“The other reason which I found more worrying, is that we are hearing anecdotally that lenders are giving specific instructions to their valuers as to how they should approach these valuations.”

Sellers are also feeling the effect of undervaluing as they may have to drop their prices. People seeking mortgages are also left with little or no flexibility.

One homeowner says that she had problems remortgaging her home: “The bank sent their own valuer who valued it at £80,000, but I knew it was worth far more so I paid £300 to get it revalued.

“The valuer came and said it was worth £100,000 but it was the same person that made the first evaluation.”

Unpredictable And Unreliable Time

Managing Director of independent broker Mortgage Talk, Andrew Frankish, said: “With the mortgages that are not completing, we believe up to half of them are affected by the valuation.

“What we mean by that is the valuation is coming back at lower than they predicted, which pushed them into a higher loan to value, which means the products are too expensive or the banks are reluctant to lend in that money at all.

“This is even worse than remortgages where around three-quarters of remortgages are affected.”

The Council of Mortgage Lenders says it works with professionals who are duty bound to give accurate valuations, but those who value homes also deny they are deliberately undervaluing them.

Royal Institute of Chartered Surveyors, Barry Halls said: “We are dealing with a market where there are lots of imperfections and there will be a range of valuations that the valuer will look at before they arrive at their opinion of value.

“That opinion of value could well be different from another opinion of value and could fluctuate over a period of time as well.”

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15 Month High

The British Bankers Association (BBA) has found that mortgage approvals by major banks have increased in a 15 month high in June.

35,235 mortgages were approved for house purchase in June, which is higher than the previous months 31,919 according to the BBA.

This reflects that the banks are finding it more easy to lend now than they were about a year ago when mortgage approvals were only 65% of what they were in June last year.

However, the number of people wanting to remortgage or borrow with other loans has remained low.

 Contradicting Signs

The increase in mortgage approvals brings hope that there will also eventually be a rise in the activity of the property market.

The BBAs statistics director, David Dooks said that he believed that approvals are recovering from the very low level they found themselves in, in November. However, he also says that the pick-up in mortgage lending by major banks contradicts the number of people lending by other home loan providers.

Director of mortgage brokers Coreco, Andrew Montlake said he wasn’t convinced there was a significant shift in the mortgage market.

He said: “Some recent mortgage figures, including BBA’s have led some to suggest things are finally beginning to pick up, but I don’t buy it.

The Highs & The Lows

“From where I am standing, the next few months are still going to be exceptionally difficult for borrowers and this will only change once the lenders begin to lend – and they are still not lending at levels sufficient to drive a sustained recovery in the property market.”

Values of mortgages being approved has also shrank. The average mortgage approved by major banks now stands at £136,400. This is 11% lower than just a year ago, reflecting the fall in house prices.

Gross mortgage lending however has improved for the first time since April 2008.

Remortgaging approval also rose slightly in June compared to May. 28,133 people are now remortgaging their homes, which is 52% lower than a year ago.

Credit Cards & Overdrafts Remain Steady

According to the BBA, credit card spending also remains stable, with people continuing to pay back everything they borrow via their cards, and overdrafts remaining steady.

But personal loans that are often taken out for large purchases, such as a new car, have fallen by £1.4 billion since the end of last year.

Mr Dooks believes that people are exhibiting “little appetite for unsecured borrowing.”

With low interest rates, the number of people putting deposits into savings accounts is also remaining very weak according to the BBA.

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Figures from mortgage lenders show that the number of loans handed out for purchasing homes in the UK rose by 16% in April compared to March.

Even with this rise though, the figures are still 28% down compared to April the previous year according to the Council of Mortgage Lenders (CML).

The figures add to other evidence that there has been a spring rise in the housing market. But first-time buyers are still expected to put down an average deposit of 25% of the value of their new home.

The average amount of money borrowed by first-time buyers rose slightly to £96,000. This is the first rise since May 2008.

Fixed-Rate Mortgages Increase In Popularity

This data is the last of a large set of figures relating the state of the mortgage market in April. They confirm that fixed-rate mortgages are currently popular as homeowners believe interest rates are unlikely to fall further.

This is shown by the fact that just 48% of home loans were fixed-rate in January, compared to 69% in April. The average rate charge on such deals in April was 4.83% - the lowest since January 2004.

Bob Pannell, head of research at CML said: “With the interest rate cycle now at its floor, an increasing proportion of borrowers are taking out fixed rates, including for longer term periods of 5-10 years.

“With expectations for rates to remain low in the near future, shorter term fixed-rate deals are less appealing than attractively priced variable-rate deals.”

Fixed-Rate Mortgages Becoming Unaffordable?

Nationwide Building Society reported that it will increase the cost of its fixed-rate deals on Friday by 0.86%. Analysts believe that other lenders will follow suit due to the sharp increase in swap rates – the amount banks charge each other for borrowing and lending money over a fixed period.

Director of mortgage broker Coreco, Andrew Montlake said: “Lenders are now hiking their fixed rates, partly because swap rates have increased dramatically over the past few days, partly because lenders have too many applicants and too little to lend, and partly because they can.

