Here in the UK, the CBI upgraded its forecasts for Britain’s economic prospects, predicting the UK would emerge from recession by the end of this month, giving some credence to the Prime Minister’s G20 statement. The business group expects growth of 0.3% this quarter, rising to 0.4% in the final three months, reflecting a sharp rise in confidence. However, there do appear to be some risks to the fragile recovery, according to the Society of Motor Manufacturers, who have called on the government to extend its ‘cash for bangers’ £300m scheme which is close to ending. The scheme has given UK car production a huge boost – halving the previous year-on-year drop of 56.5% - but it seems that production fell back again last month raising concerns that recovery could falter. Car makers have cut jobs and shifts as sales have slumped and last week it emerged that the proposed sale of GM’s Vauxhall arm to a foreign consortium could now lead to 1,200 job cuts at Vauxhall plants in Britain.
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( 2.8 / 152 )As of 1st April 2010 any existing business, with a net turnover of more than £100k, or any business registering for VAT after that date MUST file online and make electronic payments (www.hmrc.gov.uk/carter/compulsory-deadlines.htm#3)
This is going to increase the pressure on those paper driven old school accounting businesses and I believe that this pushes us all forward towards paperless operating which can only be good.
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( 3 / 124 )Recent data has suggested that the UK has begun to climb out of recession, and we have seen this in rates for Consultants and new Small Businesses entering the market more readily.
UK house prices rose for the fourth month in a row during August, the Nationwide has said, climbing by 1.6%...is it therefore the time to think of buying again before they get out of reach?
According to the Nationwide, the average price of a home is now £160,224, up from £158,871 in July.
While prices are still lower than last year, the annual rate of decline in property values slowed sharply to 2.7%, compared with July's 6.2% fall.
The Nationwide said a key factor in lifting prices was "the exceptionally low level of interest rates".
Rates have been kept on hold at 0.50% by the Bank of England since March.
Let's hope that rates stay as they are for now so that the general consumer can continue to reduce personal debt and enjoy a reasonable lifestyle for the rest of 2009.
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( 2.9 / 137 )It has become a topic of debate again and it is hard to nail down the best way to deal with distributions.
I have been discussing this with our clients again and have noted that there are many different opinions on this so here is my view on this:
Weekly or monthly dividends look and feel like salary and in the event HMRC were to review a business and they look at the bank statements in line with revenue withdrawals then this would look like salary!
Quarterly dividends tend to fall in line with a Small Business method of income and expenditure and this would therefore look more reasonable should HMRC look at the flow and pattern of business distribution.
This subject is always hard to comment on as business owners will always take the stance that suits them best and many accountants will try and advise using the line of least resistance.
If anyone needs any further advice please post a comment and I will try and steer as best I can
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( 3 / 122 )Banks and building societies are posting record profit margins on mortgages, loans and overdraft interest rates, hitting consumers at a time they can afford it the least.
Last figures from the Bank of England shows that profit margins on mortgages have soared over the past two years, despite the official interest rate falling from 5.75% to just 0.5% - the lowest level ever.
Five-year fixed deals are now at their highest mark this year, while the margin on two-year deals has increased more than ten-fold from 0.32% in July 2007 to 3.39% today.
Mortgages are not the only type of loan where the margin over the base rate has risen. Overdraft rates have increased from an average of 17.73% in July 2007 to 18.97% in the same month this year - the highest level since records began. The margin on this type of lending, meanwhile, has soared from 11.98% two years ago to 18.47%.
Loans too now cost an average of 13.1%, the most expensive since 2004, while credit card rates have increased from an average of 15.22% (giving a margin over the Bank of England base rate of 9.47%) to 15.87% - a shocking 15.37% margin over base.
Meanwhile, savings rates have taken a battering from the historically-low base rate. The average instant access account paid just 0.15% in July this year, down from 2.52% in 2007.
Date Base Rate Two-year fixed mortgage* Margin over base rate Instant access savings account**
July 2007 5.75% 6.07% 0.32% 2.52%
July 2008 5% 6.35% 1.35% 2.24%
July 2009 0.5% 4.46% 3.39% 0.15%
* Monthly interest rate of the average two-year fixed-rate mortgage up to 75% LTV
** Monthly interest rate of the average instant access deposits Source: Bank of England
The base rate, which is set by the Bank of England's Monetary Policy Committee each month, has fallen from 5.75% in July 2007 to just 0.5% today. The central bank says this monetary policy is designed to control inflation and help struggling borrowers and businesses weather the recession.
With house prices crumbling and confidence in property hitting a wall, the move also aims to underpin the housing market.
However, taking the average loan rates at face value, it looks as though banks and building societies are raking in the profits from loans such as mortgages, despite the record-low base rate.
Rip-off banks or sign of the times?
So, is this a sign that banks and building societies are taking advantage of the credit crunch and charging consumers more during a time when money is tight? Or is this just a sign of the times?
Brian Mairs, spokesman for the British Bankers' Association, says the perception that base rate forms the basis for lending is inaccurate. “No one is going to be able to borrow money at 0.5%,” he adds.
David Hollingworth, a mortgage expert at London & Country, agrees, and points out that there is not a direct correlation between the base rate and mortgage rates. This is because mortgage lenders mainly use swap rates – the cost of funding from the wholesale markets (the rate at which banks lend to each other) – to price their fixed-rate loans.
According to Ray Boulger, senior technical manager at John Charcol, the key factor influencing swap rates is what the money markets think the Bank of England base rate will do in the short to medium term. Over the past few months, swap rates for two-year loans have fluctuated between 1.9% and 2.3%, an indication that the markets believe the base rate will rise over that time.
Although the cost of wholesale mortgage funding is higher than the base rate, Hollingworth still believes that many lenders have increased their margins over the past two years, with most looking to take a bigger profit from the loans they issue.
“In 2007, there was no margin in lending, and the sheer amount of competition meant there wasn't a lot of money to be made from mortgages,” he explains. “With wholesale funding for mortgages drying up over the past few years, it's natural that banks are seeking more profit from the loans they do issue. This isn't about greed – it's more about the fact that demand for mortgages continues to outstrip supply.”
In addition, the recession means banks have to be more careful with the money they have. “The state of the economy means money is scarce, and the money that is available is expensive,” says Mairs. “For banks, there is also a higher risk that borrowers will default on loans during a recession, therefore they need to price their loans to reflect these factors.”
It also comes down to banks and building societies wanting to limit the amount of business they receive from borrowers. Lenders that price their mortgages too competitively in the current market, risk receiving a surge of interest that they simply can't cope with, says Boulger.
The problem with comparing the market today with the market two years ago is that neither situation is right. “We shouldn't see 2007 as a yardstick for a ‘normal' mortgage market,” says Mairs. “The years before the credit crunch hit were an era of cheap credit, and this was not sustainable.”
Hollingworth agrees that there is little point in looking backwards: “We certainly shouldn't expect things to go back to the way they were pre-credit crunch.”
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