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At midday the Bank of England’s Monetary Policy Committee announced it had reduced the Base Rate by a quarter point from 5.75% to 5.50%, just as had been expected.

The more important questions are, “When will the next cut be?” and “Will rate cuts do much good to save the housing market and the wider economy?”

Commenting before the announcement Mark Stephens, of independent economic think tank in:specie™, said, “A 25 basis point cut is in the bag. Actually, they should cut by 50 but they won’t. That would smack of desperation. It was fear of being perceived as panicky that meant they didn’t cut in November and fear of the same will prevent them from acting decisively now”.

And that is the point. Plod-and-pause tends to be the mentality. A rate move here and then wait and see. When action and decisiveness is needed, the response is often procrastination and pontification.

If the goal is to fight inflation, and that is real inflation and not the discredited CPI variety, then rate cuts shouldn’t be happening. However, given what happened in August and September, Central Bankers seem to have given up on projecting the illusion of being inflation fighters. The job is to save a bloated economy, overly indebted and founded on speculation, from imploding. Or at least try to delay the day of reckoning a little longer.

If saving the economy is what is intended, postponing the retribution due for years of profligacy and wanton excess, then action needs to be taken. Unfortunately that action will require more than rate cuts, even if those rate cuts came in a timely fashion.

Governments may pump newly created money into the economy by creating fake jobs or squandering limited resources on pet projects and cash handouts to keep the voters placated. But the real volume of money in the system isn’t money at all it is credit. And that credit is created out of thin air by the banks. At the moment the banks don’t want to lend to each other, let alone the man in the street.

So for now Central Bankers cut rates. In recent days Australia has frozen rates and Canada has cut. Other countries are now looking to cut as the global credit contraction, particularly focussed on Western economies, continues to bite. On December 11th the U.S. FOMC is expected to cut rates by a quarter point.

Lowering rates, means a weaker currency. A weaker currency means higher price inflation as the cost of imported goods increases. Just what you need when the economy is faltering.

“Overindebtedness by both consumers and Governments, the U.S and the U.K being the most blatant examples, means that declining asset values combined with a credit contraction could lead to a deflationary depression”, said Stephen Rose director at Debt Advice Bureau™.

“It is possible that the multi-decade Debt Supercycle is at an end”, added Rose. “If that is the case then cutting rates won’t provide much comfort, even if there is a false dawn as people perceive a few months of respite”.

“If this is a Credit Crunch, all well and good”, continued Rose. “Another year or so, and things will begin to pick up. Credit markets will sort themselves out and confidence will tentatively begin to return”.

“If it is a Credit Revulsion, which it is starting to look like it is, then the impact is going to be a lot worse and last a lot longer than anyone thinks”, Rose concluded.

And that is the point. Credit Revulsions are rare but the effects are long lasting. Think the Great Depression. Think Japan, which has been suffering serial recessions for almost two decades. What happened between 1989 and 1995 in the UK was a mild little credit revulsion, no more than an appetiser. This time we may be presented with the main course.

For now it is difficult to get a clear picture as events continue to unfold. The only thing that appears to be certain is that it is all hands to the pump. If the Government and the Bank of England what to avoid the economy descending into the abyss then they have to do something about it, and that something needs to be more radical and more proactive than what they are doing now. It has certainly got to be more than the occasional, belated cut in the Base Rate.

The unfolding events in the credit markets are only the beginning of considerably leaner times ahead. What started with the Bear Stearns Hedge Funds in February of this year, is destined to infect the entire economy.

Whilst the exact catlayst for the overdue economic downturn was always in debate, rising inflation, HIPs and Gordon Brown becomning PM being some of the possibles, the economy’s cards had been marked for some time.

In “Sell Now! Why You Don’t Want to be a Homeowner”, published about a year ago, we included a long range chart showing RPI-adjusted GDP going back to the 70s. It was christened the GDP “Wedge of Doom” as it both showed a large wedge formation, which had lasted over 30 years, and a noticeable decline in aggregate GDP growth which promised tough economic times ahead.

Updating the chart with the most recent GDP figures, released last week by the ONS, provides an even clearer picture of the declines ahead.

The wedge can easily be seen, as can how the GDP growth rate broke below the trend line at the end of 2004 and kept declining through Q3 of 2005.

