Women and the young increase Isa take-up

February 18th, 2010

An interesting report released this week shows that ever greater numbers of young people and women are taking up the option of tax free savings in Individual Savings Accounts or Isas.

Isas were introduced 10 years ago by the government in an attempt to encourage people to get into the savings habit. As such they were an abject failure as demonstrated by the UK’s debt mountain, but they are still a useful tool for those wishing to save.

The new report, from the Halifax, shows that 37% of households in the UK have an Isa, which represents 14.2 million, a rise of 53% over nine years.

Each person is only allowed to open one cash and one stocks and shares Isa each year. Cash is the most popular component, according to the Halifax research.

The amount people can save in an Isa has recently risen from £7,200 to £10,200, of which half can be saved in cash and half, or all, in stocks and shares.

The new limit applied from October 2009 for anyone born on or before 5 April, 1960. For everyone else the limit will rise from 6 April, 2010.

The changes were have been made because, in low-interest times, the government wanted more reward for those who have saved.

The figures show that slightly more men than women signed up to a tax-free account in the first seven years of the scheme. However, the number of women registering increased, the number rising by 52% over the same period compared with a 35% rise among men.

Those under 25 have seen the fastest rise in those registering, an increase of 88% in the first nine years.

Analysts believe that the lifestyles of young people could explain the trends in take-up of Isas among the younger generation, most of whom want to travel. Specifically, the report shows that many young people are using Isas to save for a mortgage deposit.

However, this age group, who are often paying off large student debts, still has the lowest number of individuals subscribing to an Isa.

On the other hand, the 25 to 34 age bracket has the smallest rise in take-up, probably because these are first time buyers and therefore with little money to save after making mortgage payments.

A national and regional analysis shows that the proportion of households with an Isa was highest in the south east of England, but the number has been growing the fastest in Scotland.

The effect of the recession is thought to be the reason for the fall in the average amount paid into each account. This dropped to £2,636 in 2008-09, down from £3,064 in 1999-00.

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Unsecured credit card debt can lead to repossession

February 12th, 2010

The Ministry of Justice is investigating whether or not to set a minimum amount of debt before a court can order the sale of a home after a series of cases where people have lost their homes after defaulting on relatively small credit card debts or loans.

The problem is that some creditors are managing to secure a charging order against homes if the owner fails to repay what was previously an unsecured debt. The charging order can lead to a court ordering the sale of a property so the owner can pay off their debts.

This means the creditors get their money back quicker than might otherwise be the case.

This approach by an admittedly small number of lenders has meant that people who had no idea that their home was at risk, and who would have never used their home as equity, have suddenly found themselves the subject of a repossession order.

The downturn has added to the number of people facing difficulty with loans and, unfortunately, has made creditors more imaginative in their attempts to collect ‘bad debt’.

It should be emphasised that this only happens to a very small number of people, and the Ministry of Justice proposals should protect the most vulnerable.

However, not government protection is as good as the simple precaution of not saddling yourself with more debt than you can pay back.

As ever, the best advice is to minimise all debt, especially on credit cards, and ensure that irate lenders are not finding new and ever more imaginative ways to extract their money from among your assets.

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Irresponsibility returns to the UK credit market

February 3rd, 2010

After a few months of financial sanity where it looked like the lessons of the past two years had been learnt by the teeming mass of the British public, we are now back to the same old irresponsible ways of the past.

It has been revealed this week that new borrowing on credit cards, loans and overdrafts has outstripped the amount being paid back by UK consumers for the first time since June.

Unsecured consumer credit rose £52m in December, driven by credit card borrowing according to figures from the Bank of England.

The trend during the downturn has been for consumers to pay off debts, often instead of saving when interest rates are so low. For five consecutive months, repayments outstripped new unsecured consumer credit. However, in December, the trend reversed, the Bank of England’s figures show.

This was primarily the result of borrowing on credit cards, which rose by £195m. Demand for cash advance loans and overdrafts remained low, with repayments outstripping new borrowing by £143m.

An analyst at Ernst and Young has been quoted as saying that ‘the small increase in consumer credit is likely to be connected to consumers bringing forward purchases to avoid the VAT increase and a relapse is likely next month’ and Christmas spending is also likely to be a factor.

Total net lending to individuals rose by £1.2bn in December, double the average of the previous six months, although the vast majority of lending is in the form of mortgages.

There were 1,022 fewer mortgages approved for house purchases in December compared with November, although this marked a typical seasonal drop. However, it was the first drop in approvals since November 2008 and many commentators argue that the housing market will remain relatively static in 2010.

The number of people remortgaging rose slightly to 27,276 but this is still a traditionally low level as people chose to benefit from low interest rates by staying on their mortgage provider’s variable rate when their fixed-rate deal came to an end.

The Bank rate is widely expected to remain at record lows for some months.

Low rates have put increased pressure on building societies because of their traditional business model of attracting savers to fund mortgage lending.

There was a further withdrawal of £400m by customers in December, the Building Societies Association (BSA) said, as people searched for better returns elsewhere, spent their savings on Christmas gifts or paid back debts.

December is traditionally a slow month for savings as consumers make additional purchases for the Christmas period, and, of course, the return of VAT to 17.5% at the end of the year provided a further incentive to spend. However, as a general picture of the financial behaviour of the UK population, the move away from saving to spending on credit and payday advance loans is not welcome.

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