Split loan deals

From Monday, HSBC will offer borrowers the option of a split loan mortgage that allows customers to fix either 25, 50 or 75 per cent of their loan, with the remaining percentage on a lifetime tracker rate. The fixed rate depends on the proportion of the mortgage that is fixed and the loan-to-value of the deal. Rates start from as low as 2.49 per cent for the 25 per cent fixed option at 70 per cent loan-to-value. The product has a £999 fee and is available to customers borrowing up to £500,000.

“The rates on offer look very good,” said David Hollingworth of London & Country Mortgage Brokers.

Mortgage brokers point out that many other lenders will allow borrowers to mix and match products and specify the split between fix and tracker. “However, you do need to watch out for the fees charged and check whether a fee is payable on each element of the loan,” said Hollingworth.

Switch and fix deals

Otherwise known as a “drop-lock” mortgage, these products allow borrowers to take out a tracker rate but then move on to a fixed-rate deal – with the same lender – without any early repayment charges.

Nationwide Building Society and Royal Bank of Scotland (RBS) are among the few mortgage providers that currently offer the switch-and-fix option. However, Nationwide charges a reservation fee for the new fixed rate while RBS allows customers to switch free of charge provided they have been on the tracker for at least three months.

Nationwide has a two-year tracker at 2.68 per cent – bank rate plus 2.18 per cent – available up to 70 per cent loan-to-value. RBS has a two-year tracker at 2.59 per cent – bank rate plus 2.09 per cent – at up to 60 per cent loan-to-value.

The potential downside is that the lender’s fixed rates are likely to have risen by the time the borrower decides to switch.

Capped rate mortgages

A capped rate mortgage is another option that limits a borrower’s exposure to rising rates. Capped rates cannot climb above a pre-set rate, known as a cap.

Brokers recommend a capped rate for about five years. Britannia/Co-op has a five-year deal at 2.99 per cent – bank base rate plus 2.49 per cent – with a cap of 5.99 per cent available up to 75 per cent loan-to-value. It comes with a £999 fee.

“The best five-year tracker rate at 75 per cent loan-to-value is 2.84 per cent from ING so a borrower will not pay much of a premium – just 0.15 per cent – to have the security of the cap,” said Nigel Bedford of Largemortgageloans.com.

Interest rate insurance policy

RateGuard is an insurance policy offered by insurer MarketGuard that pays out a monthly sum if rates rise above a certain amount.

Premiums are set according to the size of the mortgage and the rate insured. For example, protecting a £500,000 repayment tracker mortgage against a rate rise of more than 1 per cent costs £193 per month with a two-year policy. This drops to £55 per month if the policyholder wants to protect the same mortgage against a rise of more than 3 per cent.

Brokers warn this option is likely to be the most expensive

Mophie, a US-based company, makes iPhone cases and batteries. Their ‘juice pack’ accessory doubles the iPhone’s battery life. However, the card reader will be the first peripheral they have designed to work with an app.

Late last year, Jack Dorsey, the founder of Twitter, announced Square, his own iPhone credit card payment system. Square, which launches early this year, is a small cube which plugs into the phone and allows cards to be swiped. Square also emails receipts, allows retailers to see a photo of the customer and provides a reward system.

Card payment accessories are the latest in a range of peripherals made available for the iPhone since the latest version of the phone’s software was released last year. The software update made it possible for applications to work with peripherals, bringing the possibility, for example, of medical peripherals for the handset.

John Fingleton, chief executive of the Office of Fair Trading, has accused the budget airline of “taunting” customers and “playing silly games”.

The focus of Fingleton’s anger is Ryanair’s £5 per person, per flight, fee for paying by almost all credit and debit cards. For a family-of-four booking return flights that’s an extra £40.

Consumer law says firms must include all compulsory fees in the advertised price.

But Ryanair avoids this because they offer a fee-free option if you pay by Mastercard prepaid card.

As most passengers don’t have this card they are stung with the extra cost, on top of fees for baggage, etc.

Fingleton said: “It’s almost like taunting consumers and pointing out, ‘Oh well, we know this is completely outside the spirit of the law, but we think it’s within the narrow letter of the law’.

“On some level, it’s quite puerile, it’s almost childish, and you sort of smile.