You can also see how in Q1 and Q3 of 2006 GDP growth came up against the underside of the old support (lower green) line and bounced off it. In the investment world it is common knowledge that “old support becomes new resistance and old resistance becomes new support”. In this case, the old support has become new resistance. That is bad as it signals a stifling of GDP growth for many years to come.

If we reduce the time frame to 1993-onwards, we can get further confirmation of a recession with another chart.

As you can see above, for 12 years the GDP growth rate moved within a range of about 1.4% to 4.3%. Then in Q3 2005 it broke through the floor, when RPI-adjusted annual GDP growth fell to just below 0.9%.

When it bounced back it peaked at 2.94% in Q3 2006, which provided the upper green (resistance) line for the trend. GDP growth declined again, then bounced back to a lower high of 2.57% in Q2 2007 before falling away again in the third quarter. This confirms the downtrend within the new channel.

The red arrow is an indication of where the RPI-adjusted GDP growth rate is heading.

What we have are two different charts, each with their own patterns. In both cases both patterns have been broken to the downside. In both cases there has been confirmation that the old patterns are out and the new ones, which promise tough times for the economy, are now in control.

So, how are things going to play out?

A recession based on RPI-adjusted GDP starting in 2008 is a given. Starting Q3 or Q4 is my view. Though RPI-adjusted GDP could turn negative as early as Q2 2008.

How long it lasts is another question. Given how dependent the economy is on rising house prices and consumer spending, as opposed to actually making stuff and exporting it, I can see GDP growth being negative to Q1 2010.

More charts and further analysis can be found at http://inspecie.co.uk/

And finally.

Over the next couple of weeks I will be preparing a research report with more details on the recession expected to start in 2008 and the others expected between now and 2020. If you want a copy, please use the comment box below. Provide your details as normal and enter “Recession Report” in the comment box itself. It will be filtered out and you will be contacted when the report is published.

Both Psychologies magazine and Radio 4 have contacted us because they are looking for people for thier upcoming features.

If you would like to be involved you shoud contact them direct, and as soon as you can as both features are time sensitive.

Psychologies Magazine

Psychologies magazine are running a feature called ‘Can money buy happiness?’ for the May issue. This is a regular section of the magazine where we ask a range of experts and real people to discuss a hot topic. The emphasis is on how it affects us as individuals and our psychology.

They are looking for a woman aged 26+, an ex-student who is still in a lot of debt from her student days. The person will need to be prepared to talk openly about her financial situation and how she feels about money.

She would need to be available for a shoot in London on either Wed. 28th February or Thu. 29th February. The magazine will pay their travel to and from London and she will get her hair and makeup done, and lovely pictures. They are also prepared to plug anything they want.

If interested you should phone Sarah LeBoff on 020 7150 7298 ASAP as the deadline is quite tight.

Radio 4

Radio 4 are making a programme called ‘Between Ourselves’ which brings together in conversation two people who have a shared experience. They are planning to make a programme with two people who have experienced bankruptcy and are looking for potential guests.

It will be a half hour programme in which they will go into some detail, so the people they are looking for would have to be extremely articulate, with a real degree of insight into their situation.

They are willing to pay a fee, around £100, for the chosen guest(s).

If interested contact the producer, Karen Gregor, by emailing karen[dot]gregor[at]bbc[dot]co[dot]uk with your name and contact details.

UPDATE:

Deadline has now been passed. So participants are no longer required.

That is the reaction to the prediction by lettingfocus.com that half of all properties will be buy-to-let or second homes by 2026.

“This is more peak of bubble nonsense”, said Debt Advice Bureau director Stephen Rose, dismissing the prediction as “rubbish”.

“The only way it can happen”, continued Rose, “is if there is a dramatic decline in homeownership, resulting in millions of people who used to be homeowners becoming tenants once more. Then, theoretically, 50% of properties could be non-main residence properties”. Meaning that they are being let out or are second homes.

However, a massive drop in the number of properties owned by owner-occupiers would mean dramatically lower prices, not the higher ones which such a prediction would hope to foreshadow.

Unfortunately, the continuing rise in property prices is not being supported by underlying fundamentals. The reality is:

1. The growth in mortgages has been in a steady downtrend since the last price peak in 1989. Not supportive of long-term growth.

