Something is happening in the UK economy right now.... You're reading the blog post Consumer credit growth slowest for 3 years – what’s this telling us? that was written by and first published on Getting Loans and Credit & Managing...

Something is happening in the UK economy right now. The number of British consumers increasing their borrowing grew by the smallest margin for three years. This, combined with a very small fall in the number of mortgage application approvals, has led to concerns about economic growth in the UK, particularly with Brexit on the horizon. So, UK consumers are not borrowing at the same rate as they might have been previously. But what does that tell us about the economy as a whole and what we can expect in the near future?

The official growth figures

According to the Bank of England, unsecured consumer credit grew by 8.5% in July of this year. That’s a drop of 0.3% on the figures for the month before and significantly below average for the past three years. These new statistics come in the wake of nationwide concerns about the high level of UK unsecured borrowing. Official figures provided this year indicated that, in 2017, British households spent, on average, around £900 more than they had coming in.

What could be causing the drop in growth?

1. British consumers are starting to curb spending habits. It could be the imminent arrival of Brexit and fears over an increase in the cost of living. Or an anticipation that interest rates might rise again. Whatever the reason, unsecured consumer credit growth could simply be slowing down because people are spending less. Many consumer groups have reported a new caution with respect to spending habits and the consequence of this could be people cutting back on non-essential purchases.
2. Lenders are not as willing to lend. With rising numbers of personal insolvencies and uncertainty about the financial future – especially interest rates – it’s not just consumers who are nervous. Lenders reducing the credit they make available to consumers in order to minimise their own risks could also be causing the drop in unsecured consumer credit growth. With a small slowdown on secured lending – e.g. mortgages – also happening during this time, it’s possible that lenders are reigning in their risk in general.

What does the slowdown say about the UK economy?

Although consumer spending and borrowing trends change fairly frequently, conclusions are already being drawn in terms of what this change could mean for UK economic stability.

• Weaker levels of consumer spending. British consumers have been spending at high levels in recent years, as official figures have confirmed. If there is less demand for credit then this means that there is less money flowing back into the UK economy via credit spend.
• A potentially weaker economy? Consumer spending is what drives the British economy and if this is beginning to drop away, the result could be a weaker economy overall.
• The reality of unsustainable levels of debt. Debt has always been a part of British spending habits ever since it first became widely available to consumers. However, debt levels have been identified as worryingly high by experts in recent years. New consumer borrowing fell from £1.5bn in June to £800m in July – which is significantly below average for the past three years according to the Bank of England. Could this be a sign that we are finally acknowledging that debt levels may be unsustainably high?
• More people are starting to feel overwhelmed by debt. Roughly 3.4 million people are now struggling with serious problem debt according to the charity StepChange. The slowdown in consumer credit growth could be an indication that this is beginning to bite for more people and across a wider section of the British economy. If current debts become unaffordable then consumers are much less likely to continue borrowing.

It’s still possible to borrow – and borrow well

Although many levels of borrowing have fallen, credit is still available to those who are looking for it. And it’s still possible to borrow in a positive way.

• Make sure your monthly repayments are affordable – after the repayment comes out do you have enough to comfortably meet all your obligations?
• Shop around for the lowest interest rate – there are some good deals out there, especially if you have a sound credit rating
• Limit the number of applications that you make – if you submit a lot of applications in a short space of time then you could damage your credit score
• Borrow only what you need – debt can be a great way to get ahead in life as long as you’re not borrowing in excess of what you really need
• Compare your loan & credit options before committing to your preferred solution.

Although the slowdown in UK consumer credit growth is certainly a sign that people are spending less, it remains to be seen what this means for the economy – and whether it will continue. Factors such as interest rates and Brexit will heavily impact in ways that are simply not forecastable yet.

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Money is a big issue for students – or,... You're reading the blog post Off to Uni? Here’s how to keep your finances under control that was written by and first published on Getting Loans and Credit & Managing Money.

Money is a big issue for students – or, more precisely, a lack of it. If you don’t have the Bank of Mum and Dad to rely on (or sometimes even if you do), years at university may well be lived on a shoestring. So, if you’re about to head off to university for the first time, getting your finances ready for the experience – and planning how to cope with the cash pressures you’ll feel – is essential.

