Mortgage exam 'needed for first-time house buyers'

Mortgages should only be given to some first-time buyers "after study and an exam", according to the chairman of a debt charity.  Home loans should be sold with a health warning, not tax breaks, said Malcolm Hurlston of the Consumer Credit Counselling Service. Those who had bought a home too soon were most likely to get into debt, he added.

In a speech to members of the credit industry, Mr Hurlston said that the credit crunch had changed the financial system.  But he added that some lessons had not been learned for first-time buyers - many of whom found that home ownership was a "trap".

"The people most likely to get into debt in Britain are those on low incomes who have wrongly or too soon embarked on home ownership," he said.

"Think Northern Rock. Was it not apparent to everybody here that 110/120% mortgages, some partially disguised as unsecured, were dangerous madness?"

He added that some form of tuition should be considered for those on low-incomes getting a mortgage for the first time.

"First time mortgages should be sold not with pretty ribbons and tax breaks but with health warnings," he said.

"They should be sold like driving licences, after study and an exam."

He called for the City watchdog, the Financial Services Authority, to supervise all first mortgages, and for home ownership certificates for anyone buying a first house.  He pointed to a federal mortgage programme in the US for those on low incomes.  Those who apply for the loan can also get free or low-cost advice on buying a home, renting, default, repossession and credit issues.

In 2007, about 1.7 million individuals and families in the US received housing education and counselling, with the numbers growing since the early 1990s, the CCCS said.

Sue Anderson, of the Council of Mortgage Lenders, said that lenders would consider the comments as an interesting perspective.  She said there was a case for strengthening general guidance on credit, so that potential buyers could equip themselves with the appropriate information.

But she said this raised questions on whether this was what consumers wanted, and whether it would make a difference in the numbers getting behind on their mortgage payments.

She added that most people who got into trouble did so because of a change in their circumstances, such as losing their job.

A separate report by the National Landlords Association found that the lack of mortgages for first-time buyers, as well as the demand for higher deposits from lenders, meant that would-be buyers would rent for longer.

Posted at 08:21PM Apr 30, 2010 by Kelly Board in Mortgages & Housing Market  |  Comments[0]

BAA Announce Ash Bill

The volcanic ash cloud that disrupted travel across Europe cost Heathrow and Stansted £28m, according to BAA, the airports' owner.

The London airports were closed from April 15 to April 20 because of the travel crisis and Colin Matthews, chief executive of BAA, said the company was considering its options over the loss.

"It is too early to talk about precisely what we'll do and how successful we can be," he added.

 The European Commission estimates the crisis could cost the aviation industry more than £2bn, just as it is recovering from the worst global recession for 70 years, and some airlines have called for governments to provide compensation.

The eruption of Eyjafjallajøkull in Iceland was not the only external incident that has impacted BAA so far this year, with the Christmas Day terrorist threat in the US, snow, and strikes by British Airways cabin crew also affecting air travel.

"Aviation is unpredictable and 2010 has delivered a few surprises," Mr Matthews said.

BAA, as it reported first-quarter results for Heathrow and Stansted yesterday, said the adverse weather conditions and strikes caused the loss of 180,00 passengers. Without these factors, passenger numbers at Heathrow would have grown by 3pc in the three months to March 31.

Instead, the rise was 1.6pc, while Stansted's passenger numbers declined by 4.7pc. Overall, traffic reached 18.6m passengers, 0.2pc ahead of 2009.

Alongside a rise in the amount spent by passengers at the airports' retail outlets, this led to BAA increasing revenue by 5.5pc to £456.1m. Earnings before interest, tax, depreciation and amortisation and exceptional items (Ebitda) rose 3.3pc to £174.1m, but interest payments on BAA's net debt of £8.6bn helped to ensure the airport operator, which is owned by Spain's Ferrovial was unable to move out of the red. Nonetheless, pre-tax losses narrowed from £316.2m to £195.5m.

Mr Matthews said there were "encouraging trends" but trading was "not back to the levels of pre-recession".

 

Posted at 02:54PM Apr 30, 2010 by Marc Stenton in UK Economy News  |  Comments[0]

BP shares plunge after oil slick

BP shares have plunged 7% after the oil giant said a well in the Gulf of Mexico was leaking oil at a much faster rate than previously thought.

