surviving the recession

The Court of Appeal today ruled against the banks over bank charges. At the heart of the ruling is legislation going back almost a century which states that if you go overdrawn, the banks are allowed to charge interest, and they can also make a charge to cover the costs of informing you that you were overdrawn - but they can’t charge more than their costs (i.e. they can’t make punitive charges). Most bank’s were  charging about £30 to send the letter out, in addition to the interest charged, when the letter cost at most £2 (they are automatically generated and even if sent first class, the cost of postage and paper won’t come to £2).

Last year, the Office of Fair Trading took the banks to court to challenge the way they were levying high charges for sending out letters. They won, but the banks appealed. Now the appeal court has ruled in favour of the Office of Fair Trading.

What does this mean? It means that banks can no longer charge over the odds for sending out letters (though the banks are pondering another appeal). It also means that you should be able to reclaim charges levied on your current account over the last six years.

The Guardian newspaper has helpfully drawn up template letters that  you can use to reclaim your charges. I would advise people to go ahead and reclaim - but before you send off your letter, open another current account with another provider just in case your bank pays you back your charges but decides to shut your current account in revenge. 

Debt Management plans are usually arranged by debt charities like CCCS or National Debtline. What usually happens is that these non-profit orgs negotiate with creditors on your behalf, free of charge, to freeze the interest on your credit cards and arrange a payment that you can afford.

If you are in arrears with your payments and being hassled by debt collectors, it’s always worth contacting the above charities and getting your interest frozen.

However, once you have your debt management plan in place, don’t get complacent. Even if you make your payments religiously, you may find that after two years, your creditors get restless and reinstate interest and/or try to force you to sell your house. They will be especially likely to do this if you have disclosed to them that you have equity in your property. Debt management plans are voluntary arrangements, which mean that the creditor can terminate them at any point. They usually grant the debt management plan as a temporary measure, to give you time to sort yourself out.

Therefore, once you have your plan in place, try to do everything you can to raise extra money and stick it in a savings account. See the categories in the sidebar on earning money and earning money online for some ideas how to do this. By using your reprieve to get cash together, you will find that if and when the creditor starts demanding payment in full or starts charging interest, you have a chance to discharge the debt using money you have saved.

Note: Debt management plans are completely different to debt consolidation plans. Debt consolidation usually comes with hideous fees and interest charged, and you should avoid them at all costs. Go through the above mentioned charities to ensure that you are placed on a plan that doesn’t incur fees.

Estate agents are reporting that there has been increased interest in property recently - not surprising as a lot of pent-up demand built up in the last year, and many buyers feel that with the drop in property prices and interest rates, now is their chance.

Should you buy a property in the current conditions? Only if you can answer yes to the following questions:

1. Is your income secure? Of course no-one is immune to losing their job, but some professions are more secure than others. If you are in finance or manufacturing, then lay-offs may be on the cards. If you are self-employed or freelance, be warned that work may dry up and you may wish to sit things out till the economy improves.

2. Can I afford the mortgage. No sense mortgaging yourself up to the hilt. If you can’t comfortably afford a mortgage now, think of the difficulty you will have if interest rates rise.

3. Can you cope if bank base rates rose back to 5% (the rate they were just 4 months ago)? That involves an interest rate rise of 4% on your mortgage. If you won’t be able to cope, then wait until you can before plunging into buying a property. Don’t ignore this point - when interest rates start rising again, they will go up fast. Many people seem to think current conditions will last a decade - but that is unlikely.

4. If propery prices slump further, can you afford to wait things out for another five to seven years till the prices rise again? If you are moving to accomodate a growing family, chances are you will still be living in the property in seven years time, so go ahead - no sense making yourself uncomfortable in a smaller house just trying to time the market (which is impossible). If you are just investing or may have to move house because of job moves, then wait till the market improves.

If you’ve replied Yes to the above questions, then the next thing to do is see how much cash you need to raise. Lenders only want to lend a maximum of 85% of the property value as they are scared that further property falls will mean the loan is greater than the value of the home. Therefore, you will need a good £20,000 to £30,000 to put down as a deposit if you are buying a property of average value of £133,000 to £200,000. Then on top of that you will need to budget for stamp duty (1% of the property value for properties over £175,000), solicitors fees, surveyors costs, estate agents fees if you are also selling your current home, and possibly the arrangement fee on the mortgage as well. It all adds up to several thousand pounds.

Then be aware that the lender will take account of your existing debts, especially if they are fixed loans (though they may ignore these if they have less than 6 months to go), and your credit record (a single missed payment may damage you). Due to new information sharing rules, lenders now have access to details of all the debts you have, and if your credit card debts are high they may refuse you on those grounds.

Therefore buying a home in the current conditions is only worth doing if you are in a position to raise a deposit and clear your existing debts. If you are nowhere close, take heart. The current conditions will last at least another year, so you have time to tackle your problems if you start now. 

Many people will be trying to survive the recession by blogging, either on this platform or on others (if you wish to blog on this platform, click this link to join). But the key to doing this successfully is keywords.

Keywords are the method by which search engines marry your content to the searches users are making, and if you add the correct keywords to your content, the engines will drive traffic to your site. It is only when you get traffic that you are able to make money from blogging.

I have been rather lax about picking keywords - usually when I blog, I just blog off the top of my head. However, I have been reading up on choosing keywords, and will aim to carefully apply the principles to this blog. I’ll report back in a few weeks on whether this is making a difference to my blog traffic.

Tomorrow is Valentine’s Day, a celebration of romance where you feel cheated if you don’t get a gift (everyone has experinced the situation in the office where people ask what you got and you feel like a loser if your boyfriend/husband hasn’t gone to town with the gift) but which retailers use to bump up prices extravagantly.

I finally got my hubby to tell me what he usually spends on a bouquet of flowers and nearly fell off my chair in shock - £55! For flowers that barely last a week. Anyway, I’ve banned him from buying me flowers (to his relief), and Valentines Day will consist of the two of us giving each other a massage at home.

Seriously, people need to stop spending so much on these “commercial” holidays. Yes, it’s nice to get a gift, but with a little imagination you can always give something that is personal and romantic, but which doesn’t break the bank.