How to get your finances ready for university

It’s estimated that most students spend more than their student loan by around £150 each term. But with some careful choices you can ensure that your own spending is well managed:

• Find the right bank. Different banks offer a variety of deals to students and some are better than others:
  • Look for an incentive to open an account with a specific bank, such as a free rail card or instant cashback. Opt for the incentives most likely to help you reduce your spending.
  • Make sure the bank has a good reputation for customer service on student accounts – spending hours on the phone trying to fix problems could be costly.
  • Is access to ATMs free with this bank and are there cash machines on campus?
  • Does the bank require a minimum amount of cash to be paid in each term?
  • How good is the savings interest rate?
• Investigate overdrafts. Debt is a necessary part of life for most students but you don’t have to pay over the odds for it. Student overdrafts are typically interest-free but the size of the interest-free part of the overdraft can vary depending on the bank. Find the bank that offers the largest interest free overdraft with increases in years two and three. Just remember that, at the end of your university years, the interest-free element will go and everything will have to be repaid.
• Get used to budgeting. Living life constantly at the edge of your finances is no fun at all at any stage in life. So, get used to budgeting the money that you have from the first day of the new term. Calculate your income and outgoings and see where adjustments will need to be made to keep you on track.
• Get ready to feel rich (for about a day). Most student finance is paid on a three monthly basis so you’ll get a huge one off payment which might be more than you’ve had before. The most basic advice here is: don’t spend it. Instead, transfer the money into a separate account and work out your budget. Then transfer money across as and when you’ve calculated that you need it.
• Avoid credit cards. Introductory deals on credit cards might seem to offer 0% on purchases – but there is always a time limit on this. If that time limit expires before you start working then your monthly repayments will significantly increase, eating further into your student finances.

There’s an app for that

Personal finance apps are plentiful and they can help you to better manage your budget, no matter how small.

Yolt. This app is free and will enable you to centralise your account information in one place. It provides smart spending insights and also helps to set and manage budgets.

Chip. Another free piece of tech, Chip is a smart app that will work out what you can afford to save and transfer it into your savings account automatically. So, you’ll be accumulating savings without even trying.

mySupermarket. Food and household products can be a big expense as a student – this app shows you where to find the best prices on the items you want to buy.

VoucherCode. From cinema tickets to nights out you can find deals to save cash on luxuries and experiences with this app.

Quick tips for student money saving tips

• Use your NUS discount – most shops on the high street and online will give you a decent discount with it (e.g. 50% off Spotify, 10% off ASOS)
• Stop smoking (or don’t start) – just five cigarettes a day will set you back £730 a year
• Negotiate your rent – you don’t have to accept the monthly rental you’re offered and if you’re not staying the full 12 months then request a discount from the end of term time
• Shop around to reduce energy costs – not all providers charge the same and you might be able to pay less by switching
• Use sites such as Quidco to get cashback on everything you buy
• Insure your phone – it will probably end up in the toilet after a night out or get stolen on campus and the cost of replacing phones is high
• Don’t join a gym – use the free facilities at university or just take up running instead

Make sure you reclaim your tax – if you’ve been working and you’ve been taxed you should be able to reclaim this as long as you haven’t earned more than your personal allowance (£11,850).

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Payday loans lender Wonga has gone bust in quite... You're reading the blog post What can you do now that Wonga has gone bust? that was written by and first published on Getting Loans and Credit & Managing Money.

Payday loans lender Wonga has gone bust in quite spectacular style. Despite attempts to restructure the business it has now been scheduled for “an orderly wind down” instead. Wonga became the poster business for the payday loans sector, achieving huge success and then being hit hard by regulatory sanctions. Its loans were described by experts as “unneeded, unwanted, unhelpful, destructive and addictive.” So, not many tears are being shed as the lender bids farewell. But what are the implications for anyone who has a loan with Wonga – and where do you go now if you’re looking for short-term credit?

Wonga – what happened?

Wonga was launched in 2006 and was a pioneer of short-term high cost credit. The company grew quickly, backed by investors, and in 2011 tripled profits to £45.8m on revenues of £185m, making 2.5m loans. But with interest rates up to 5,000%, complaints were already being made against Wonga and in 2013, the Financial Conduct Authority (FCA) announced a cap on the total cost of payday loans. In 2014, the FCA forced Wonga to write off £220m in debts and interest for 330,000 customers. Then, in 2015, Wonga reported losses of £80 million, followed by another loss making year of £66 million in 2016. By summer of this year the vultures were circling.

