Finance Matters

Posts Tagged ‘Credit Crunch’

Fred Goodwin, the former chief executive of the Royal Bank of Scotland (RBS), has been stripped of his knighthood for his role in the bank’s collapse during the 2008 credit crunch.

The Queen formally approved the annulment of the honour yesterday, after it was decided Mr Goodwin’s award brought the honours system into disrepute.

The decision is unprecedented as honours have formerly only been withdrawn from people convicted of a crime.

Mr Goodwin was knighted in 2004 for services to banking but his actions during the banking crisis are believed to have contributed to the collapse of RBS.

The bank received £45bn of rescue-funding and is now more than 80% owned by the Government.

The Financial Services Authority and Treasury Select Committee believe the banks’ failure was a key factor in financial crisis and the subsequent recession in the UK.

Mr Goodwin oversaw the takeover of Dutch bank ABN Amro in a £49bn deal which took place at the onset of the credit crunch, exposing RBS’s weak balance sheet and precipitating its collapse.

When Mr Goodwin left the bank in November 2008 his £703,000-a-year pension deal, which included a £2.7m lump sum, led to public outrage.

In the event of a future banking crisis, Britain’s finance ministry will be able to take charge after new law reforming the regulation of the country’s financial system takes effect next year.

The legislation will disband the Financial Services Authority from 2013 and give the central bank the power to supervise banks and insurers.

In a speech following the publication of the draft law, Chancellor of the Exchequer George Osborne said: “When taxpayers’ money is at risk in a crisis this legislation gives the Chancellor (of the Exchequer) the power to direct the Bank of England to act.”

The cost of moving house is 69 per cent higher than it was in 2001, according to Lloyds TSB, with estate agency fees, mortgage fees and stamp duty responsible for most of the increase.

A typical house move cost nearly £9,000 in 2011, £3,632 more than it did a decade ago.

Some regions have experienced an even greater increase, with house moving costs rising by 132% to an average £16,637 in the South East.

The cost of moving house in London has increased by 127 per cent over the decade due to higher home values.

Londoners pay an average of £19,544 to move home, making it the most expensive part of the country.

Moving expenses are now at their highest level since 2007 when the housing market peaked prior to the credit crunch.

In contrast, the cost of moving for first-time buyers has fallen over the decade because they tend not to pay estate agents’ fees or stamp duty.

It cost first-time buyers an average of £3,334 to move house in 2011, 63% less than a decade ago.

However moving costs for first-time buyers will increase in March when the stamp duty holiday ends on properties valued between £125,000 and £250,000.

The study suggests that the high cost of moving house is particularly concerning given the downturn in the housing market.

The latest HSBC Moving Home Survey identifies a “generational divide” in the housing market.

Many younger people are unable to afford to buy their first home because of uncertainty over jobs and because lenders are demanding high mortgage deposits.

At the other end of the spectrum, many older home owners are unwilling to sell in the current climate.

According to the survey one in 10 Britons would consider moving home or buying their first home in the next six months.

House sales fell 1 per cent in 2011, with just 869,000 residential properties sold, according to HM Revenue and Customs (HMRC).

In January 2011, traditionally the weakest month for property transactions, just 45,000 houses were sold.

However, the market did improve at the end of the year, with 76,000 sold in December.

The property market has been in a slump for the last three years, with high inflation, high unemployment and stringent lending criteria making it impossible for many people to afford to buy their first home or move house.

Many first-time buyers are unable to raise the high deposits demanded by mortgage lenders, leaving them trapped in expensive rental properties.

Property sales in 2011 were around 50 per cent lower than they were in 2007, prior to the onset of the credit crunch and were nearing the record low level of 2009, when just 848,000 homes were sold.

The Council of Mortgage Lenders expects total lending to fall again in 2012, suggesting a further fall in house sales is likely.

Official figures released last week by the Department for Communities and Local Government (DCLG) revealed house prices fell by 0.3% in the year to November 2011.