According to credit card provider Barclays, an incredible £317.8 billion in cash is expected to be withdrawn from ATMs and banks using debit and credit cards throughout December.

Barclays notes that the busiest day for ATMs is expected to be December 18th.

This is because many people will be doing their last minute shopping or taking money out to celebrate the festive season.

The peak time for ATM withdrawals for debit or credit cards is expected to be between 12:00 and 13:00, according to Barclays, when over £24,000 will be withdrawn per second.

Brian Cunnington, head of debit cards for Barclays, advised: “We would remind customers to be careful to take care of their card and their pin, especially when using their pin in crowded places.”

Barclays is currently offering the Barclaycard Classic credit card, with a typical variable rate of 19.9% APR.

There is 0% interest of balance transfers for the first 12 months from the date on which the account is opened, with a 2.5% handling fee.

Written by Sam Dawson ©

A further £17.8bn cash is also expected to be withdrawn from ATMs during the month. expected to be the busiest day for cash withdrawals.

Brian Cunnington, head of Debit Cards for Barclays, said: “We all know Christmas is the season of goodwill, but that usually means it’s the season for spending as well. With so much shopping and entertaining to be done, debit cards are set to be well used throughout the month. Nearly all shops, restaurants, bars and online companies accept debit cards, so it is the easiest way to get your Christmas spending done quickly and securely.”

Debit cards are becoming an increasingly common way to pay for goods, services and petrol – as cheques become a thing of the past.

The last quarterly report from the UK Payments Council, released in September, shows that debit card payments dominated non-cash spending for the first time. Credit card spending fell by 0.7 per cent as Britons found it harder to obtain credit or decided to pay off their credit card debts.

One of the main reasons for the increase in debit card payments is the decrease in the use of cheques, which is currently declining at the rate of 13 per cent a year.

Gross credit card lending was 7.5 per cent lower than in the last quarter of 2008.

Richard Dodd, of the Scottish Retail Consortium, said high street retailers were ‘cautiously optimistic’ about Christmas but were not expecting a bumper year for consumer spending.

“Christmas will definitely be better than last year – but that is mainly because last year was the worst we have had for 14 years.”

He said a recent survey of high street retailers found that 40 per cent said they expected to take more money over the holiday period this year than they did last year.

“There is a bit of confidence – in that more people are willing to spend than they were before. But there are some very big worries about interest rates and the whole question of taxation and public sector spending cuts to come.”

He said one effect of the economic downturn had been a return to the use of cash as a method of payment. “We have seen more use of cash rather than cards, and that is because people find it easier to manage their spending when they use cash.”

It piles more pressure onto the Chancellor ahead of the Pre-Budget Report next month, when may be forced to revise up his original estimate.
The Centre for Economics and Business Research claimed the Government had been forced to borrow more because it had been too optimistic about tax receipts.

Chief executive Douglas McWilliams said: ‘Our view is that excess spending based on over-optimistic projections of tax receipts has been a root cause of the excess borrowing. All eyes will be on the Chancellor’s Pre-Budget Report.
‘With the UK’s bond rating under scrutiny, it will be necessary to take action in the PBR that does not depend, as last year or in the Budget, on over-optimistic growth forecasts or on expectations of tax receipts from higher taxes on potential taxpayers, who in reality will turn out to be internationally mobile.’
Public sector net debt as a whole has now soared to £829.7billion – £134.6billion higher than a year ago and equal to 59 per cent of GDP.

October is usually a strong month for the Treasury’s coffers because of tax on corporate profits, but the recession means these have been drastically reduced.

Tax receipts have now fallen for a record 13 months in a row

In a double whammy, the Government has been forced to spend more thanks to rising unemployment and benefit costs.
The data piles the pressure on Gordon Brown, who set out plans for a law binding a future government to halve the deficit by 2014 in yesterday’s Queen’s Speech.
It also highlights the scale of the challenge that will face whoever wins the General Election, expected next May, as they battle to bring public finances back under control.
Mr Brown has already been attacked after a shock 0.4 per cent decline in output in the third quarter, when Britain had been expected to pull out of the recession.
The Prime Minister had claimed the UK was better placed than other countries to exit the downturn when in fact it has been left floundering while other economies improve.
The hike in retail figures was driven by sales of clothes and shoes, which are a massive 10.7 per cent up on a year ago.
Non-food sales were up 3.5 per cent year-on-year, compared to 1.6 per cent in the food sector, the ONS said.

