Money News: Credit cards - Lenders fall into line on £12 penalty for missed repayments

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The Independent Online

Nearly all of the big credit card lenders and banks have now cut their penalty charges for late or missed payments from £25 to £12.

The demand for lower charges was imposed by the Office of Fair Trading (OFT) with a deadline of 1 September. It is estimated that the change has cost lenders some £300m.

Online lender Egg is the only major provider not to have slashed its fee to the £12 calculated by the OFT as fair, according to figures from analyst Moneyfacts. Egg's fee is £16, but as its customers have to make minimum repayments by direct debit, the penalty is not imposed so often.

The OFT demanded lower credit card penalty charges after accusations of profiteering from consumer groups, which argued that a £25 fee did not fairly represent the cost to the bank of a customer's "bad" behaviour.

This week, the OFT is also expected to confirm that it is to extend its demand for lower penalties to overdrafts on current accounts.

Separately, it met with lenders last week to discuss the progress of its investigation into payment protection insurance (PPI) - sold with personal loans, mortgages and credit cards, usually by the same provider.

As part of the inquiry, brought about by a "supercomplaint" from Citizens Advice, the Post Office has proposed the introduction of an "open market" option. Under this, lenders would have to tell consumers buying loans, for example, that PPI can be bought separately elsewhere.

Family loans: The eternal mortgage

A controversial "deathbed" home loan that lets parents transfer mortgage debt to their children has been launched by Kent Reliance building society.

The "inter-generational" loan is an interest-only mortgage without a date for clearing the debt. In theory, a family of borrowers could pay hundreds of thousands of pounds of interest without ever owning the property outright.

However, the building society says that the new product, with its low repayments, is just another way of helping hard-pressed first-time buyers on to the housing ladder. It could also, Kent Reliance adds, reduce inheritance tax (IHT) bills.

Here's how it works. Borrowers initially take out a normal 25-year home loan with an option to extend the term every five years.

If they are still paying interest when they die, the loan and the property can be passed on to their children, who will then have the option of continuing with the mortgage or selling up.

Any debt passed on at death, the building society adds, can help cut IHT bills because the sum owed can be deducted from an estate.

Say a parent handed down a £350,000 home with a £150,000 mortgage. Assuming there were no other assets, IHT would not have to be paid because the estate would be valued at less than the £285,000 threshold for the tax.

Critics, including the Consumer Credit Counselling Service, have condemned the loan for fostering the belief that long-term debt is acceptable. Mortgage brokers have given a mixed reaction (see facing page).

Housing: First-timers have a mountain to climb

First-timer buyer couples need to save 10 per cent of their annual take-home pay for seven and a half years to be able to get on the property ladder, according to the Royal Institute of Chartered Surveyors (Rics).

Its research reveals that to meet the cost of the average starter home, these couples will have to save £29,200 for the deposit and stamp duty - three times the sum needed 10 years ago.

Affordability levels for first-time buyers are at their worst for 14 years, said Rics. "The financial pressures will continue the 'have' and 'have not' property society," warned David Stubbs, the institute's economist.

"If the housing market is to become more accessible, lenders must continue to offer generous funding levels and the Government should promote an increase in the housing stock."

Rics has forecast that annual house price growth will be 7 per cent this year but slow down to 3 per cent in 2007.

The internet: Brits in big switch to broadband

Nearly three-quarters of UK homes with internet connection now use broadband instead of "dial-up", says the Office for National Statistics.

The huge rise to 73 per cent - up from 54.4 per cent in June last year - is due to ferocious price competition between providers as well as a host of "free" broadband offers from companies such as TalkTalk, Orange and Sky.

In 2003, fewer than one in five internet users had broadband access.

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