Thursday, 28 June 2012

Did Barclays scandal hit homeowners?

There have been a few suggestions that homeowners with mortgages may have lost out because of the attempted manipulation by Barclays dealers of the LIBOR rate between 2005 and 2010.

I think you have to be careful with this because:

*Only a small proportion of mortgages are directly linked to LIBOR, perhaps 250,000 loans to buy-to-let borrowers and some to sub-prime customers.

*As for other variable rate mortgages, LIBOR could influence a lender's cost of funds but the impact is less direct.

*It appears that before the credit crunch banks may have been over-quoting and under-quoting LIBOR in order to make dealing profits. In theory this could have pushed some people's mortgage costs slightly higher or slightly lower.

*However the more significant attempts at manipulation may have come after the credit-crunch, from 2007, when under-quoting appears to have been the main problem. If that had any impact at all it would have been to reduce the cost of variable-rate mortgages.

*From that point, in any case, lenders were having to depend much more heavily on savers' deposits to fund mortgages, because they couldn't raise money in the financial markets where LIBOR is a key reference rate - so LIBOR became less important for mortgage rates.

Mortgage experts suggest the net effect of the shenanigans could well have been to lower people's mortgage costs - though that might not be true for all customers throughout the period.

If that's true, the real victims would be the institutions who deposit money with banks for short periods at rates which are linked to LIBOR - pension funds, local authorities, hedge funds and private equity firms.

If LIBOR was manipulated down, they would have have lost out directly.

For details on what LIBOR is and how it's calculated, look here.

Wednesday, 27 June 2012

Lloyds closer to Co-op sale

Lloyds Banking Group says it now has an "understanding" with the Co-op to sell it 632 Lloyds TSB and Cheltenham & Gloucester branches.

The sale was demanded by the European Commission after mergers and government support during the financial crisis gave Lloyd's excessive power in its market.

The Co-op had lost exclusive negotiating rights after doubts emerged about its ability to absorb the branches as part of Co-operative Bank.

Now the talks will resume on an exclusive basis as the two parties draw up a sale agreement and seek approval from regulators.

The sale, codenamed Project Verde, would hand the Co-op 5 million customers and a 7% share of UK current accounts.

Meanwhile, a rival bidder, NBNK, confirmed that it had made a revised offer for the Lloyds branches.

Look here to see how you'll be affected and here to see if your branch is to be transferred.

Thinkbanking accounts rescued

100,000 customers of a specialist current account provider which depends on RBS are being told that their accounts will back to normal at 3pm this afternoon.

Thinkbanking offers a tailored account for people who need to budget carefully, so its customers were particularly vulnerable to having their funds cut off.

Like RBS customers, most of them were unable to see credits to their accounts or gain access to their money.

The company has paid out hundreds of thousands of pounds to customers desperate for cash to keep going.

Some have complained that while most RBS and NatWest accounts were sorted out on Monday, theirs have been left on one side.

Thinkbanking, based near Manchester, relies on RBS's banking licence and account administration to provide its service.

Lloyds branches being cut loose

There's speculation of an update soon on the sale of 630 Lloyds TSB branches. Lloyds has promised more news before the end of the month.

So it might be a good moment to check whether your bank branch is among those to be transferred to the Co-op, or whoever else takes the branches on.

Here's the list.

What can you do about it? As I understand it, if customers don't wish to be hived off but they have been earmarked to be cut loose, they'll be able to request to stay with Lloyds.

It's just that Lloyds isn't supposed to encourage them.

There will be time to react - the deal doesn't have to be finalised until November 2013.

Clampdown on costly extended warranties

Dixons, Comet and Argos have promised to inform customers in stores that they can buy extended warranties elsewhere if they want to.

The Office of Fair Trading has obtained legal undertakings from the retailers after it found that customers weren't getting value for money in this £1bn market.

Stores will have to offer leaflets showing that warranties are available elsewhere, maintain a price comparison site so buyers can shop around and provide clearer information about annual costs.

