Julian Knight: Cheap credit is making a comeback, but don't bet on it lasting for long
Sunday 25 September 2011
The era of cheap money is back but blink and you'll probably miss it. Last week, Sainsbury's launched a credit card at only 6.9 per cent APR – the sort of rate we have not seen since before the credit crunch.
Meanwhile, 17 lenders have cut their mortgage rates in the past fortnight and there are now more than 3,000 mortgage products available – the highest figure for 43 months. Even personal loan rates – which have barely budged in two years – are showing signs of softening. British banks are currently able to borrow at historically low rates while the Americans are set to pump a staggering $400bn into their financial system through Operation Twist.
If you need to borrow – or fix a mortgage for the long term – and you have a solid credit rating, these are on the face of it the best of times. But – and you knew there had to be one of those – we are as a global economy like a dancer drunk on the music, whirling away near the edge of a cliff. The calamitous market response to Operation Twist and more procrastinating over Greece shows how desperate the situation is, potentially worse than 2008, although as a borrower you won't be feeling it yet.
When Greece defaults on its debt, as surely it must, it will have a massive impact on the financial system in Europe. Like Lehman's collapse, the interrelation of financial institutions will be their Achilles heel, and because no one is sure of each other's lending books the watchword will be safety first in lending, which means – you guessed it – credit crunch Mark II. This era of cheap money may be very short-lived.
Property chancers are back
Gazanging, it's called. It's when a seller suddenly decides to withdraw their home from sale, leaving the buyer stranded and no doubt nursing a loss.
Online conveyancing firm In-deed estimates that about 54,000 buyers were gazanged in the first half of 2011, up 20 per cent, year on year. The major reasons given for sellers suddenly pulling the plug include being unable to find a suitable property to move into and simply getting cold feet over the move.
There also seems to be an issue of confidence – or lack of it – with people understandably concerned about slowing growth and increasing unemployment. It's difficult to justify the expense of moving when you fear for your job.
However, lack of confidence is only part of the story behind gazanging. I'd like to throw something else into the mix. The period covered by In-deed's statistics include pre and post abolition of Home Information Packs. One of the first things the coalition did was to get rid of the packs in May 2010, but since then we have seen an explosion in gazanging.
Coincidence? I don't think so. HIPs were unpopular for sure, but they did serve one useful purpose: they put off chancers who merely put their properties on the market to see what they could get for them. Estate agents are all too familiar with these people who only very rarely complete. Strange as it may seem, the few hundred quid it cost to buy a HIP did act as a disincentive to these people. Now HIPs are gone, they are back, messing honest buyers and agents around.
Fairer deal for young drivers
Our investigation into the scandal of young drivers being completely priced off the roads seems to have hit a nerve with you. I have had dozens of emails, most telling a depressingly similar story of insurers either refusing to quote for people under 25 or citing such ridiculously high premiums that, frankly, it's a joke. In one instance, a reader reported that her son was quoted more than £10,000 by one insurer for a 10-year-old Nissan Micra worth, at best, £500. I refuse to believe that anyone is that potentially dangerous behind the wheel.
As someone who starting driving at 17, I remember well how expensive it was to get cover, and it was a major hassle as there were no price-comparison sites in the early 1990s. Yet it was doable, but nowadays and particularly in the past year there has been a suspiciously co-ordinated effort to increase prices for young drivers.
But by doing this, ultimately the insurance industry is only damaging itself. The higher the costs, the more tempting it is for younger people to cheat the system by "fronting" (being a named driver on a policy taken out by a lower-risk motorist – such as a parent – yet doing the majority of the driving) or simply by driving without cover.
What's more, if you price youngsters off the road, how can they get experience to make them safer? We will end up in a situation where the claims records of those in their mid to late 20s will worsen, which in turn will mean people in these age brackets will pay higher premiums.
It's a vicious circle which damages the reputation of the insurance industry and annoys the hell out of honest customers. The insurance industry needs to come together to think of a way that it can improve and tailor its service and quotations to the young.
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