William Kay: Wait until the fog of war has lifted before deciding on your next move

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The Independent Online

The bombs are dropping, the missiles are cruising and you can almost hear the cheers from the massed ranks of stockbrokers, financial advisers and fund managers who say the uncertainty over Iraq is the main obstacle preventing clients unfurling their cheque books.

The bombs are dropping, the missiles are cruising and you can almost hear the cheers from the massed ranks of stockbrokers, financial advisers and fund managers who say the uncertainty over Iraq is the main obstacle preventing clients unfurling their cheque books.

If that is true, the onset of hostilities may have come just in time to rescue what has been the deadest Isa season on record. I certainly recommend everyone who can afford it to make use of their £7,000 Isa allowance, despite the prospective loss of dividend tax relief from April next year. If you do not wish to bet on the stock market by committing all your money in one hit, then, as Tony Lyons advises on page four, you can put it into a cash fund with the intention of investing later.

In practice, I believe those who have been holding off will not suddenly change tack because President George Bush has ordered the first attacks. The London stock market's cautious response on Thursday suggested the real euphoria behind the latest rally was triggered by the realisation that Mr Bush had finally decided to ignore the United Nations and get on with the invasion. The likelihood now is that equity prices will bounce with the fortunes of war, until it becomes clear which way events are heading.

Brave investors may take advantage of a downturn to dive in, but most of that breed have probably already decided the market has reached bottom. There is much to be said for sitting out the next few weeks and start drip-feeding money month by month through a fresh Isa at the start of the new tax year from 6 April on.

Many analysts feel even a swift and successful Iraq campaign will not necessarily be the answer to the stock market's problems. The big fear is that the UK economy will shudder to a halt as consumers finally stop spending, concerns that were heightened by this week's slower borrowing and retail sales figures. So many people have overstretched themselves to borrow against the value of their houses that a decisive upward move in interest rates could have a crushing impact on economic activity and therefore corporate profits. The stock market has more to contend with than Baghdad's bloodshed.

* The report from NOP Research Group on its researchers' experience of phoning risk-based lenders, as reported on page one, has highlighted a gap of philosophical proportions between such lenders and those who offer a set rate, take or leave it.

The fact that Egg commissioned NOP was enough to set the criticised lenders aflame with rage. Of course Egg has a commercial point to make, but in NOP it chose a market research organisation of impeccable credentials.

There are rights and wrongs on both sides. All lenders are risk-based. It is just that Egg and others prefer to judge their potential risks against one interest rate rather than several. They do not want poorer risks, even at a higher price. That is a perfectly sensible commercial decision, but let us not elevate it into an ark of the covenant. The risk-based lenders are trying to cover a spectrum from the safest to the sub-prime levels which can easily fall into the hands of street-corner loan sharks if orthodox credit is denied.

At the same time, there is little doubt that the risk-based lenders have a big incentive to saddle applicants with as high an interest rate as possible. They do this by giving them the hope of their lowest rate then ratcheting them up. Why else does the home page of the Barclaycard website mention only its lowest rate, getting round to typical rates only when the would-be borrower has explored further?

The trouble is that the NOP report is uncomfortably consistent with other banking practices, such as two-tier interest rates, trackers that stop tracking, rates that move independently of Bank of England base rate. They add up to an image of an industry which does not exactly have the customers' interests at heart. And that is something they should set about changing without delay.

w.kay@independent.co.uk

William Kay is personal finance editor of 'The Independent'

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