They'll also have to conduct regular independent mystery shopping exercises to help ensure shoppers get accurate information from sales staff.

The OFT proposed these tighter measures in February.

Tuesday, 26 June 2012

Tax penalties apply despite NatWest problems

Revenue & Customs says it will be sympathetic to firms which submit PAYE tax money late because of the RBS debacle - yet they'll still have to pay any penalties due.

Is that being sympathetic?

Here's what the tax people at HMRC say:
"We are sympathetic to any customer experiencing genuine difficulties in not being able to pay their tax bill, but for customers affected by the specific NatWest/Royal Bank of Scotland Group issue they need, in the first instance, to seek compensation or help from the bank."

Apparently, being "sympathetic" means understanding what the reason is and not pestering or pressuring businesses to pay up.

What happens is that firms can be late with one monthly or quarterly payment, then penalties start at 1% of the amount due, rising if they are late again.

VAT hurts poorer families more

The hike in VAT had the sharpest impact on poorer families, according to the Office for National Statistics.

A temporary cut in the VAT rate to 15% was followed by a rise to 20%, resulting in a significant jump in the cost of shopping, save for items such as food which are VAT-free.

Between 2010 and 2011 the poorest fifth of households saw the biggest increase in the proportion of their disposable income paid in indirect taxes such as VAT, up from 28 per cent to 31 per cent.

The richest fifth saw the amount paid rise from 12 per cent to 13 per cent.

The figures also show that average disposable income, after adjusting for taxes and benefits, fell by £200 in real terms.

Latest RBS statement

"RBS and NatWest confirm that the update of customer account balances has cleared overnight, with the exception of a few specific sets of transactions."

"We know this disruption was unacceptable and that many customers will still have questions and concerns. It is possible a small number of customers may experience delays as we return to a completely normal service. We will continue to extend our branch opening hours all week."

"The full focus of our efforts will now be on delivering the same result for our Ulster Bank customers who continue to experience unacceptable delays to their accounts being updated. We are confident that this will help us restore a full service for the start of next week for Ulster Bank and remain grateful for our customers' patience. We will continue with extended opening hours for the remainder of this week and with the extensive customer support we have in place to mitigate the impact of this delay."

Monday, 25 June 2012

Claiming back from NatWest

The original link (at the bottom) is up and running again after being removed last night.

Just in case, here's the normal complaint form for you. And here's the main complaints page.

And this is my original post about the form for people who have been "impacted":

This is where you can have a first stab at lodging a claim against NatWest for costs incurred as a result of their payments meltdown.

If you click on the link at the bottom of their advice page, the form opens up.

NatWest claim form (Now this one is working again!)

£100 extra on an RBS card

NatWest customers with a credit card will be able to use it to get out an extra £100 cash with no fees or charges.

They've just sent this out to customers...

"We know that our current technical issues may still be impacting a number of our customers as we work to clear the backlog.

To make it easier for our customers experiencing difficulties accessing cash we have made the following arrangements. All our current account customers who have an RBS, NatWest or Mint credit card in good order can now:
Withdraw up to an additional £100 over their limit on their credit card, with over-limit fees or charges automatically waived or refunded

For Cash withdrawals on their card, cash advance fees as well as one month's worth of interest on the transaction will be waived or refunded

For all current account customers we will:

Automatically waive or refund overdraft fees and charges on current accounts for customers who have been impacted

We are making these commitments today and there is no requirement for any customer to take further action to benefit from these changes."

Friday, 22 June 2012

NatWest/RBS extends opening

NatWest and RBS say over 1,279 branches will be open on Saturday.

Those usually working from 9am to 12.30pm will keep their doors open until 4pm

The bigger ones normally open from 9am to 4pm will extend to 6pm

On Sunday some of them will open from 9am to 12 noon.

Ulster Bank says that 60 of its branches will extend their hours on Saturday to 10am to 3pm.

And 20 will open on Sunday from 10am to 1pm.

NatWest problems will last through today

RBS/NatWest/Ulster Bank

The underlying technical issue which caused the disruption to payments in the RBS group of banks has been resolved, according to a source within RBS.

