Financial Review

Watchdog eyes up overdraft rates
Banks are to be investigated for charging some current account customers more for their overdrafts than it would cost to take out a payday loan. The industry watchdog, the Financial Conduct Authority, has said that customers who go into the red are often hit with “very high, complex and opaque charges”. It says past efforts to curb these have not been successful.

Customers owe £8 billion in overdrafts to banks and building societies, and 15% of those with an overdraft are permanently or usually overdrawn. The charge by one High Street bank for an unauthorised overdraft is £100 for going £100 into the red for a month, equal to an annual percentage rate of 1,200%. But it would cost just £37 to borrow £100 from the often criticised payday lender, Wonga, over the same period.

Foreign aid target leads to £100m per day spending spree
Ministers spent almost £100 million a day on foreign aid last December in a frantic bid to hit David Cameron’s controversial spending target, a report claimed. The House of Commons International Development Committee says vast sums appear to have been “rushed out at the end of the year”‘ to meet the target of spending 0.7% of Britain’s total income on foreign aid.

The committee says it is astonishing that the Department for International Development spent a quarter of its total budget in one month and calls on ministers to show that the spending was rational and cost-effective.

The report says that too much was spent on ‘middle income’ countries such as Nigeria, Pakistan and India. MPs also warned that Britain is shouldering too much of the burden of cleaning up global humanitarian disasters. Britain’s spending on Syria, for example, has hit £600 million, compared with just £10 million spent by France.

The UK’s foreign aid spend at 0.7% is now more than double the G8 average. The US spends 0.19% of its total income on foreign aid, for France it is 0.45% and Italy is at just 0.13%.

Sports cars bring a speedy return
When the Government announced a freeing-up of pensions there were warnings that pensioners would splash their cash on sports cars and end up dependent on the state. However it now seems that if you buy the right car it can be a good investment – but it has to be a classic.

The top-25 most sought-after classic cars have out-performed the FTSE index and even gold since 2009. Getting the right car, however, does not come cheap, and for every winner there are lots of potential losers. Top of the list are super cars such as Ferrari, Porsche and Lamborghini, but more humble classics such as the Lotus Cortina are also on the list. Typical value increases since 2009 are 150% to 180% plus. With a value today of £60,000 for a pristine example, the traditional white with a green stripe Lotus Cortina outperformed them all at 200%, because it is an ‘affordable’ classic.

Grim news could be coming your way
As letters go it is unlikely to be one to brighten your morning. Everyone approaching retirement will soon be told when they are expected to die, ministers have said.

Life expectancy is measured by linking factors such as smoking, eating habits and socio-economic background. Figures from the Office for National Statistics have revealed a growing life expectancy gap between the North and South. Life expectancy at age 65 was highest for men in Harrow, where they could expect to live for a further 20.9 years compared with only 14.9 years for men in Glasgow City.

For women at age 65, life expectancy was highest in Camden (23.8 years) and again lowest in Glasgow (18.3 years). Average male life expectancy in the UK is now 78.9 years. The coast of Dorset is the longevity capital of Britain, with girls born in the Purbeck area expected to live to 86.6 years. The neighbouring district of East Dorset has the highest male life expectancy at 82.9 years.

Millions of families have no safety net
Almost four million families are just one pay cheque away from losing their home, the charity Shelter has claimed. It said 44% of working families, equivalent to 3.8m households across the country, would only be able to keep rent or mortgage payments up for a month if they became unemployed and could not immediately find work.

Within that total, YouGov, which carried out the research, found 29% of families faced the threat of immediate eviction because they had no savings at all. Shelter’s findings were projected from research among more than 7,000 adults, of which over 4,500 pay a rent or mortgage.

Interest rates may rise next year
Interest rates are expected to rise sharply next year, experts have predicted, as official figures heralded the end of the squeeze on wages. A Treasury survey of City economists found that all now expected rates to rise, with some predicting them to more than triple to 1.75%.

Higher rates could provide respite to millions of pensioners who have seen the value of their savings shrink, due to the impact of inflation and rock-bottom returns. However, it will leave many families paying significantly more on mortgages and debt repayments. Wages rose by 1.7% this February while inflation fell for the sixth month in succession, to 1.6%.

Greece offers cars as a tax incentive
In a scheme to encourage people to declare and pay tax in Greece, authorities are entering those doing so into a lottery to win a super car. What is on offer are Ferraris, Lamborghinis and Porsches taken from tax defaulters.

Such is the stockpile of vehicles that this is a weekly lottery, and if the winner can’t afford the fuel they can sell the car and keep the proceeds. Authorities say this is a better approach than simply letting the seized vehicles rust away.

Borrowing against houses is on the up
A record amount of cash was borrowed against the value of homes through so-called ‘lifetime mortgages’ in the first three months of 2014. Most borrowers were pensioners looking to tap into the value of their home to raise their retirement income, clear debts or fund home improvements. Experts say increasing numbers are using equity release to clear outstanding interest-only mortgage debt and even to help children or grandchildren with their own home deposits.

Figures show that £316 million was taken out in equity release loans between January and March, the largest amount for that time of year since Equity Release Council records began in 2007.

Higher rate income tax net traps 4.4m
The number of people paying the 40 pence tax rate has risen by almost 400% in 30 years.This year 4.4 million will pay higher-rate income tax compared with just 930,000 in 1984.

More than a million people have been dragged into the tax band since the coalition Government took power. This has been blamed on its policy of lowering the threshold at which people start paying the higher rate, to pay for an increase in the basic personal allowance to help those on low incomes.

The Chancellor, George Osborne, did increase the threshold in this year’s Budget, but by just 1%, which is below the rate of inflation. The latest changes mean the income at which people pay the higher tax rate has fallen from £43,875 at the time of the last election to £41,865 today. The threshold would have been almost £50,000 if it had kept pace with the Retail Prices Index measure of inflation since 2010.

Insurance Premiums see surprise fall
The cost of household insurance policies dropped at the start of the year, despite insurers facing a huge bill from flooding damage. The average household premium was 5.5% lower in the first three months of the year compared with the first quarter of 2013, research by the British Insurance Brokers’ Association (BIBA) found. It has described the household insurance market as very competitive and said premiums had been low for some time.

The research, by BIBA and IT firm Acturis, also suggested that the average motor insurance policy was down 5.5% in the first quarter of this year compared with a year earlier.

Buy-to-let outshines other investments
Buy-to-let investments have outperformed all mainstream investments over the past 18 years, with annual returns of more than 16%, according to a study. This investigated how much £1,000 would be worth now if it was invested in various asset classes in the final three months of 1996, the year buy-to-let mortgages were first introduced.

Every £1,000 invested in an average buy-to-let property bought with a 75% loan-to-value mortgage was worth £13,048 in the final quarter of 2013, a compound annual return of 16.3%.

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