The final blow

One of the most significant reasons for Wonga’s collapse this year is a general increase in the number of claims being brought against payday loans lenders. Claims management companies are increasingly targeting payday loans lenders on behalf of consumers. In 2015, Financial Ombudsman figures showed complaints against Wonga at just 269. By the end of 2017 this figure was 2,347 in the second half of the year alone. The Ombudsman is also reputedly giving consumers more time to make complaints against Wonga and it’s these claims that have scuppered the lender as it was trying to make a comeback. Of course, Wonga isn’t the only company likely to be affected by compensation claims. These claims are on the basis of loans made before 2014 when the new rules kicked in and could make survival difficult for any payday loans lender that has strayed into misselling or overcharging.

What happens if you currently have a Wonga loan?

Your debt still exists. Wonga has more than 200,000 customers still owing more than £400 million in short-term loans – if that’s you then the company’s own financial woes don’t release you from your debt. In the short-term the repayments will be overseen by administrators but the failure of the business does not wipe out the loan. Wonga has said that all of its customers should still continue to make payments as per their loan agreements, which are still valid. Anyone struggling with their payments can contact Citizens Advice or StepChange for free advice.

What are the cash loan alternatives to Wonga?

• Other payday lenders – Wonga is just one of many lenders offering payday loans. If this is the type of finance you’re looking for you still have plenty of choice. It’s important to ensure that you can afford the repayments on a payday loan as the interest can be high – shop around to find the best interest rates for your loan.
• Instalment loans – there are plenty of other credit options if you’re looking for small unsecured loans – you can borrow as little as £100 or as much as £25,000 with personal loans with repayment terms that are flexible.

Will the payday loans industry survive?

There has been a marked shift in the targeting of payday loans lenders over the past 12 – 24 months. In April 2017 claims management companies were responsible for around 10% of the claims being made against payday lenders. However, by the end of the year that proportion had increased to more than 60%. So, claims companies are now aggressively targeting payday lenders – which could leave many in the same position as Wonga. Whether that would mean a loss to the personal finance market as a whole depends on your perspective. According to James Daley, managing director of campaign group Fairer Finance,

“It’s not surprising that Wonga are in this position because they exploited a market that was loosely regulated. They were in the vanguard of giving people quick access to credit with high prices and high fees and they didn’t treat their customers well.”

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There is no doubt that the car finance market... You're reading the blog post Is the buoyant UK Car Finance market sustainable, or is it a bubble about to burst? that was written by and first published on Getting Loans and Credit & Managing...

There is no doubt that the car finance market in the UK is active – but is it healthy? New figures have revealed that, not only are UK consumers spending more than ever before on car finance, but that many are struggling to understand their lease agreements. With around 90% of all car purchases in Britain currently made using finance (according to the Finance & Leasing Association), are we seeing the emergence of a thriving industry or sitting on a consumer debt bubble that could do untold damage if it bursts?

A thriving market

The car finance industry in the UK was worth around £44billion in 2017. Figures from February 2018 showed an increase of 13% in value on those from the year before, which is a healthy percentage for any sector. However, while these figures are great for the businesses involved in the UK car finance industry, they are a little more sobering when considered in the context of consumers. The increase in value within the car finance industry is being driven by a rise in spending by consumers. In fact, a new report found that UK households are borrowing more than £100million a day on finance to buy cars. On average, drivers are putting an average of £15,000 on credit to get behind the wheel – 209,547 cars were bought in this way during the month of May alone.

Is there anything to worry about?

According to the Finance & Leasing Association these figures are simply a reflection of rising demand for new car purchases and certainly nothing to worry about. However, what is concerning many commentators is the debt bubble that this represents to a nation already heavily indebted, whether that’s via credit cards, personal loans or mortgages. There have also been accusations of heavy handed tactics from car dealers desperate to close a sale pushing people into car finance purchases. And the Financial Conduct Authority has warned about some companies that are pushing unaffordable repayment plans with high interest rates to customers because staff have been incentivised with high sales commissions.

Why is car finance so popular?

After a house or flat, a car is probably the most expensive purchase that many of us will make in our lifetimes. Using credit such as car finance may be the only way to do this affordably. Personal Contract Plans (PCPs) are by far the most popular way to enter into car finance, often accessible with a deposit of around 10% and then requiring the consumer to make a number of payments over a period of two or three years. When the contract comes to an end, the consumer can either simply return the car to the dealer or buy it by making a balloon payment. However, some experts have highlighted that these deals are not as cheap as they might seem. Interest rates can be between 4% and 7% – often more expensive than a straightforward personal loan – and motorists often find themselves with a huge number of additional charges to deal with at the end of the contract.

