Julian Knight: Now's the time to protect your cash from euro threat
Sunday 18 December 2011
The Anglo-Saxons crashed the world economy; now it looks like the Franco-Saxons are going to see that it burns.
Forget about the little local sideshow of Cameron being ambushed at the euro summit or Clegg's infantile no-show at the parliamentary debate which followed, the question for me is will the deal being put together by the 26 actually work?
At the heart of the euro-club is a basic conceit. The French and the Germans believe that that if they construct a deal, then the markets simply have to agree too go along with it. The determination of the EU – without those pesky Brits – will stare down the market, leaving it with no choice but to kowtow. Such arrogance has no appreciation of history – just think back to the UK's ERM debacle. Then, the staring contest with George Soros et al lasted barely a few hours before the Major government had to give way.
What the eurozone should be asking itself is what does the market want and can we cauterise the crisis with bigger more flexible action than may right now seem necessary. But instead the eurozone will spend three months debating a programme that already looks inadequate and will only be diluted further by the politicians. The French may be miffed at their high bond yields but they are fools to shoot the messenger. Eventually, sometime down the line, more radical action such as the issue of German-backed eurobonds combined with the departure of the Club Med countries will probably have to happen.
But what, in this my last column of 2011, do I suggest you do to protect yourself against as momentous an event as the break-up of the euro? On page 84 we look at the potential fallout for people with property in the Mediterranean – a plunge into negative equity could await. But that is relatively few people. The rest of us could see the credit markets gum-up as in 2008.
Therefore, if you have short-term credits – such as an overdraft – don't presume it will be there forever. If the crisis comes to a head next year, it would be no surprise to see banks reducing or even calling in large numbers of overdrafts with little more than 28 days' notice. I also think it's no coincidence that the Financial Services Compensation Scheme has just set about a major publicity campaign over people's rights to compensation should a bank collapse. If you do have more in an account than the FSCS's £85,000 compensation limit, it may be prudent to move the excess into another bank or building society.
As for your mortgage, now really looks like a good time to remortgage to a better deal and perhaps consider a fixed deal. The number of products available – even at relatively high loan to value – is at a post-2008 high and rates are far more competitive than they ought to be considering the eurozone problems and the potential knock-on effect of a second credit crunch. Overall, the crisis makes this a critical time to review personal finances.
Seven years too late
Tomorrow, the Financial Services Authority will publish its review of the UK mortgage market. It will probably back off from more prescriptive plans to regulate lending, instead urging lenders to move to a more "affordability approach" when making decisions. In essence, this means looking at people's finances in the round before lending rather than basing everything on multiples of income. Since the credit crunch, many lenders have been taking such an approach anyway, but it will be good to get definitive guidance from the regulator. I just wish it had acted seven years ago when it took over mortgage regulation. That way perhaps we could have avoided the lunacy of 125 per cent mortgages and self-certification.
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