However the inconvenience to customers is likely to continue through today as staff try to get system back on its feet.

The weekend will provide a breathing space to update payments in and out of accounts, although there is no guarantee that everything will be back to normal by Monday.

The banks have a serious backlog to clear up. Effectively, they are a still a day behind.

Most of the payments which had been missed on Wednesday night have now been processed, although the situation is considerably worse in Ulster Bank, but many of last night's payments haven't got through.

It is understood that the technical glitch arose after staff tried to install a software update on RBS's payment processing system, but ended up corrupting it.

Thursday, 21 June 2012

Is Jimmy Carr's tax scheme legal?

There are a lot of rash statements being made about whether or not the K2 tax avoidance scheme used by Jimmy Carr was "legal".

The implication being that if it wasn't, it was a bad thing to do - obviously. And if it was "legal", well that's OK, then - even if the PM says it was "morally wrong".

Unfortunately, tax is a bit more complicated than that.

Tax evasion is the illegal thing. It happens when people deliberately don't pay the tax they should. It's criminal.

Tax avoidance is the arrangement of a taxpayer's affairs in such a way as to pay the least amount of tax legitimately.

A fine line? Some would say so.

However, Revenue & Customs is referring to K2 in the category of tax avoidance, so let's concentrate on that.

Just because a scheme is classed as tax avoidance doesn't mean it's all right.

Usually, it has to be registered with HMRC, so they can check if it complies with tax rules.

If HMRC decides it's not acceptable, then the taxpayer would have to hand over all the unpaid tax along with interest and, possibly, penalties.

Basically, officials treat the underpayment of tax as a mistake.

It could be that the scheme takes advantage of some obscure loophole. In that case the tax people would get the Treasury to change the law, but the scheme's users would get away scot free until such an order was made.

So the Jimmy Carr ruse isn't being talked about by the authorities as illegal, but that doesn't mean he won't have to pay back the tax.

HMRC's line is that K2 is being investigated, they don't think it's compliant and that they'll challenge it anyway.

Another phrase being bandied about is "tax abuse" which, confusingly, can be applied to both evasion and avoidance.

A tax avoidance scheme which the Revenue finds to be a blatantly artificial construction to dodge tax could be an abuse.

There will soon be a General Anti-Abuse Rule to deter this sort of dodging. Some accountants say it will "kill it stone dead", others that it'll just lead to more complicated disputes.

Wednesday, 20 June 2012

Cramming people into the UK

How many people do you have to rub shoulders with?

Population per square kilometre:

England  404
Wales    145
Scotland  67

Local authority areas in England and Wales:


Eden       24
Powys     25
Tynedale  27


Kensington & Chelsea  13,973
Islington                       13,061
Tower Hamlets             12,034

Source: ONS

Cut in Bank Rate "under review"

The country's benchmark interest rate is "under review", after the Bank of England's Monetary Policy Committee (MPC) considered cutting it from the current historic low of 0.5%.

Nothing is happening for "the present time", but it is significant that the Bank has shifted from its previous view that a further cut in rates, recently suggested by the IMF, could backfire.

It's worrying news for savers, who are already suffering from very low rates on the nest eggs - but potentially helpful for millions of homeowners on tracker mortgages (which track Bank rate), who would see a cut in monthly payments.

Here's the meat of what the MPC discussed during its meeting on 6-7th June:

"In March 2009, the Committee had judged that a reduction in Bank Rate below 0.5% could have counterproductive consequences, in particular constraining some banks’ and building societies’ ability to lend.

Lenders were, in practice, unable to reduce deposit rates below zero.  But they had assets – primarily mortgages – with interest payments contractually linked to Bank Rate. Consequently, a reduction of Bank Rate below 0.5% might squeeze some lenders’ interest margins to such an extent that they became even less able to extend new credit.

On the one hand, there was some evidence that the proportion of outstanding mortgages contractually linked to Bank Rate had increased since early 2009, as a number of borrowers’ fixed rate deals had expired and they had moved to paying pre-set rates linked to Bank Rate.