2. Repossessions have been increasing since they bottomed in the first half of 2004. Promising an increasing supply of discount properties becoming available.

3. Lending criteria for buy-to-let have dramatically weakened. This has enabled properties to be purchased with levels of deposit unacceptable just a couple of years ago, multiplying the leverage and risk for purchasers at the same time.

4. Numerous first-timers, with no landlord experience, have rushed to jump on the bandwagon. Many buying flats in city centre developments, resulting in empty flats as supply exceeds rental demand.

5. Speculative BTL and off-plan properties are being sold on the basis of capital gains, whilst the negative yield is disregarded. Never an advisable strategy and a sure sign of a market topping as property peddlars try to justify unjustifiable prices.

Whilst the prediction may make an interesting headline, it would be better to take it as a contrarian signal. More proof of the hysteria usually found in the end days of a large speculative bubble. Whether that bubble revolves around how rare a particular tulip bulb is, how earnings don’t apply to dotcom companies or how property always goes up in price.

A growing number of bankrupts are being targeted for Bankruptcy Restrictions Orders (BROs) as Official Receivers pursue those bankrupts who are believed to have acted in bad faith and contributed to their bankruptcy, according to figures released today.

Anyone thinking they can rack up loads of debt and use bankruptcy as an easy way to walk away form their responsibilities needs to think again. “The screw is tightening on those who have been guilty of misconduct”, said Desmond Flynn, Inspector General and Agency Chief Executive of the Insolvency Service.

In the six months to September 2005, 165 people have been made subject to BROs or Bankruptcy Restrictions Undertakings (BRUs) for periods ranging from 2 to 11 years. In addition, the Secretary of State has issued directions to take proceedings against another 313 bankrupts and Official Receivers are working on submitting reports on a further 600.

The most common allegations made in support of applications are:

• Contributing to the bankruptcy by gambling or extravagance;
• Incurring debts with no reasonable prospect of being able to meet the liability incurred;
• Entering into transactions to prefer friends or relatives ahead of other creditors or at a value less than the true value.

BROs and BRUs were introduced on 1st April 2004 in England and Wales, the same time the length of bankruptcy as reduced from up to 3 years to a maximum of 12 months, as a way of dealing with those bankrupts who were considered to be blameworthy, dishonest or culpable in their conduct leading up to bankruptcy.

BROs or BRUs subject bankrupts to bankruptcy restrictions for between 2 and 15 years and, as with bankruptcy, all BROs and BRUs are recorded on the Individual Insolvency Register, which can be accessed online and searched by anyone.

But BROs are only one way to ensure that bankruptcy is not an easy way to avoid paying back one’s debts. Income Payments Orders mean that whilst a bankrupt may be discharged from bankruptcy after one year, they can still be liable to make contributions from their income for three years.

Just because you’ve been discharged doesn’t mean you stop paying. “If bankrupts can pay towards their debts, they will pay”, said Mr. Flynn.

Bankruptcy is not a get-out-of-debt-free card. Bad faith bankrupts you have been warned.

Article copyright © Clientsmart Limited. Reproduced with Permission.

19,687 mortgage repossession orders were issued in England and Wales in the three months ending September, a massive 66% increase on the same quarter last year, according to figures released by the Department for Constitutional Affairs.

The figure is the highest since the third quarter of 1993, back in the dark days of the property recession and is far removed from the low of 9,616 experienced in the first quarter of 2003, just 30 months earlier.

The number of possession orders being issued has been increasing since the early part of 2004 and the trend is expected to continue with the expectation that the 25,000-orders-issued mark could be breached by the end of March 2006.

Don’t Panic Just Yet

Things may be getting worse, but it is not necessarily as dire as the figures initially suggest.

The number of possession orders does not reflect the number of properties that will end up being repossessed. It is more common for lenders and borrowers to come to an agreement over the outstanding debt rather than events end in the property being repossessed. It is also not uncommon for a property to have more than one possession order issued against.

There is no denying that it is an escalating problem. Actual repossessions for the first 6 months of 2005 totalled 4,640, according to figures released by the Council of Mortgage Lenders, up from 3,070 in the preceding six months.