Online retailers and repairs services enjoyed the biggest rise thanks to the recent postal strikes, up a huge 15.8 per cent on October 2008.
The hike in retail figures was driven by sales of clothes and shoes, which are a massive 10.7 per cent up on a year ago.
Non-food sales were up 3.5 per cent year-on-year, compared to 1.6 per cent in the food sector, the ONS said.

Online retailers and repairs services enjoyed the biggest rise thanks to the recent postal strikes, up a huge 15.8 per cent on October 2008.

Meanwhile, banks handed out £13.5billion on mortgate lending in October – up from £12.9billion in the previous month.

But it appeared just to be a rise after the traditional summer dip, with the figure still a massive 27 per cent down on October 2008.

Activity in the market traditionally recovers in September and October after August, when many potential buyers are on holiday.

The Council of Mortgage Lenders said house buying has picked up but that the next few months will be guided by ‘seasonal factors’ rather than shifts in lending patterns.

This is because would-be homeowners still need large deposits to secure a good mortgage and existing borrowers have little incentive to refinance

In an interim management statement, the bank said the increase is mainly due on the €24 billion loan portfolio that may transfer to NAMA.

The bank said that it it expects to see operating profits in all of its divisions – Ireland, Capital Markets, UK and CEE despite the very difficult operating environment.

AIB said that its Capital Markets division continues to perform very strongly, and its operating profit is expected to be ahead of the level seen in 2008. It added that its Polish operations will see a broadly similar operating profit in 2009 compared to 2008.

However, income pressure and the cost of customer deposits is the main reason for the expected fall in operating profits in its Irish and UK divisions.

AIB said that the deterioration in its overall loan book continues, but that the pace of that deterioration is slowing. It said that reflects the significant portion of the book already ‘criticised’ rather than any material improvement in the quality of the book or operating conditions.

It said the increase in criticised loans in the second half of 2009 is expected to be much less than the €18 billion increase in the first half of the year.

That’s the advice advocates are giving credit card customers in the months leading up to February, when the government imposes tough new rules on banks.

Politicians and citizen groups are hearing from customers who have noticed increased interest rates, changes in conditions and extra fees.

“They’re pushing limits and in some cases stepping over the limits,” said Lauren Bowne, a lawyer for the Consumers Union.

Under the Credit CARD act, banks will have a tougher time hiking interest rates on existing balances and will have to give more notice when they do.

The companies requested until February to come into compliance and insist stiffer fees are the only way to deal with a record number of balances going unpaid because of the lousy economy.

Some consumers fear banks are using the extra time to bend the rules and impose increases before the deadline – and some members of Congress are pushing to put the legislation into effect immediately.

“Credit card companies are pulling out all the stops in order to squeeze consumers before the new rules,” Sen. Chuck Schumer (D-New York) said. “Breaking all the rules before they go into effect isn’t exactly what Congress meant by coming into compliance.”

Consumers Union has found several ways companies are confusing consumers:

- Customers’ annual interest rate is jacked up to 29.99%, but the company will credit 10% back if payments are made on time. The catch: The interest rate bounces back up if payments are even a day late, and the bank can end the program at any time.

- Companies offer a variable interest rate that fluctuates like the Wall Street Prime Rate Index. Although the rate rises as much as the index does, banks might limit how far it decreases when the index falls.

Advocates are warning even the most faithful bill payers to scrutinize their mail to look out for any sudden changes – and, as always, to keep spending in check.

However Capital One Financial Corp’s (COF.N) U.S. credit-card defaults fell in October, but delinquencies rose in a sign that consumers remain under stress.

In a regulatory filing on Monday, Capital One said the annualized net charge-off rate — debts the company believes it will never collect — for U.S. credit cards fell to 9.04 percent in October from 9.77 percent in September.

However, accounts at least 30 days delinquent — an indicator of future loan losses — increased to 5.72 percent from 5.38 percent.

JPMorgan Chase & Co (JPM.N), Bank of America Corp (BAC.N), Citigroup Inc (C.N) and American Express Co (AXP.N) were also due to report the monthly performance of their credit card portfolios on Monday.