On the other hand, since early 2009, retail deposit rates had increased somewhat.

So it was possible that lenders had greater scope than before to absorb a reduction in Bank Rate by cutting deposit rates without adverse cash-flow onsequences.  The extent to which this would be possible would depend on whether other funding costs also fell in line with Bank Rate.  In addition to this, it was possible that, were interest rates to fall further, the functioning of the money markets would become impaired.

Overall, the Committee judged that, at the present time, a further reduction in Bank Rate would not have any advantages over an expansion of the asset purchase programme, though it would keep the position under review."

Tuesday, 19 June 2012

Broken, panic-ridden eurozone

Events in the eurozone in the last few days look mysterious, at first, and on reflection, even more worrying.

This matters because our savings, our pensions and our mortgages could be affected.

What's the mystery? When you think about it, the outcome of the Greek election was the most stability-inducing one that the financial markets could have hoped for.

But they got the jitters immediately afterwards. The returns (or yield) on Spanish 10 year bonds, or IOUs, rose well above 7%.

What that means is that big investors were demanding a higher interest rate to compensate for the growing risk of lending their cash to Spain - even though the Greek result was probably what bond investors would regard as good news.

And the rate has been getting close to unsustainable levels, levels at which the country can't carry on borrowing for long.

Not much had changed in Spain over the previous few days. Yet the Greek outcome seemed to make things worse. Why?

Was it simply because eyes were temporarily averted by the distraction of an election elsewhere?

Or was it because dastardly speculators, profiting from pushing down the value of investments in wobbly countries, were shifting their sights from Greece to Spain?

It seems as though the real answer could be that there is a feeling of chaos, dislocation and deep pessimism amongst the investors and dealers who inhabit what we know as "the markets".

One expert in eurozone bonds just told me:

"This is a completely broken, dysfunctional market, experiencing bouts of panic. And there's a complete lack of confidence in the ability of eurozone leaders to shore it up."

For these operators Greece was a sideshow. In fact, Spain is also a sideshow. Italy is the horror that blocks their vision so much that, in financial terms, they can't see the other side of it.

The reason is that it would cost so much to rescue Spain, it's not clear how an Italian rescue could be paid for. So when they turned their binoculars to Spain after Greece, their hands start shaking again.

Think about it. There are four big countries in the eurozone: Germany, France, Italy and Spain. Can you have two of them on life support?

Hence, the worries about the survival of the euro persist. And, as we keep being told, damage to the euro has a knock-on effect on the UK.

It's what George Osborne and the Bank of England were scared of last week when they announced they would flood our banks with extra lending power.

Then many thought they were acting just in case Greece imploded. Now we know that emergency measures were probably going to be needed, whatever result came out of Athens.

78% get compensation cold calls

More than three quarters of people asked in a poll said they had received unsolicited texts or phone calls encouraging them to claim compensation.

That's despite the fact that 92% said they had no grounds for demanding a payout.

The finding underlines how claims companies are cashing in on two lucrative waves of compensation: the epidemic of whiplash claims against car insurers and the £9bn payout from banks which mis-sold Payment Protection Insurance or PPI.

Claims companies have been advertising widely, on TV and in the newspapers, but they have also been saturating mobile phone networks with messages and calls.

The Association of British Insurers commissioned the survey, asking 2,600 adults. Most of them backed a ban on the unsolicited messages.

Some useful help here from the Information Commissioner's Office.

Revenue condemns tax avoidance scheme

From Revenue and Customs on the K2 tax avoidance scheme highlighted in the Times - which Jimmy Carr allegedly used to shelter £3.3m:

Regarding the K2 scheme, all we can say is:

"This scheme (K2) was already under investigation by HMRC. If, as is alleged, it depends on the use of loans it will not work.  HMRC are looking into this. If the scheme does work technically, HMRC will challenge it in every way available to them. Government does not intend anyone, no matter who they are, to get away with paying less than they should."  

