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Saturday, November 17, 2007

As interest rates rise, the house market slows down

The Bank of England (pictured right) took the cost of borrowing to a five-year high last week when it raised the base rate by a quarter point to 5 per cent. Widely predicted by City analysts, economists and the industry, the rise is a bid to contain inflation, currently running above the Government’s 2 per cent target.

The increase will mean an extra 20.83 a month for borrowers on a 100,000 variable-rate mortgage, according to price-comparison service moneysupermarket.com. The rise has already been factored into the pricing of most fixed-rate loans.

Industry specialists expect further rises in the new year if inflationary pressures persist.

The UK’s housing market showed no sign of slowing after the last quarter-point rise in August, according to the Halifax, whose latest figures show prices increasing by another 1.7 per cent in October.

But many are predicting that the latest rate rise will lead to a cooler housing market in early 2007.

“This isn’t necessarily a bad thing,” said Michael Coogan at the Council of Mortgage Lenders. “This year has seen record levels of lending, and modest increases in mortgage costs will help maintain a sustainable environment.”

Helen Adams from FirstRungNow.com, an advice website for first- time buyers, added that the rise should “impede property inflation”, providing more opportunity for aspiring first-timers.

At the same time, the hike in the base rate should be good news for savers, who will benefit from higher returns on the money they have stashed away - although many will have to wait weeks before this takes effect.

Chip-and-pin cards: Foiled fraudsters hit the internet

Chip-and-pin technology is driving a rise - and fall - in fraud, it emerged last week.

In the first six months of this year, online bank fraud soared by more than half (55 per cent) to 22.5m, according to Apacs, the UK payments body.

Unable to get hold of an individual’s secret four-digit code in retail outlets, frustrated criminals have turned instead to the internet. Here, many operate “phishing” scams, where emails purporting to be from your bank persuade you to disclose security details.

Overall, however, credit and debit card fraud is down by 5 per cent thanks to the chip-and-pin technology introduced last year, Apacs revealed.

Between January and June, total card fraud fell to 209.3m - a dip from 219.5m in the same period in 2005 and down 17 per cent on the 252.6m in 2004.

Phone and mail-order crime - card-not-present (CNP) fraud using stolen personal details - has also risen, to 95.3m, but at a much slower rate than before. The increase is again a result of criminals turning away from efforts to crack chip-and-pin.

CNP crime now accounts for nearly half of all bank losses to fraudsters, but has grown by just 5 per cent year-on-year, compared with a 29 per cent increase between 2004 and 2005.

There is also evidence that fraudsters are targeting cashpoint crime and fraud abroad.

“These figures show the industry’s efforts are making their mark,” said Apacs spokeswoman, Sandra Quinn. “But each and every one of us has to help defeat the fraudsters.

“We need to protect our cards and online accounts by keeping our pins, passwords and personal information safe and secure.”

When on the internet, more than half of online shoppers never check that a website address changes from “http” to “https” before making a purchase - indicating that awareness of secure shopping is low.

Credit card cheques

Capital One has come under fire from the Banking Code Standards Board (BCSB) for sending more than one million pre-completed credit card cheques to over 800,000 customers last year.

Under the voluntary code for upholding customer-service standards, changes were introduced in March 2005 that prevented lenders from sending out unsolicited credit card cheques filled in with a set sum.

But Capital One continued to do so, and 20,000 of its cheques were used by consumers last year.

The BCSB - which does not have the powers to fine banks but can name them - said this breach was “regarded as most serious and potentially damaging to consumer confidence in the code”.

“It is vital that changes in the code to improve the protection of consumers are implemented,” said BCSB spokesman Rob Skinner. “We are disappointed at this serious failure of compliance management.”

When banks and card providers send the cheques to customers, they are usually unsolicited and accompanied by marketing material that encourages spending. They may seem a useful alternative to plastic but expensive downsides such as fees per use, high interest charges and lack of consumer protection outweigh any value.

MPs and debt charities are critical of the cheques and are concerned that they fuel indebtedness.

Capital One said it had reported the breach promptly to the BCSB when discovered, and written to the customers affected.

In September, the Royal Bank of Scotland permanently withdrew its credit card cheques.

Financial advertising

Regulator must be ‘far more robust’

City watchdog the Financial Services Authority (FSA) has been criticised by the chairman of the Treasury Select Committee for the way in which it regulates financial advertising.

John McFall (pictured left) has written to FSA chairman Sir Callum McCarthy complaining about its approach compared with the one adopted by the Advertising Standards Authority (ASA).

“Consumers seem to get a worse deal, with the FSA offering no public scrutiny and little incentive for advertisers to keep to the rules,” said Mr McFall.

The regulator should take a “far more robust” stance by highlighting poor practice, he added, citing the ASA’s policy of publishing the results of its investigations. “These explain clearly why it has found for or against a certain advertisement. Its website provides a clear record of these judgments.”

Mr McFall noted that the Financial Services Consumer Panel, which advises and monitors the FSA on its consumer policies and activities, is on record saying it is a “quirk of the set-up” that financial ads are not covered by the ASA.

The FSA has, he added, a “seemingly far less transparent system in regard to financial advertisements.

“There is little publication of complaints, and little public record of which companies have broken the rules.”

The FSA insisted it was trying to do as much as possible to protect consumers.

“We can’t issue statements amounting to public censure without going through the formal process,” explained FSA spokeswoman Abi Jones.

“But in the last two years we have publicly taken enforcement action in 12 cases relating to financial promotions, and have also pursued 820 cases with firms directly where they didn’t meet the required standards.”

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