Five times as much oil is now thought to be spilling from the well under the Deepwater Horizon rig, operated by BP, which exploded last week.

An estimated 5,000 barrels of oil a day are now pouring into the Gulf.

Earlier this week, BP said that profits in the first three months of the year had doubled from a year earlier.

Replacement cost profit for January to March was $5.6bn (£3.6bn).

BP said the clean-up operation was costing it millions of dollars a day, but this figure could rise dramatically if the oil hits land.

The oil, which has formed a slick measuring 45 miles by 105 miles, is currently about 50 miles (80km) off Louisiana's coast.

Weather forecasters have warned that changing winds could drive the oil slick ashore by Friday night.

Posted at 08:39PM Apr 29, 2010 by Kelly Board in UK Economy News  |  Comments[0]

Personal Insolvency Still On The Up

A record 14,000 people are thought to have been declared insolvent during March, research has shown.

The number of people going bankrupt or taking out an individual voluntary agreement (IVA) or debt relief order (DRO) during the month is estimated to be 16% higher than the previous record set in November last year.

Overall, around 35,000 people are thought to have gone insolvent during the first three months of the year, in line with figures for each of the two previous quarters, according to accountancy firm RSM Tenon.

Mark Sands, head of bankruptcy at RSM Tenon, said: "The 'debt-lag', where monies owed have piled up over a series of months before insolvency hits, can last from anything between nine and 24 months.

"The record insolvencies for March will partly be a hangover from Christmas, but it is more likely to be due to the ongoing effects of the financial crisis.

"Months of job losses and decreased earnings has taken its toll on the public's purse strings. We are likely to continue to see record numbers of people look to insolvency into 2011."

The group expects around 150,000 people to go insolvent during the whole of 2010, dwarfing 2009's record figure of 134,142.

Official insolvency figures for the first quarter are not due to be released by the Government until next week. RSM Tenon has based its research on entries to the individual Insolvency Register.

It estimates that around 18,330 people will have gone bankrupt during the first quarter, 8% more than during the previous three months.

The number of people taking out an IVA, under which interest on debt is frozen in exchange for a set amount being repaid each month, is thought to have fallen by 16%.

 

Posted at 01:48PM Apr 29, 2010 by Marc Stenton in Insolvency  |  Comments[0]

160,000 companies in financial distress

In its latest Red Flag update, which highlights troubled companies, the number of firms experiencing significant financial problems was reported to have jumped by 20,074, or 14 per cent, to 161,601 in the first three months of this year. 

Begbies Traynor estimates that seven per cent of the increase is the result of a trade creditors becoming more aggressive, with an increase in court actions evidence of their growing willingness to take action against their debtors. The remainder of the increase could be attributed to normal seasonal uplift.

The survey shows that distressed UK businesses owe over £55bn to creditors, suppliers and service providers putting them at a severe risk of defaulting. 

Ric Traynor, executive chairman of Begbies Traynor Group, said: "While the economy appears to be showing positive signs of recovery, the magnitude of the liabilities still at risk of default represents a serious risk to creditors, indicating the potential far-reaching impact of these levels of distress. It is this ripple effect which represents a real threat to a sustained economic recovery."

The sectors worst affected in the first quarter of 2010 include construction, in which companies experiencing significant or critical financial problems were up 30 per cent, professional services up 19 per cent, property services up 42 per cent , recruitment up 18 per cent and retail up 19 per cent on the previous quarter. 

Traynor added that companies will be put at an even greater risk should interest rates rise during the economy’s recovery. He said: "Low interest rates have been one of the principal reasons why business failures have not yet reached the peak levels many feared this savage recession would cause."

Experience of previous recessions shows that the recovery phase of the economic cycle has represented the greatest challenge to vulnerable small and medium sized businesses (SMEs), meaning that the inevitable withdrawal of the government's Time to Pay scheme could topple more firms.

Posted at 09:13PM Apr 28, 2010 by Kelly Board in UK Economy News  |  Comments[0]

Hull Set for Talks with Creditors

Further to last week’s revelations about the state of the clubs finances, the chairman of Hull City FC is to meet with creditors this week to address the club’s debts, as it prepares to be relegated from the Barclays Premier League.