Whilst these figures emphasise that the majority of repossession orders do not translate into actual repossessions, it does highlight the growing number of people with repayment problems. The CML anticipates the total number of repossessions for 2005 will be more than 10,000, still far removed from the 70,000 a year witnessed during the height of the property recession of the early 1990s.

Talk to Your Lender

The difference between the number of possession orders issued and actual repossessions also highlights how important it is to talk your lender as soon as you find you can’t make the mortgage payments.

“If you are having problems making your repayments it is imperative your get in touch with your lender immediately”, says Stephen Rose director of the not-for-profit Debt Advice Bureau™. “Don’t bury your head in the sand in the misguided hope that things will sort themselves out. If the lender doesn’t know what is happening, they are more likely to take you to court”.

“The sooner you talk to your lender, the sooner you can come to an arrangement. One which you can afford and which ensures you don’t have to worry about nasty letters arriving in the post”.

Barclaycard is testing a new credit card with a flexible interest rate, Repayment Rewards, designed specifically to encourage customers to repay their debts faster. It does so by lowering the interest rate the more of the debt you repay each month.

The interest rate charged reduces the greater the proportion you pay off, meaning those who are constructively making efforts to get debt free can do so even faster.

In the current trial, those customers repaying at least 10% of their balance are charged a 9.9% interest rate, but paying just the minimum 2.5% payment will mean you receive a 16.9% interest rate. Those paying between 5% and 10% of the balance incur a 12.9% rate.

The key premise to the card is that both borrower and lender are responsible for ensuring that the debt is managed responsibly.

“Credit – used sensibly – can help us manage our finances and live the way we want to”, said Keith Coulter, Managing Director UK Consumer Cards and Loans. “Repayment Rewards is about finding new ways to help customers while encouraging a responsible approach to their borrowing. “

Repayment Rewards is the second card this year from Barclaycard designed with encouraging more sensible borrowing behaviour from consumers. Barclaycard Combinations, launched earlier this year, combines a credit card with a loan facility.

Nice Idea, Shame about the Rate

Reaction to the new concept has been mixed. Some, like Nick White of uSwitch.com, see it as a constructive way to incentivise people to repay more of their debt each month. “Over the past few years we have seen credit card minimum payment requirements get smaller and smaller, and paying off just the minimum amount means that it can take consumers years and years to clear their card debts.

Others see the card as complicated and gimmicky, pointing out there are plenty of credit cards out their offering limited-life 0% rates on balance transfers and purchases and special low-for-life deals on balance transfers.

A valid point in theory, but it misses the fact that not everyone qualifies for every deal. Not everyone has a stunning credit history, all sparkly and clean. Not everyone has a large and impressive credit score. And not everybody manages their finances the way they should or even has the motivation to extricate themselves form debt as quickly as possibly. If they did the nation’s debt would not now total more than £1.1 trillion.

Different cards do different things for different people. And for people, circumstances change, needs change and, often as not, credit worthiness changes.

Sure there are better deals. In deed, Barclaycard’s own Barclaycard Simplicity offers a flat rate of 6.9 per cent on all purchases and balance transfers. At the other end of the scale, the Barclaycard Initial card is for those who need to build up their credit history. But a better deal is only a better deal when you can actually get it.

Since most of the really stellar credit card deals are only available to those with high credit scores and a pristine credit history, it will be seen as something of a positive that Barclaycard Repayment Rewards will be “aimed at a wider target audience”.

Time will Tell

Whatever the opinion on the interest rates, Barclaycard should be given props for even trialing such a card.

After years of credit card companies cutting back the required monthly minimum repayment, Barclaycard have done a 180 on this approach and come up with something that they hope will get those with rolling balances repaying those balances faster.

If the history of financial products is anything to go by, it just needs a small take up and other lenders will be offering similar deals. After all, Barclaycard Combinations, the credit card and loan facility combo, is already being emulated.

More players will mean more competition and better rates. Should that happen, rates could drop by 4 or 5 percentage points, leaving those paying at least 10% off their balances each month perhaps facing an interest rate of just 4.9% on balances and new purchases. Which would appealing to an awful lot of borrowers.

Credit card companies are looking at ways to tackle the “Rate Tarts”. To address the costs of astute customers who flit from deal to deal, staying only long enough to reap the rewards.

