Black Monday – Biggest stock market drop since 9/11

Fear that America was about to tip into recession yesterday wiped £77bn off the value of FTSE shares, the biggest one day plunge in London since the terrorist attacks of September 2001.  Speculation that booming economic powerhouse China could be infected by the sub-prime crisis helped to trigger a global sell-off which resumed again this morning.  Shares rebounded after the US Federal Reserve slashed interest rates by 0.75%, their biggest rate cut in living memory, in an attempt to pull the world’s biggest economy away from a recession.  The pain on the British High Street was further evident today when the shoe-shops chain Dolcis founded in 1863, went into administration with accountants KPMG now running the business.

House prices dropping by £120 a day

House prices are dropping around £120 a day with experts warning that the year ahead looks bleak.  Rightmove reported that prices have dropped by a total of nearly 5% since October, including a 0.8% decrease this month.  Asking prices have fallen by up to 40% on some properties in recent months, according to website Property Snake, which gives details of asking prices which have been slashed.  The price falls are hitting some parts of England more than others, with prices still rising in London and the North.  The biggest loser is the East Midlands with prices dropping 6.1% in January alone.  It is a cruel blow for anybody who recently stretched themselves to the limit to buy a home.

£25bn sweetener revealed for Northern Rock

Today’s detailed plans to rescue Northern Rock involves converting the £25bn of Bank of England loans into bonds that would be sold off to investors. The bonds would be available for up to five years after which any remaining debt would be written-off.  Critics point out that the scale of the rescue package is highly risky. In the event of a catastrophic downturn in the housing market, with Northern Rock mortgage holders defaulting on their debts, the taxpayer would be left seriously out of pocket.  With this new deal, potential purchasers of Northern Rock will no longer be responsible for paying back the loan and will have until February 4 to make a renewed bid to the government.  In return for taxpayer support, the government will receive a percentage of the new owner’s profits.  If the government was unable to secure a sale, then nationalisation would become necessary.

Harsh new powers to target tax dodgers

A new legislation which came quietly into effect in December, gives HM Revenue & Customs (HMRC) additional powers of search, seizure and arrest for unpaid tax, as well as the ability to force banks, lawyers and accountants to hand over information in relation to perceived serious tax fraud.  As the HMRC is currently advertising for Criminal Investigation Officers in London, Nottingham, Leeds, Manchester and Birmingham, it seems that these new powers will be put into use very soon.  Last year, about 45,000 people with bank accounts in tax havens such as the Cayman Islands, Jersey and the Isle of Man coughed up by the November 26 deadline offer by HMRC. Under this partial amnesty they paid their overdue taxes and fines capped at 10%, rather than the usual penalty of between 30% and 100%, and the possibility of a criminal conviction.  Those who have undisclosed taxes should seek financial advice or risk the possibility of hefty tax bills.

Is falling house price such a big deal?

The one question which nobody seems to ask is – does it matter if house prices fall? If you don’t need to move home and can meet your mortgage repayment commitments, the value of your home, in the short term at least, is immaterial. Even if you have to move house, if the value of your own property has fallen by 10% then the likelihood is that the property you want to buy will have fallen by a similar proportion. For homeowners trading up, falling house prices are a positive advantage.  Ultimately, lower house prices will make homes more affordable and bring larger numbers of first-time buyers into the market, many of whom have been priced out.  It is also a time when experienced investors look to buy at the right price.  When house prices go up, people have the confidence to spend (home improvements, furnishings etc), which keeps the economy going.  Falling house prices however, make them much more reluctant to do this.

Rate of house price falls not seen since 1992

House prices are falling as quickly today as they did in the crash of the early nineties and only further cuts in interest rates will avoid a property meltdown, according to the Royal Institution of Chartered Surveyors (RICS).  Its statistics show that nearly two-thirds of surveyors saw prices falling in December and virtually none say they are rising.  The crunch has hit almost every part of England and Wales, while the West Midlands is suffering its fastest fall in history.  However, the RICS says market conditions are better than before the 1990s crash.  The coming months will be of great importance and many would-be-buyers (as well as homeowners on tracker rates) will be watching the Bank of England’s interest rate decisions while lenders remain reluctant to part with finance.

Barclays boss lost out to fraudsters

A fraudster posing as chairman of Barclays (Marcus Agius), tricked his own bank’s credit card arm into issuing a new card before taking £10,000 cash from his account.  The new card was wrongly issued after a caller gave card operator Barclaycard some of Agius’s personal details, but staff also failed to follow security guidelines in asking for more information.  Like any customer, the chairman later had the money refunded to his account.  For the past few months, officials have been blamed for several high-profile losses of personal data held by the government, most notably the loss of two discs containing personal details of 25 million Britons; more than a third of the population.  Read Martin Lewis’ article on how to protect yourself, what to look out for and what to do if you think your ID has already been stolen.

Lenders raise deposits on buying homes

Eleven mortgage lenders have reduced the amount of money they will lend to home-buyers by cutting their maximum loan-to-value (LTV) on at least some of their products.  Some have stopped offering 100% mortgages, while others including Newcastle Building Society, will now only offer such loans when the borrower has a guarantor.  Meanwhile, others including Alliance & Leicester have cut the maximum amount they will lend to 90% of a property’s value instead of the usual 95% on at least some products so far.  The big lenders like Halifax, Abbey and Nationwide continue to offer 95% loans but the interest rates they charge may move higher as competition diminishes.

Bank charges court case opens

The court case into unauthorised bank overdraft charges began today. The Office of Fair Trading has brought the test case to determine whether the penalties, which can cost customers up to £39 a time for exceeding their borrowing limits and for bounced direct debits and cheques, are legal and fair.  If the High Court judge agrees with the OFT, this should open the floodgates for compensation on a large scale for victims of unauthorised overdraft charges.  On the flip side, the banks may start to charge all customers for everyday banking, for example by levying a monthly fee, to recoup their lost income.

London & the South East – boom predicted

Studies carried out show that most investors regard London and the South East as potential boom areas over the next 12 months.  Improved transport links, wealth, foreign buyers, the introduction of Crossrail, the expansion of the east London railway and regeneration across the area will all prove beneficial in the longer-term.  The imbalance of supply and demand will also encourage growth for 2008, however these two regions have historically been the top UK property performers, often regardless of the overall national house price trend.