The individual monthly cost

A survey carried out on behalf of Kwik Fit found that there are currently around 4.7 million drivers in the UK paying off their vehicles with car finance – that’s around £1bn per month! For each driver the monthly amount payable equates to an average of £226. However, this can vary considerably depending on where you are in the country. Motorists in London, for example, pay on average £269.01 while Scottish drivers benefit from the lowest monthly finance amounts with an average monthly car loan fee of £188.36. Even this can be a significant proportion of monthly income that could be unaffordably increased by even a small change to economic conditions, such as an interest rate rise.

Issues with car finance agreements

It’s not just cost variation and hidden charges that experts have warned might cause issues in the car finance sector but also the paperwork used. Research by the finance company Admiral found that a large number of consumers are confused by car finance deals. Many still sign up despite not fully understanding what the contract entails. When the goal is to get the car that a consumer wants, many will take whatever deal is on the table but, as Scott Cargill, UK CEO of Admiral Loans says, it’s crucial that consumers…

“…are clear on the different finance options available…Most importantly they need to choose a deal that’s affordable and right for them in the long term.”

The concern is that consumers who don’t really understand their car finance deals, or who don’t really understand the implications of taking out a loan, could end up getting into trouble in the not too distant future.

The car finance sector in the UK is currently thriving with companies generating cash and consumers getting the vehicles they want to drive. However, whether the current finance infrastructure is sustainable, especially if economic conditions change and interest rates rise, is something that no one can yet predict.

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As we move more and more of our business... You're reading the blog post Why UK estate agents are struggling, and can you benefit from this? that was written by and first published on Getting Loans and Credit & Managing Money.

As we move more and more of our business and personal interactions online, it seems that the property sector is the latest to feel the digital pinch. A report by accountancy firm Moore Stephens revealed in July of this year that around 27% of estate agents are currently struggling to survive. Although the estate agent has not traditionally been a sympathetic figure, what would a failure in these high street businesses mean for the sector and what is the future of UK estate agency as a whole?

The situation on the high street today

The Moore Stephens report highlighted that insolvencies of high street estate agents are on the rise. Countrywide – which is the largest chain of estate agents in the UK – has issued two profit warnings over the past year. It has also seen its share price plunge by more than 60%. Foxtons is another well known chain that has shown signs of issues recently. Well known for its branded cars and fancy high street offices, the chain has been failing to attract business with a 15% decline in revenues in the first quarter of 2018. It too has seen its perceived value take a dip as a result with 25% shaved off its share price since May this year.

Online portals are suffering too

Specifically, those portals that are dependent on the traditional bricks-and-mortar structure of high street estate agents could run into some serious problems. Online property portal Rightmove, for example, was reported in July this year to be the biggest faller on the FTSE 100. Although its revenues grew 10% for the six months ended June 30 and operating profit was also pretty healthy, many industry experts have predicted problems for portals like Rightmove because of the dependence on high street firms. Rightmove charges on a per office basis and so with multiple high street firms shutting down offices as a result of a drop in revenues, Rightmove’s own income could soon start to suffer. As a result, there is a perception that Rightmove will struggle to grow under the current circumstances unless it starts to diversify its services.

Where are the causes of these issues?

1. A drop in property sales. Clearly, the decline in the number of property sales in the UK in recent years is a big factor in the problems high street firms are currently dealing with. Sales across the UK fell by 1% over the past year. Between 2014 and 2017, London experienced a 20% drop in sales. 2018 seems to be a key year for an accumulation of issues to hit estate agents with a sharp rise in the number of firms reportedly getting into difficulties. Just under 5,000 firms reported being in trouble last year but this year that figure has significantly increased to 7,000. Consumers are switching from moving property to improving their property driven in part by recent changes to stamp duty bands and % rates.
2. The rise of the online or hybrid estate agent. Perhaps the biggest factor in the decline of high street estate agents is the rise of the online competitor. Online estate agents and hybrids (i.e. those that operate online but also have ‘real life’ representatives) are becoming increasingly popular, not least because of the value that they represent to consumers. Online estate agent Purplebricks, for example, charges a flat fee to sellers looking to find a buyer for their property, as opposed to the commission charged by a traditional high street agent. Online agents have fewer overheads and are gradually establishing a perception of being more consumer friendly. High street firms are often considered over priced, frequently found to be charging hidden costs and have real trust issues with consumers to overcome.
3. Banning letting fees to tenants. Although the plan to ban letting agent fees to tenants has yet to take effect in the UK (it is due to be put in place next year), this is also making many high street firms nervous. Letting agent fees generate significant revenues for property firms and if they cannot be collected that could leave a serious revenue gap.