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Precious Plastic, an annual analysis of the credit card market by the accountancy firm PricewaterhouseCoopers (PwC), predicts that annual fees will become common in the future, that interest rates will rise and that wealthy customers will be expected to pay for their cards in exchange for benefits such as money off shopping.

Paying an annual fee was commonplace in the 1990s but, at the turn of the millennium, card providers started aggressive pricing such as zero and low interest rate offers. In this way, credit cards were positioned as a cheaper form of personal short-term borrowing than loans.

“We reached a point when more people had a credit card than didn’t and when the number who had more than one outweighed the number who had none,” Sandra Quinn of the UK Cards Association said. “That was when they [cards] stopped being a status symbol.”

But mounting bad debts and continued regulatory pressure increasing the capital requirements on card providers could result in a return to the days when borrowers were required to have a high income to get a card, according to PwC.

“Lenders will focus on [customers] that are the most profitable, rather than those that are in the most need of credit,” said Richard Thompson, a partner at PwC.

The UK credit card market is unsustainable in its current form and heading for an unprecedented shake-up, according to PricewaterhouseCoopers (PwC), the accountancy firm.

The future of credit cards is under threat as never before,” Paul Rodford, head of card payments at the UK Cards Association, says in the report.

“Consumers are going to be faced with the unhappy prospect of a marked reduction in the availability of credit, a reduction in choice of products and an overall increase in charges with both increased interest rates and an expansion of annual and other fees,” he says.

The arrival of the Consumer Credit Directive, due to come into force by next June, will increase the burden of regulation on card providers, which will have to provide substantial additional information to potential customers before they sign up for new cards.

Competition will be further fuelled by the arrival of additional card providers, PwC says. The Government, keen to dispose of its stakes in nationalised lenders such as Northern Rock and Bradford & Bingley, has made clear that it wants new competitors to enter the market.

There are many costly pitfalls associated with using a credit card, but they can be avoided, writes CAROLINE MADDEN

BRITISH PRIME minister Gordon Brown recently announced plans to crack down on “sharp practices” being used by credit-card operators in Britain. The practices range from issuing unsolicited credit-card cheques to raising credit limits without being requested to do so by the customer.

Brown was following in the footsteps of US president Barack Obama, who in May signed a new “credit-card Bill of rights” to protect consumers from shady practices including unfair interest-rate hikes.

Our own Government may have its hands full with other pressing issues, but should it take similar steps to stamp out unsavoury tactics being employed within the credit-card industry, or are Irish consumers already adequately protected?

The 2007 Consumer Protection Code outlaws a number of practices that have caused problems in the US and UK. For example, the code requires that regulated credit-card providers must not offer unsolicited pre-approved credit facilities, and they may only increase a consumer’s credit-card limit following a request from the consumer.

If your credit card is groaning under the strain of too many impulse buys, those “0 per cent introductory offer” advertisements from other banks can sound like the magic solution to all your problems. However, there are pitfalls to watch out for.

Firstly, these 0 per cent interest-rate offers usually apply only to the balance transferred from your old credit card. Any new purchases or cash withdrawals using your shiny new card will almost always be subject to a higher interest rate.

Secondly, these are introductory offers and expire after a number of months. Unless you succeed in paying off your old debt in full before the end of the offer, you will generally move on to the standard rate for purchases.

Thirdly, the introductory rate can be cranked up to a higher rate if you breach the terms and conditions of the card, for example if you make a late payment or exceed your credit-card spending limit.

Take, for example, the new MBNA Platinum Visa card currently being advertised. The 0 per cent introductory rate only applies to balance transfers for the first 10 months. A variable 14.9 per cent annual percentage rate (APR)applies to new purchases. And the terms and conditions contain this important warning: “The promotional rates will be withdrawn if you go overlimit or overdue during this period.”

With Bank of Ireland’s Clear credit card and Permanent TSB’s Ice card, the 0 per cent balance transfer rate expires after six months. Furthermore, according to the terms and conditions of the Clear card, Bank of Ireland may vary the balance transfer rate. The only guarantee is that it will always be below the standard interest rate charged for purchases.

With Postbank’s standard credit card, you can only access the 0 per cent introductory rate if you apply online