Transaction fees for balance transfers to 0% deals are one way card issuers have addressed this. Low lifetime rates, typically 4.9% or 5.9% APR, are another solution to the constant migration. Could the concept behind Barclaycard’s Repayment Rewards card be another? Time will tell.

At midday the Bank of England’s Monetary Policy Committee (MPC) announced the widely anticipated cut in the base rate when it reduced it by 25 basis points to 4.50 percent from 4.75 percent, the rate it has stood at since August 2004. However, the cut is not expected to be the first in a series of aggressive cuts.

Much expected by lenders, savers and economists alike, the cut, which is the first since July 2003 when rates fell to 3.50 percent, has come as concerns over the continuing recession in manufacturing grow and in an attempt to moderate uncertainty over consumer weakness, despite a recent uptick in consumer spending.

But the MPC are not expected to be in any rush to cut rates again. With the headline rate of inflation, on a 12-month basis, at the 2.0 percent target in June, many economists feel that the base rate may only need to fall to 4.00 percent before the rate cuts stop.

The MPC decision came at the 100th meeting of the committee since it became independent. Seen as an insurance cut, designed to assist the weak parts of the economy, it is expected that the MPC will be keeping a close eye on all the key data, including consumer debt and spending.

But borrowers should not see today’s reduction in rates as an opening of the rate-cutting flood gates. In fact, many commentators believe the next cut may not come until 2006.

For those with loans and mortgages at fixed rates, the cut will make no difference. But for those with tracker and other variable rate mortgages the 0.25 percentage point cut means a saving of nearly £21 a month on a £100,000 interest only mortgage.

“If the cut means you have a little bit more money in your pocket because you are paying less interest, that is great news”, said Stephen Rose, director at Debt Advice Bureau™. “Lower rates provide borrowers with the opportunity to pay more off their underlying debt each month and so get debt free faster”.

That is good advice as the MPC waits for more data on the economy. If the economy does deteriorate and money gets tighter, you’ll be glad if you have less debt. If the economy improves and rates stabilise, you’ll be glad you owe less as your interest charges will be less.

Whatever happens with the economy and whatever decisions the MPC make, there is one constant . . . owe less and you’ll pay less interest

There is a variety of information held on your credit report from a variety of sources. If any of it is wrong, it could affect your ability to get credit.

Here’s how to correct the information held on your report.

The Electoral Roll

If you have registered to vote and your credit file does not show this, please contact the credit reference agencies listed at the bottom of this article and they will investigate the matter. If you have not registered to vote, you may want to contact your local authority about filling in an electoral registration form.

If you move home you can tell your local authority who will tell credit reference agencies about your change of registration in the course of the year.

County Court Judgements

If you believe a county court judgement has been recorded incorrectly, you should contact the county court, quoting the case number included on your file. If the judgement was recorded incorrectly the county court will alter their records. Credit reference agencies are told about any such changes within four weeks, but if you give them original court documents, in the form of a Certificate of Satisfaction or Cancellation, they may be able to change their sooner if necessary.

If you have paid a Scottish Decree, you should send Registry Trust (address below) a receipt or a letter from your creditor (known as the pursuer) to confirm your payment.

If you write to Registry Trust Ltd questioning the accuracy of a judgement recorded on your file, asking for an entry to be changed, you should send a cheque for £4.50 to cover their search fee. They will then tell the credit reference agencies about any change to your file.

For judgements made in Northern Ireland, if you provide documents from a plaintiff to confirm a payment, the agencies will change their records. If you have any questions about the accuracy of a judgement recorded on your file, contact the court concerned.

Registry Trust Limited, 173-175 Cleveland Street, London, W1P 5PE

Bankruptcies

If a bankruptcy order against you is annulled (cancelled) or discharged (that is, you have met all terms), you should send a copy of the Annulment Certificate or Order of Discharge to the credit reference agencies. They will then update their records. If your bankruptcy has been annulled they should completely remove any record of it from your file. If your bankruptcy has been discharged a record of it will be kept on your file but it will show that it has been discharged.

Voluntary Arrangements

If you have any questions about a record of a voluntary arrangement you should contact the supervisor who dealt with your case. If you send documents from the supervisor to confirm that the information on your file needs to be changed, the agencies will change their records.

