Paul Farrow We have lived under a dark cloud for three years now, but the ramifications of the financial crisis and recession were always going to be long lasting. Economic figures might have been positive last week, but they take no account of the spending cuts, which have yet to make an impact. There is talk of green shoots and stock markets have been reacting positively in recent weeks – many analysts say that companies are in a better shape having already made cuts and that will start to show through on the bottom line. Yet our story that 3m homeowners would struggle to pay their mortgage if interest rates rose by 2 percentage points makes worrying reading and hundreds of thousands of home owners will be praying that interest rates don't jump any time soon. Inflation is the primary concern and Mervyn King and his Bank of England colleagues will have their work cut out again in the months ahead as they grapple with the pros and cons of quantitative easing and rate hikes. Like it or not, the housing market is a key barometer of confidence. As a nation, we are obsessed with it. Put a story on house prices on our website and people read it in their droves. But it is with the housing market that my glass starts to look empty. Figures after figures portray a market going into reverse. Over the past few days we have learnt from the Bank of England that mortgage lending fell by 90pc in a single month, with net lending totalling just £112 million during the month, down from £1.62 billion in August. We also learnt that the number of mortgages approved for house purchase fell for the fifth consecutive month, to 47,474 – the lowest level since February, which has always been a quiet month for the housing market. Separate figures showed that net mortgage lending by building societies continued to contract during September, with home owners repaying £12 million more than was advanced during the month. Then there are the house prices themselves. They fell by 0.7pc in October, or an average of £2,376, according to Nationwide. Even though prices are falling, they are some way off the level they need to reach to allow first-time buyers a chance to get keys to the front door. They will have to save almost half their monthly wage for five years if they want to get a foot on the housing ladder, according to a report published by the Home Builders Federation. If the housing market is the only barometer, this winter will be darker than it has been for a long time. The great and the good of the finance industry have hailed the announcement of the Junior Isa – the tax-free saving vehicle that replaces the outgoing child trust fund (CTF). Details are sketchy but it looks as though it will be a CTF without the state handout, although it won't be launched until next autumn. The savings industry is applauding the Coalition because it reckons that accounts such as the CTF and the Junior Isa will help children get into the savings habit. This is a misconception in my mind. The only way you learn the habits of saving is by simply saving your own money and then seeing the reward. The reward with CTFs and Junior Isas are a long, long time coming, because children cannot get their hands on the cash until they reach 18. I learnt the merits of saving my own money through my grandpa, not by receiving relatives' handouts in a unit trust investing in a far-flung country. When I was still in my grey school shorts my Yorkshire-born grandpa opened an account for me at the Leeds Permanent Building Society. Not only did I get a passbook, I was also given a "Smartie-length'' plastic tube just wide enough to take the older, slightly bigger 10p coin. Fill it to the brim with 50 10p coins and he'd add five guineas of his own, he promised. Not that I reached the target. I cashed it in when it got to around £3 so I could buy an action model of Tonto, the Lone Ranger's faithful American Indian companion. No guineas, but the benefits of saving were clear for me to see. The Junior Isa, like the CTF, will be jumped on by families who have the means to salt some money away for the children in a tax-efficient way – and so they should. But don't think for one minute that it is going to make our youngest generation a nation of savers when they turn 18. It won't. A couple of weeks ago I mentioned that I was at a loss as to why the banks were continuing to play hardball on payment protection Despite the evidence, they continue to reject the idea that they have done anything wrong and are seeking a judicial review. All mis-selling complaints are now on hold: the banks have been losing nine in 10 complaints that go to the Ombudsman. This week it emerged that British banks could be hit with a £5.1bn bill over the next five years for PPI mis-selling claims. I'm no longer at a loss.If house prices are the barometer, we're in trouble
One of the questions I am asked the most is whether our
personal finance plight is going to get worse.
You have to admit that the prognosis doesn't look good.
FIRST STEPS IN SAVING
ALL IS EXPLAINED
insurance, given all the evidence against them.
Sunday, 14 November 2010
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