Adam Pearson, who helped rescue Hull from administration in 2001, is faced with financially restructuring the club and tackling debt believed to be up to £35m. The club must also contend with losses that relegation from the Premier League would incur such as television revenue, which was worth £32.5m to Hull in 2009.

Pearson insists the club will not go into administration, but has not ruled out the possibility of the club entering a company voluntary arrangement (CVA). The most obvious way for the club to address the financial situation is to sell high profile players. However, Pearson acknowledged that the imminent FIFA World Cup tournament will make it difficult to make significant financial gain from the sale of players.

Pearson said: “Administration is not on the agenda. It is a pretty simple structure here, the owner has 100 per cent of the club and his very clear statement is that administration is not on the agenda, so we will have to find another route forward.”

If the club enters a CVA it will be deducted ten points upon entry into the Championship.

Pearson added: “There are numerous routes, one is the informal route which everyone would like to take, where you sit down with creditors and try to restructure.

“To go through the CVA would be one of the last scenarios, but if we have to go down that route then we have to build a team that can fight back from that deficit.”

Pearson is due to meet with creditors all week both at the KC Stadium in Hull and in London. There is even a possibility that former manager Phil Brown, who is currently on gardening leave, will be reinstated at the expense of ‘football management consultant’ Iain Dowie, as this could be a cheaper option.

Hull currently have several players on high wages with little resale value, including Jimmy Bullard, who was purchased for £5m and is believed to be earning £45,000 a week.

Pearson’s statement is unlikely to relinquish rumours about the possibility of Administration, as the mounting debts and loss of revenue will soon take the club deeper into trouble.

 

Posted at 03:22PM Apr 28, 2010 by Marc Stenton in Insolvency  |  Comments[0]

Mortgage lending in steady rise say banks

Mortgage lending rose slightly in March but borrowers continued to pay off loans and overdrafts, according to the major UK banks.

The number of mortgages approved for house purchases stood at 34,905 in March, up 5% on the previous month, the British Bankers' Association said, adding that low interest rates continued to affect consumer behaviour.   The figures showed that there has been a 5.7% annual drop in lending to non-financial companies by the major banks.

There has been some evidence of the traditional spring bounce in the housing market in recent weeks with estate agents and surveyors reporting a big rise in the number of people putting their homes up for sale.  But the Council of Mortgage Lenders said that activity would still be relatively subdued this year and repeated its warning that lenders' finances were likely to be severely restricted for several years.

The British Bankers' Association (BBA) figures show that gross mortgage lending in March - of £8.7bn - was less than the average of the previous six months.

The number of mortgages approved for house purchases was subdued compared with the latter months of 2009, when there was a surge in interest owing to the final months of the temporary stamp duty "holiday".  But, even though that rush had "worked through" the system, house purchase approvals were still 20% higher than in March 2009.

The continued historically low UK interest rates - and as a result the low mortgage rates - have been seized on by homeowners looking to pay off their mortgages more quickly.  The BBA said that banks were "actively encouraging" borrowers to use any surplus cash to reduce their borrowing.

"Homeowners are reducing mortgage debt by making, or maintaining, higher repayments using the extra cash generated by lower mortgage rates," said David Dooks, the BBA's statistics director.

Remortgaging continued the steady increase seen in recent months, but remained at very low levels, as people stayed on cheap standard variable rates rather than signing up to new fixed-rate deals.

However, various reports have shown that two-year fixed-rate mortgage deals are at their cheapest for 12 months.

Financial information service Moneyfacts said the aver age rate was 4.63% for a typical £150,000 repayment mortgage.

"The open for business sign is back in the window as lenders improve the availability of mortgages," said Michelle Slade, of Moneyfacts.

"Lenders are becoming more active in the mortgage market, which is welcome news for borrowers as increased competition is one of the overriding factors in driving rates downwards."

The best deals still required a 25% deposit, she said, which affected affordability for first-time buyers. 

Posted at 07:45PM Apr 27, 2010 by Kelly Board in Mortgages & Housing Market  |  Comments[0]

Financial Problems Rising in Capital

The number of London businesses facing major financial problems has rocketed in the past 12 months.

Insolvency experts Begbies Traynor today said 23,824 firms in the capital experienced “significant” or “critical” financial distress in the first quarter of 2010.

That was 28% higher than in the first three months of last year as the recession continued to take its toll in London. The number of firms in such distress fell everywhere else in the UK over the 12-month period.