Credit Accounts

After carefully studying the credit account details (credit cards, loans, mortgages, etc.) on your file, if you believe any information needs to be changed you should write to the lender concerned and ask them to give the correct information to the credit reference agencies.

Searches

Credit reference agencies will delete searches only when they are instructed to do so by the company who searched your file. If you are concerned about the accuracy of a record of a search, you should contact the company which carried out that search.

Linked Addresses

Links between your previous addresses, or any addresses you may use for correspondence, may be listed on your credit file. The link will only be broken when the reference agencies are asked to do so by the organisation that created the link.

CIFAS

If you have any questions about a CIFAS record, write to the organisation concerned. If you disagree with that organisation over the information on your file, ask the organisation for details of the scheme for settling disputes.

Financial associations (shared financial responsibility)

If a financial association is shown, and you do not share a financial responsibility with the other person, or if that financial association no longer exists, you should write to the credit reference agencies. They will investigate the matter and make any necessary change to your file.

Aliases

If any names are shown on your credit report that you have never used, you should contact the company listed as providing the other name, or write to the credit reference agency and they will investigate the matter and make any necessary changes to your file.

Information About Other People

If you share no financial responsibility with any other person mentioned on your file you can ask the agencies to ‘create a disassociation’. This breaks any connection between your information and theirs and so makes sure their information is removed from your file, and that your information is removed from theirs. To do this you must give the agencies your, and the other person’s, full name and date of birth, details of your relationship and any shared addresses.

You can view your personal credit information, that lenders are currently basing their credit decisions on, by applying online for a credit report from Experian, the UK’s largest credit reference agency.

If you apply now, you will also receive a 30-day free trial to the CreditExpert Monitoring Service from Experian.

Being declined for a loan, overdraft, credit card or mobile phone can be frustrating, particularly when all the lender will tell you is that you have failed their credit score and nothing else.

Whilst each lender will ultimately score applications based on the services they offer and their own criteria, there are a number of factors which will impact your credit score and could lead to your application being accepted or declined. Knowing what those criteria are can help you improve your ability to get the credit you want.

These are the Six Top Credit Score Killers . . .

1. Not on the Electoral Roll

If you are not on the electoral roll at the address on the application there is a high probability of rejection.

2. Bad Credit History

Past credit history usually counts for 35% of your credit score. It is not just having County Court Judgements (CCJs) or defaults on your credit report that has a negative impact. Missed and late payments will also dent your score. But whilst negative entries will stay on your credit file for 6 years, the impact of missed and late payments diminishes over time. If you have been making payments on time for at least the last 12 months those negative entries will begin to influence your score less.

3. At Current Address Less Than 3 Years

Lenders like continuity. A score will be higher if you have been at the same address for 3 years or more. There may be some impact if you have had two addresses in the last 3 years, but probably less if you are a homeowner.

Multiple addresses in the last 3 years will have the greatest impact. Likewise, your credit score may be effected if you have been at your current address for less than 6 months. This means that tenants are most likely to fall foul of this scoring criterion.

4. New Job

As with residency, when it comes to employment continuity is also paramount. Ideally, lenders are looking for someone who has had the same job for a number of years. Such applicants will benefit from the maximum score for this.

Having had two employers in 3 years need not be that detrimental. Changing jobs so as to get more pay will usually not cause any problems, though you really want to have been in your new job for a few months before applying for new credit. Remember, lenders often ask to see the last couple of months pay slips when applying for a loan.

Since continuous employment is what they like to see, having 3 or more jobs in the last 3 years will adversely effect your credit score. As will having had bouts of unemployment between jobs.

5. No or New Bank Account

Lenders will award maximum points if you have been with your bank for a number of years. Having only recently opened your current account will reduce the score. Not having a bank or current account will be most detrimental to your credit score.

6. Too Many Credit Applications

Every time you submit a credit application a search is made and recorded on your credit file. This is called a hard footprint. Multiple credit applications in a short space of time will negatively impact your credit score. Such applications may be perceived as indicative of someone desperately trying to obtain credit.

It is commonly believed that making one credit application every month or two should not have too much impact on your credit file.

However, if you have recently made a number of applications and been declined, it is advisable not to make any new applications for at least six months so as to give a good breathing space before applying again. It also gives you time to review your credit file and determine if there is anything on there which shouldn’t be.

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