More generally, on tax avoidance, our comment is:

“HMRC is extremely effective at shutting down tax avoidance schemes fast and effectively. The avoidance “industry” has been seriously undermined by HMRC’s focus on tackling avoidance – preventing billions of pounds of tax being diverted from the Exchequer.

“In our 2010 spending review the Government made £917m available to us to tackle avoidance, evasion and fraud. This is being used to ensure a level playing field for all taxpayers.”

Sunday, 17 June 2012

Greece - take a deep breath

                                       "Headquarters! Should I be panicking?"

You'd be forgiven for feeling edgy about the Greek election after reading comments like this on Greece leaving the euro:

Economic armageddon
If Greece leaves the euro, Germany could be jolted into action and pursue fiscal unity in Europe, smothering any panic among other states. If the Germans don't act, it could lead to an economic armageddon.

The financial equivalent of the Cuban missile crisis
It's not clear who's going to blink at this point. My guess is that, in the end, there will be a bit of blinking on both sides. This is the financial equivalent of the Cuban Missile Crisis.
Niall Ferguson, Historian

Europe's Lehman moment
Many now fear that Europe is about to suffer its own “Lehman moment”. The Lehman bankruptcy, of course, precipitated the worst financial crisis in generation.  
Financial Times

Political turmoil, human hardship
Large numbers of pensioners and households will find their savings are wiped out directly or inflation erodes what they saved all their lives. The potential for political turmoil and human hardship is staggering. 

The cost is 37% of the eurozone's economy
The cost of Greece being ejected from the euro: Around €3.5tn - 37% of euro area GDP (equal to 135% of German GDP) .
European shares plunge 30% - back through their lows of 2009.
Aviva Investors

Who am I to say they're wrong?

But Armageddon is supposed to be a battle bringing on the end of the world, while the missile crisis carried a danger of nuclear war.

The Lehman collapse was a financial disaster, so maybe that's more apt - though the point then was that people were totally unprepared for what happened.

Let's take a deep breath: "Don't panic yet, Mr Mainwaring!"

Friday, 15 June 2012

Shameful scams on older people

The Insolvency Service is warning that it has closed down 78 companies in the last 3 years which were operating scams and specifically trying to target elderly people.

Some offered mobility equipment such as stair lifts, either not delivering the goods or overcharging. Others ripped off their victims over fine wines, fire alarms or worthless plots of land.

2,000 were affected, losing £28m. But it's quite obvious that this is just the tip of the iceberg. Trading standards officers around the country are dealing with more cases every day.

Older people and their families need to be on their guard, because in these tough times rogues may be even more tempted to try it on.

88 year-old May Bell was one of the victims, after a salesman came in to her home to flog her a stair lift.

She was left £1,800 out of pocket and trapped on the ground floor of her house, because the company didn't complete the installation.

Another victim described to me how the calls multiplied once he had had a brush with one of these con merchants.

He doesn't want to be named but he lost tens of thousands in a rip-off using gold coins.

Everything seemed to be going fine to start with - that's a hallmark of a lot of these operations. They string you along to gain trust.

After doing various successful deals, he sent off some valuable coins to be sold. Then - nothing. Until the police swooped on the perpetrators.

But new companies started to phone him with similar offers. Each one that gets shut down spawns several more masquerading under different names, as the fraudsters move on and spread out.

So once your loved one is a list, he or she will be contacted again by the same unsavoury characters, or by friends who have bought the list.

There is an even more sinister side.

Suspicious types will scour a neighbourhood, looking for tell tale signs which betray where an elderly or vulnerable person might live.

It might be that a mobility scooter has been left outside, or that there's a handrail on the porch. Or they just keep an eye out, watching who goes in and out and whether friends or family are around.

It's nasty, but it really happens. Some will leave marks on the wall to indicate whether the occupant has money and is easily conned. (Here are some more of the tricks they use.)

How can you deal with this? Don't accept sales calls by phone or at the door - say no. Do arrange to have someone you can call on for advice.

As for family and friends, it's our duty to check and keep checking and make sure that a vulnerable person knows how to contact us to ask for help and advice.