Nick Hood, executive chairman of Begbies Global Network, said: “It is not a pretty sight in London. The City is still not in great shape. Tourism was hit by the bad weather.”

The Begbies Traynor Red Flag report said more than £55 billion of debts held by British firms could spark a “ripple effect” of financial trouble that might threaten economic recovery.

The number of businesses deemed to be in significant or critical financial pain jumped 14% from the final quarter of last year to hit 161,601 in the first three months of 2010, it said.

Begbies said that although the economy appears to be picking up, the failure of one firm could topple several others, and warned that this “represents a real threat to a sustained recovery”.

It is the second successive quarterly increase in numbers of distressed businesses, although the group said about half the latest rise could be attributed to seasonal factors with the rest down to market deterioration.

But the figures also show that the number of companies in trouble was 13% less than the period last year.

Hood said the potential for ripple effects was a particular problem in the recession-hit property and construction industries. According to the research, the number of property services companies listed as in financial distress soared by 42% from the fourth quarter of last year to 16,385. The number of construction firms facing difficulties also rose 30%, to 22,990.

“Of all the sectors in the economy that are under stress, construction and property are by far the most vulnerable,” Hood said.

 

Posted at 02:00PM Apr 27, 2010 by Marc Stenton in Insolvency  |  Comments[0]

Farepak savers payout trebled

Savers who lost money when Farepak, the Christmas savings firm, collapsed into administration four years ago will now receive 15p for every pound they lost, it was revealed today. 

The company’s administrators, BDO Stoy Hayward, have reached an agreement with the group’s directors that means they will pay up to £4m from their own pockets in compensation to the 15,000 customers who subscribed to the scheme. Under the latest settlement anyone who put in £400 would get £60 rather than the £16 previously estimated. However, the total is far lower than the £40m that was lost in total. Swindon-based Farepak encouraged customers, the majority of which were from low-income households and pensioners, to make monthly deposits in exchange for vouchers sent out before Christmas. BDO Stoy Hayward, said in a statement: “The action issued by the joint liquidators of Farepak Food and Gifts Limited against the directors of Farepak has been settled with no admission of liability by the directors... The terms of the settlement are confidential.”

 No date has yet been set for the new settlement to be paid.

Posted at 09:02PM Apr 26, 2010 by Kelly Board in Insolvency  |  Comments[0]

Corporate Insolvencies Fall

Business insolvencies dropped significantly to 2,160 in total for March 2010, compared to 2,512 in March last year, according to research.

The figures, published by pH, part of credit reference agency Experian, revealed that insolvency cases in March 2010 rose slightly from February, but were still significantly lower than in March 2009, which the number of business insolvencies peaked.

All regions, apart from Scotland, saw a small rise in insolvency cases in March compared to February. Scotland was the only region to see its insolvency rate fall in this period, with cases down from 0.09 per cent in February to 0.08 per cent in March. The East Midlands, Greater London and the south east respectively had the highest number of insolvency cases.

 Rolf Hickmann, managing director of pH, said: “Unlike the last recession, when business insolvencies were more than double the rates witnessed during this recession, the business economy has not been admitted to intensive care.

 “In fact, insolvencies have been coming down since early 2009 and, despite the odd monthly fluctuations, are now far more stable.”

 Insolvencies in the media, electrics and food retailing industries all showed small rises, while other sectors reported a drop in the number of cases. The property, retailing and leisure and hotels industries reported significantly less insolvency cases than March 2009, indicating that there is a slow recovery from recession in these sectors.

 The average financial strength score for UK businesses also deteriorated slightly from 81.18 in February to 80.99 in March. Small businesses of one to two employees suffered the biggest deterioration, but compared to March 2009 the average financial strength of businesses showed significant improvement.

 Hickmann added: “It’s the same picture when you look at the financial strength score. Although this deteriorated slightly in March, it has been steadily getting back to normal since the economic crisis was at its worst in mid 2008.

 “Despite March’s figures, our data shows that micro businesses, the one and two man-bands, are the most resilient in the UK.”

 

Posted at 03:27PM Apr 26, 2010 by Marc Stenton in Insolvency  |  Comments[0]

Accuma Goes Into Administration

Debt management company Accuma has collapsed into administration with Leonard Cuts getting the appointment.