Times are tough for high street estate agents but the current conditions present a significant opportunity for many well established brands to evolve. This is an industry that many believe has ridden roughshod over consumer interests, overcharged everyone and generally been unaccountable for shoddy practices for far too long. Surviving may simply be a case of reevaluating where resources are allocated and finding ways to offer genuine value to consumers instead of charging a high commission in return for a ride in a branded car. If the end result is that consumers benefit from better deals then it’s difficult to see how the impact of the current need to change could be negative.

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The lack of regulation in the private rented sector... You're reading the blog post The rise of rented property licencing – How it works and who it affects that was written by and first published on Getting Loans and Credit & Managing...

The lack of regulation in the private rented sector has been a hot topic for several years now. Over-inflated pricing and low standards often leave tenants feeling hard done by and living in poor conditions. One step that has been taken to try and combat this is rented property licencing schemes. These are now appearing all over the country and are designed to help highlight bad landlords and raise standards for tenants. However, the schemes are also attracting criticism as a cynical money making exercise and there are claims that the worst of the UK’s bad landlords will still continue to operate as before under the radar.

What is rented property licencing?

Councils can make it compulsory for every private landlord operating within a specific area to have a licence to rent out their properties. Rented property licencing is selective and so can be applied to some areas and not others. This is different to the type of licence that would be required for a landlord of a house in multiple occupation, which previously was the only type of licence required in the rental sector.

What does the requirement for a property licence entail?

It gives councils the opportunity to police the rented property sector. Any landlord will need to have a licence to operate if they are within one of the defined areas. In order to get that licence – and to maintain it – they will need to allow the council to check whether they are a “fit and proper person” to be a landlord. There may also be other requirements to meet, such as health and safety standards – for example, the council may want to see copies of certain safety certificates and also be informed of the location of smoke detectors, as well as being shown details of tenancy agreements. Licences usually last for around five years and then must be reapplied for.

Who will these licencing schemes affect?

Any landlord within an area where a scheme is being run by the local council. According to the Residential Landlords Association, at least 55 councils currently have a licencing scheme in place or would like to set one up. For example, a new scheme in Bexley, London, now covers Thamesmead North, Abbey Wood, Lower Belvedere and parts of Erith. There are schemes across many London areas, as well as in other parts of the country, such as Gateshead, Liverpool and Nottingham.

How much does a licence cost?

The cost of the licence is set by the local council and so can vary depending on location. For example, obtaining a licence in Gateshead would cost £550 to £1,000 while in Nottingham it would be £780, or £480 for a locally accredited landlord.

It’s also worth noting that it will be expensive for landlords who breach their licences – this could result in criminal prosecution or a civil penalty of £30,000.

Are there any exemptions?

Not for most private rentals. Even though local councils have acknowledged that there are already landlords who are doing an excellent job of fairly managing their properties, no exemptions are allowed from the licencing schemes. However, there are some properties that don’t fall into this category and so will be exempt, including holiday lets, student lets if the university is the landlord, business premises and properties where the tenant is a family member.

What’s the problem?

The main issue is that many landlords feel that this is rather a cynical money making exercise on behalf of local councils. Councils have responded to say that the fees that are charged are purposely kept low and are designed to only be enough to cover the council’s costs in administering the scheme. Another issue identified by landlords is that the schemes rely on landlords making themselves known to local councils. The issue here arises because criminal landlords are highly unlikely to make themselves known to councils and so the scheme could completely pass over those who were actually its intended target.

What does this change for tenants?

It should mean that standards rise across the rentals sector around the country. It will also make it possible to check whether a property is licensed – by law, councils must keep a register of all the licences that they have issued. Most councils have a searchable online database. The effectiveness of the scheme will, in part, come from the way that tenants use it. If tenants no longer rent from landlords who are not licensed then those landlords will be forced to obtain a license in order to make money from their properties. This will bring them within the remit of the local council and should help to ensure that all landlords meet certain minimum standards.

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