“What concerns me is that many people coming to the end of their existing mortgage products are still reverting to, or being forced to revert to the standard variable rate (SVR), which could come back to bite them should rates rise sharply.”

CML says that the number of loans for house purchases in April was 35,500. Mr Pannell says: “There are tentative signs of house purchase lending stabilising, but we need to see considerably higher transaction levels to underpin house prices.”

The latest house price surveys show that there is some pent-up demand, but also that there was a squeeze in the number of homes on the market pushing down the prices of those that were available.

What Do You Think?

Is the worst of the housing crisis behind us, or is the upturn temporary? We would love to know your thoughts and opinions. Leave your comments here.

April saw the third consecutive monthly rise in mortgage approval for home buyers in the UK according to the Bank of England.

Lenders apparently approved 43,201 new loans for home buyers, but the number of people changing their existing loans fell again.

The increase in approvals is a good indicator of short-term trends and suggests that sales may continue to rise.

Completed sales in March and April rose by 35% compared to the levels in February.

Philip Straw of Investec says: “Although it is an upward grind rather than a jump, at least it is a steady upward grind, and it’s consistent with a steady recovery in housing market activity.”

Challenging

Paul Broadhurst of the Building Societies Association (BSA) also commented that: “the rate of decline in activity in the housing market may have started to slow, but overall the lending environment remains very challenging.”

Figures produced by Moneyfacts also indicate that lenders are still rationing funds for new borrowers.

1,623 mortgage deals are available at the moment, two-thirds of which still require a deposit of 25% or more, with a quarter of all deals needing a down-payment of at least 40%.

Although, with the wholesale financial market weakening, competitors have been fighting hard to attract ordinary savers funding mortgage lending.

But the BSA said the building societies had experienced a net outflow of £811 million of savers money in April, suggesting this may be because people preferred to pay off their debts over saving.

Demanding Competition

It also says that members were still suffering unfair competition from state-backed institutions like Northern Rock and National Savings & Investments: “Those banks that are supported by the state are able to compete unfairly for deposits, and steps need to be taken to ensure that the government backing for some institutions does not distort competition for savings.”

Another reason for reluctance may be the very low rates on saving accounts, as the Bank of England figures show that returns on savings are still extremely low.

The average rate from instant access accounts in the UK is at 0.16% at the end of April from 2.43% a year earlier. Typical interest rates for cash Individual Savings Account (ISA) at the end of April was 0.42%, again lower than the 0.63% average just a month earlier, and much lower than the 4.81% a year ago.

Property sales have begun to increase from the winter, but there is conflicting evidence as to whether or not house prices are also starting to revive.

A monthly survey conducted by Nationwide shows that UK house prices rose in the past two to three months, making them just 11% lower than a year ago. This shows a considerable slowing down compared to previous reports on the annual rate of decline.

What Do You Think?

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Lenders have warned that lack of equity in the housing market will cause as many as 2 million homeowners to either have negative equity or too little equity to afford to move.

The research conducted by the Council of Mortgage Lenders (CML) also warned that these problems could lower the number of houses on sale.

It also found that two thirds of 900,000 that fall into the category of negative equity’s shortfall is by less than 10% - around £6,000 of these are first-time buyers, and around £8,000 are other homeowners.

Head of research at CML, Bob Pannell has said: “Although negative equity has resurfaces as house prices have fallen, one big difference from the early 1990s downturn is that it is less concentrated among young, first-time buyers, and more evenly spread across wider age groups and those at different points on the housing ladder.

“Negative equity will contribute to subdued property turnover, but otherwise should have few adverse effects for the majority of households affected.”

As Bad As The 1990’s Crash?

Lenders are still restricting their lending due to lack of mortgage funds, few are prepared to accept a 10% deposit from anyone buying a house.

According to other recent research conducted by Moneyfacts, there are currently only 106 mortgage deals that require a 10% deposit or less. On the other hand, two thirds of deals – 1,485 – require customers to have a deposit of at least 25% of the cost of the home they intend to buy.

This will have a huge impact on those planning to move home, even if they have limited equity of less than 10% they are unlikely to be able to afford to move.

CML have predicted that around 600,000 mortgage holders will have less than even 5% equity on their homes. It also thinks that around 500,000 have equity of between 5% and 10%. Therefore it believes that around 2 million homeowners could not sell their own homes in order to raise the equity to put down a deposit on a new home.

House prices have already dropped around 18% since mid-2007, already outstripping the national price drop of the early 1990s price crash. However, the estimated 900,000 people suffering from negative equity now is still a lot lower than the 1.5 million thought to have been in negative equity in the early 1990s.

Only a Problem If You Want To Move?

Of those that are currently in negative equity, about 270,000 are thought to have a loss of around 10-20%, and around 30,000 are believed to have a deficit of over 20%.

In the worst cases the negative equity averaged £28,000 for first-time buyers, and £37,000 for other homeowners.

The CML say: “payment problems are typically associated with unexpected spending commitments, reduced income and changes in household circumstances.

“Negative equity, on the other hand, only surfaces as a problem if households need to move, or are also experiencing repayment difficulties.”

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