A spokesman for Leonard Curtis said that John Titley and Andrew Poxon, partners at Leonard Curtis, are now handling the administration of the self-styled debt solver. Accuma’s sister company, Wilson Phillips, which offers IVAs is also believed to have fallen into insolvency,

Accuma Group was founded in 2003 as an IVA specialist during the boom times of debt management and floated on the London Stock Exchange in 2005. Since then it has seen its fair share of financial struggles, closing down its loan broking business in 2008 and announcing full year losses of £7.49m in May 2009.

The group eventually exited the IVA market last year after selling its IVA business to accountancy firm Grant Thornton for £5.6m. Accuma said at the time of sale that the level of new IVA cases had fallen dramatically below the numbers achieved in prior periods, partly due to the general market conditions affecting the numbers of IVAs approved by lenders and partly due to the streamlining of the division. 

In 2005 founder Charles Howson and private equity firm Zeus Group delisted Accuma Group in a £5m deal. Following the collapse of Accuma, Howson is now left with just one business, debt management services provider Byrom & Keeley.

 

Posted at 09:00AM Apr 25, 2010 by Marc Stenton in Insolvency  |  Comments[0]

UK Economic Growth Slows to 0.2%

The UK economy continued to recover from recession in the first three months of the year, according to official estimates.

GDP grew by 0.2% between January and March, the Office for National Statistics (ONS) said.

That was weaker than the 0.4% growth predicted by many economists, but the figure may be revised.

The last quarter of 2009 saw GDP growth of 0.4% - revised up from an initial estimate of 0.1%.

The ONS said the bad weather seen at the beginning of the year may have had an impact on output - particularly in the retail and industrial sectors.

But despite that, manufacturing output grew by 0.7% over the quarter, while the utilities sector saw output rise by 2.5%

However, the bulk of growth came from the business and financial services sector, which saw growth of 0.6%.

The sector including retail, hotels and restaurants shrank by 0.7%.

Trevor Williams, chief economist at Lloyds TSB, said the figure suggested the UK was set for a slow recovery from recession.

"The economy is still recovering," according to Williams.

"The declines of 2008 are still having an impact [and] the recovery will remain rather weak and could disappoint."

But Howard Archer, chief economist at IHS Global Insight, argued that the lower-than-expected growth figure was "not in itself overly worrying".

"Overall growth in the first quarter was clearly dragged down appreciably by the very bad weather in January, and most indicators suggest that there has been a marked pick up in activity since then," he said.

"Furthermore, there must be a very good chance that first quarter GDP growth will be revised up in future releases as more data for March become available and show improved activity."

The ONS will release two further estimates for growth in the first quarter, based on more detailed economic information not yet available.

 

Posted at 09:00AM Apr 24, 2010 by Marc Stenton in UK Economy News  |  Comments[0]

UK borrowing hits record £163.4bn

Government borrowing hit a record high of £163.4bn in the last financial year, official figures have shown.

The borrowing figure for the 2009-10 financial year is lower than the £166.5bn predicted by Chancellor Alistair Darling in April's Budget.  Including financial intervention measures, borrowing totalled £152.8bn - lower than the £155.9bn forecast and the biggest annual borrowing figure for a UK government in peacetime.

Figures from the Office for National Statistics (ONS) show that a total of £23.5bn was borrowed in March.  Borrowing in March is typically high as civil servants seek to spend the remainder of their annual budgets.

Total government debt now stands at £890bn - equivalent to 62% of GDP, with the £163.4bn borrowed equivalent to 11.6% of GDP.

Although the annual figure came in below the Budget prediction, City analysts reacted cautiously.

"The big picture is that this is still the biggest budget deficit since World War II," said Jonathan Loynes, economist at Capital Economics.  "With all parties' fiscal plans based on extremely optimistic economic assumptions and unspecified spending cuts, a further sizeable fiscal squeeze will still be needed after the election, whoever is in charge."

All major political parties have pledged to tackle the growing budget deficit following the next election.  But their plans rely in part on the recovery of the economy boosting tax income and therefore reducing borrowing.

Many view the Treasury's current predictions of between 3% and 3.5% growth in the 2011 calendar year as too optimistic, with an average of City forecasters suggests growth of around 2.25%.

However, the slow recovery so far already appears to have helped cut borrowing. In March, tax income rose by 3.8% according to the ONS.