Here is some useful information from Age UKCitizens Advice, and the Financial Services Authority.

Here's £100bn - now do something

What are the chances for George Osborne's and the Bank of England's £100bn attempt to head off another credit crunch?

There's already worry about whether banks are capable of lending out the money successfully. There are two nuts to crack...

1. Business lending.

What Sir Mervyn King, the Bank's governor, calls the "black cloud of uncertainty" is discouraging banks from lending to firms they think might suffer in the economic crunch. And it is putting entrepreneurs off borrowing. Though some are desperate for loans, many want to pay money back and get bankers off their backs.

The Bank has indicated that High Streets banks would be indemnified against the extra loans going bad - i.e. firms failing to pay them back.

But it isn't clear how far the indemnity would go, so banks could still hold back from lending to the businesses that really need cash to grow.

There's also the worry that some of the loans they do give out will simply replace lending they would have made anyway. The Bank says it will police this risk very carefully. That'll be hard.

2. Mortgages.

The prospects here seem much rosier.

Already a new credit crunch is underway, after first Lloyds and then Santander began to rein back on lending. They're lending less in mortgages than they are getting in from mortgages being paid off.

There's definitely unsatisfied demand for mortgages, especially from first time buyers. Often they are being rebuffed as too risky, but overall what's holding banks and building societies back is that they can't raise the funds at a decent rate to hand out.

So cheap funds from the Bank of England could fill the gap and even boost total lending for housebuyng this year by a small percentage - so that the mortgage total would rise compared with last year rather than fall.

It wouldn't be a huge boost. Mortgage lending is running at just a third of pre-financial crisis levels. While we don't want to go back to the bubble years, a little blow into this limp balloon would help.


All of this could take time to happen: several weeks until the money starts being disbursed, then a three month turnaround (for mortgages) from application to completion.

So we are looking at the boost starting in the last quarter of the year.

Wednesday, 13 June 2012

Jobs after pension age

The number of people working on after they qualify for state pension has nearly doubled to 1.4 million over the last 18 years.

According to the Office for National Statistics, women are most likely to stay in work, usually in a part-time job.

12 per cent of older people now choose to work on, beyond 65 for men and for women beyond 61 as the female pension age starts to move up in line with men.

Often it's because of pressure to top up the state pension, but many simply choose to stay active and earning.

A large number are part-time or self-employed, though the share in full time work could grow now that employers have been forced to scrap compulsory retirement ages.

Women make up nearly two thirds of those working on, most frequently as cleaners, administration assistants, care workers and in shops.

Jobs topping their list for men are farming and driving taxis.

Tuesday, 12 June 2012

Are you a tax abuser?

The Treasury has announced that it will include Inheritance Tax in the taxes targeted by a new rule to clamp down on tax dodgers.

Inheritance Tax -- which raises £2.7bn a year -- will joint Income Tax, National Insurance, Corporation Tax, Stamp Duty and other levies in the scope of a new General Anti-Abuse Rule which will be brought into being next year.

So what will be an abuse? And will any attempt to reduce your tax bill be classed as aggressive and against the rules?

It's clear that taxpayers who have recognised tax-free investments, such as ISAs and pensions, won't be affected.

It seems that those who set up companies to receive their income and pay less tax will be in the clear as well.

What about people who don't pay income tax on the savings interest because they have offset mortgages?

Or employees who give up some of their salaries in exchange for pension contributions or childcare vouchers (so-called "salary sacrifice") - and hence pay less National Insurance?

At this stage the assumption has to be that most or all of these things will be fine, because the government is aiming its fire at well-off investors and businesses which use artificial tax-avoiding schemes.

The Treasury says the rule will be narrow and won't affect what it calls "the centre ground of tax planning".

But this is still a grey area and no one's quite sure yet what the definition of "tax abuse" is going to be.

Monday, 11 June 2012

Renters hit by council tax arrears

Families forced to rent rather than buy are falling behind on their council tax.