The average UK house price ended the year at £205,796.

However, house prices increased by 0.7 per cent for first-time buyers and the price of new properties increased by 7.7% on average, compared with 2010.

The DCLG’s figures also indicated that the North/South divide in house prices is widening, with the North West experiencing the largest fall in property prices while the smallest was in the South East.

High inflation and rising unemployment are expected to lead to a substantial increase in home repossessions this year.

The Council of Mortgage Lenders expects a 22 per cent rise in repossessions in 2012 to 45,000.

This month’s official figures show that inflation has fallen from 4.8 per cent to 4.2 per cent but two new studies show that older age groups suffer the most from high inflation, and at 4.2 per cent it is still well above the government’s 2 per cent target.

Saga’s monthly Price Index shows that since the onset of the credit crunch in 2007, over-50s in the UK have experienced cumulative annual inflation of 20 per cent compared with around 15 per cent for the population as a whole.

Commenting on the latest inflation figures, Saga’s director general Ros Altmann commented that retail price inflation for the over 50s is still around 5.5 per cent, which is significantly higher that the nation’s average of 4.8 per cent.

Meanwhile, Alliance Trust’s monthly study of inflation rates also shows that older age groups are worst affected.

Although the Alliance Trust found that inflation rates slowed for all households over the month, the over-50s are suffering an inflation rate that is higher than the official rate of 4.2 per cent.

According to Alliance Trust’s figures, the inflation rate for people over 75 fell from 5.6 per cent in November to 5.1 per cent in December, and for the 65-74 age group inflation fell from 5.5 per cent in November to 5.0 per cent in December.

In comparison, inflation fell to 4.6 per cent for people between the ages of 30 and 49 in December.

Older age groups allocate a larger proportion of their income to energy costs and they were helped in December by a fall in gas price inflation from 25 per cent to 20 per cent, while electricity price inflation fell from 16 per cent to 14 per cent.

It is estimated that people over 75 allocate 9 per cent of their household spending to gas and electricity compared with 4 per cent allocated by people under the age of 30.

Older age groups also spend a greater proportion of their income on food and are therefore worst affected by food price inflation, which remained stable in December, at around 4 per cent.

Petrol price inflation fell from 13 per cent to 9 per cent in December, pushing down inflation for all age groups but particularly those aged between 50-65, the group allocating the largest proportion of their budget to petrol.

People who retire this year will be £3,000 worse off than those who retired four years ago because factors such as the credit crunch, the recession and the eurozone crisis have pushed down annuity rates to a record low.

Annuity rates fell by eight per cent in 2011, which was the fourth consecutive year of decline.

According to Prudential’s Class of 2012 study, the average retirement income has fallen to £15,500 a year, a decline of 16 per cent, or £3,100, since 2008 and more than £1,000 a year less than last year.

Even when private pensions, company pensions and the state pension are all taken into account, it is estimated that five million pensioners now have an income of £10,000 or less.

Fewer than two in five people expect to be financially comfortable in their retirement.

The Government’s quantitative easing programme, which was designed to boost the economy by using £75 billion of new electronically created money to purchase gilts, is believed to have been a major contributory factor to the fall in annuity rates which are based on gilt rates.

The quantitative easing programme pushed up the price of gilts but reduced the amount of annual income they pay out.

Prudential’s study suggests that pensioners in London will have the highest pension, of £17,900 a year, while people in Yorkshire and Humberside will have to survive on just £12,800.

Prudential spokesperson Vince Smith-Hughes commented that the current economic climate has created a “perfect storm” for people preparing to retire, with pensions falling while the cost of living rises.

Yesterday, the Pension Protection Fund reported that the combined deficit of private sector pension schemes in the UK increased to a record high last year.

At the end of December 2011 the collective deficit for the UK’s 6,500 private sector final salary schemes was £255.2 billion, compared with £222 billion in November.