Income from VAT also rose following the return to the 17.5% rate at the start of the year, and corporation tax receipts were up by more than 50%.

Posted at 07:53PM Apr 23, 2010 by Kelly Board in UK Economy News  |  Comments[0]

Will Hull Be Next?

It has emerged that Hull City may be the next football club forced into Administration. This comes after Chairman Adam Pearson slammed his predecessor Paul Duffen over his running of the club.

 Hull played Aston Villa on Wednesday night, when Pearson launched his scathing attack on Duffen in his programme notes before the game.

Pearson wrote: ‘The prospect of relegation should not need to be the doomsday scenario that everyone currently discusses and worries about. The financial planning just needed a bit of classic strategy and common sense applying to it back in the summer of 2008 and even more so when they survived on the last day of the season in 2009.

‘In my opinion the decisions made by Mr Duffen at that point were extremely short-sighted and lacking in business sense and specific football knowledge. He seems, albeit with the advantage of hindsight, to have had no understanding of the industry, Hull City or the city of Hull itself.

‘The problems which were apparent throughout 2009 should have been at the forefront of the summer transfer and business dealings.

‘Instead the wage bill was increased even further.  The safety value of pragmatic realism was cut off and the club under Mr Duffen spent money it didn’t have. This is not ambition or “giving it a go” or “living the dream”, it is, in my personal view poor business sense and a lack of moral responsibility.

‘Just under £6m spent on agents fees in two years and the deal breakdown and size of agent payments is morally abhorrent.  The strategy was non-existent in my opinion and the implementation of football deals extremely flawed from a commercial perspective.’

Pearson recently took over the running of the club for the second time after previously overseeing their steady rise through the tiers of English football, however it was Duffen who, after taking the reins in 2007 guided them into the Premier League before make a series of commercial decisions that look increasingly likely to come back to haunt them.

In a season that has seen the first ever Premier League club to enter administration, it would be thought that clubs would take that into account in their decisions, however Duffen continuously raised the wage bill with the signings of seasoned professional who have been there and done in the top flight.

The added knowhow of players such as Jimmy Bullard, George Boeteng and Brazilian Geovanni were meant to aid Hull in maintaining top flight status.  However, with relegation looking an ever more likely proposition and these players having no relegation clause in their contracts, the club is plummeting into quite a shortfall should the club go down.

With that in mind, relegation will almost certainly force Hull City to appoint Administrators in the very near future.

Unfortunately, Paul Duffen seems to be following a very popular trend in football at the moment, where very good, experienced and knowledgeable businessmen suddenly lose all sight of what is commercially viable when running a football club.

Duffen has previously worked huge companies such as Catalyst Media Group, Proctor & Gamble and P J Holloway, however once he went into football, the will to reach the top echelons of the game has led him the making poor business decisions.

 

Posted at 11:38AM Apr 23, 2010 by Marc Stenton in Insolvency  |  Comments[0]

Shoe retailer Faith in administration

Footwear chain Faith collapsed into administration today in a move that puts 1,700 jobs at risk.

The ailing retailer has been put up for a sale for a number of weeks but administrators Mazars said they were called in after directors realised that a “solvent sale was not possible”.  Heath Sinclair of Mazars said: "We are currently liaising with interested parties in an attempt to facilitate a going concern sale. We will be working closely with the businesses' stakeholders in an effort to preserve a well known retail brand. We are in the process of communicating with all staff, concession partners and suppliers and will seek to keep them updated as the process develops."

The young fashion footwear chain also operates 120 concessions within Debenhams and Topshop’s flagship store on Oxford Street.

The administration also hits FEC Holdings, Faith’s parent company.

In 2008 the financial health of the company was called into question after previous owners, private equity firm Bridgepoint Capital, were forced into a fire-sale after failing to reach agreement with lender Barclays. A management team led by former owner of Dolcis Shoes, John Kinnaird, stepped into rescue the firm. Bridgepoint bought the business in 2004 for £64 million from Jonathan Faith, son of Samuel Faith, who founded the business in 1964.

It is believed that restructuring specialist Hilco has completed a deal to buy the firm’s debt from investors and lenders.

Posted at 09:06PM Apr 22, 2010 by Kelly Board in Insolvency  |  Comments[0]