The debt advice charity, the Consumer Credit Counselling Service (CCCS), says it recorded a 27 per cent jump in England last year in people asking for help with council tax arrears.

It says much of rise has been fuelled by the worsening financial position of families renting their homes. For the first time more renters then homeowners contacted the charity with council tax problems.

The numbers calling CCCS for help increased from13,353 in 2010 to 16,958 in 2011 - despite the fact that many English councils have frozen council tax.

The average amount owed in council tax arrears has also increased, from £675 to £717.

Council tax is a priority debt to deal with because there's a danger or bankruptcy or bailiffs being called in, so here's some official advice.

Plus pointers from...

Saturday, 9 June 2012

Lend to an African entrepreneur

Peer-to-peer lenders like Zopa, Funding Circle and RateSetter are catching on because of the interest rates on offer.

(Just bear in mind, always, that there's no deposit protection as you get with banks.)

But Chris Shearlock from the Co-op has reminded me that the peer-to-peer model is also working to support people who are starting businesses in the developing world.

Lend With Care has managed to make 25,000 loans in its first year, helping entrepreneurs in Africa, East Asia and Eastern Europe with small loans.

You're not going to be taking part in this to make profits, but you can hope to get your money back while creating livelihoods and jobs.

There are others providing micro-loans, a fantastic charity near me, for instance, called Microloan Foundation, but the Lend With Care idea connects lenders directly with borrowers.

Please tell me about other comparable organisations which are doing this - it's worth giving them some publicity.

Milestone for new age lending

Peer-to-peer lenders, the ones who accept your money on a website and distribute it to a range of borrowers, have lent out over £250m.

That's up until the end of May. In fact their lending has probably topped £260m already, it's rising so fast.

I reckon the total has nearly doubled since this time last year, mainly because the interest rates paid to lenders appear very attractive.

The business is still very small compared to High Street banks.

But, as Andy Haldane from the Bank of England said recently, those big banks could eventually be replaced by peer-to-peer lenders.

That's if they don't start doing the same thing themselves.

Here's today's BBC Your Money with the peer-to-peer TV report.

Thursday, 7 June 2012

What is QE?

Quantitative Easing - what is it?

Maybe we need to remind ourselves, because the bank of England might do it again today.

It's a way of pumping money into the economy, to encourage more spending, investment and growth.

First the Bank pumped in £200bn, then another £75bn, then from last February another £50bn.

But how is it done?

Here's the Bank's explanation.

And here's mine from 3 years ago, when the Bank first did it.

If the Bank cuts rates...

It seems a long shot that the Bank of England would cut its base rate by 0.25% today, something the IMF suggested last month would be a helpful move. A reduction would leave the rate at a new record low of 0.25%.

But if it did, who would be affected?

Mortgage borrowers would feel the most immediate impact.

Around 2.5m households are likely to be on base rate trackers. That means their mortgage payments are tied to Bank base rate and go up or down as the rate moves.

In addition, at least a million are on a special form of Standard Variable Rate which would change. Their interest rates can't be more than 2% higher than base rate. Since they're at the maximum level already, a cut today would mean a cut in their payments.

So between 3.5m and 4m households could gain. A typical repayment mortgage of just over £110,000 would be £14.84 cheaper a month after a 0.25% reduction.

Other people on SVR would have to wait to see if they were affected, possibly not, while the large numbers on fixed rates wouldn't see any benefit.

What about savers? Their fear is that returns would dwindle even further.

Some banks would be likely to use a base rate cut as an excuse for lowering rates. However, the linkage is much less clear.

The current best savings rates of around 3% for an instant access account are kept up by desperation on the part of lenders to raise cash to lend out as mortgages.

Banks and building societies are cutting back lending because it's still tricky to raise the cash from international financial markets - savers are the only solid alternative.

In any case, those 3% accounts are only offered as a lure to bring in new deposits. The average interest rate is 0.22% for instant access savings at bank branches and 0.66% for tax-free cash ISAs.

Those paltry rates aren't likely to change much, even if the Bank tries to make money cheaper.