I published a post on this topic yesterday, on my site Get Back To The Black. Here’s a LINK.
Fifteen years ago, after half a lifetime (well, thirty years) of being an owner-occupier, I became a renter again.
I’d bought my first property in my late twenties; a modern flat in Brooklands, just south of Manchester and conveniently close to Sale Rugby Club, where I played rugby and squash in the lower echelons.
It was much easier to get on the housing ladder then, compared with the problems faced by today’s younger generation. So one took it for granted that was the best thing to do.
(By the way, that rugby club, which then boasted three members of the England team, has moved since. Sadly, I don’t recall their having consulted me on the matter.)
Many years later, as you’ll know if you’ve read my book “Back to the Black”, I encountered a severe financial problem due to the failure of my business. Becoming a renter again was part of the solution.
As it happened, I found that there were more advantages than I’d expected; but at the time I didn’t think that this was what anybody approaching retirement age would do from choice.
So I was quite surprised to read an article in the November 2013 issue of Moneywise, with the headline “Retirement Renters.” The subheading read “Retirees are increasingly turning to renting rather than owning their homes …”
The article made some good points, though I don’t agree with it totally. It’s available in full online – see below for a link (it’s not behind a paywall, for which fact they get my vote), so I am sure that the magazine and the journalist Zoe Dare Hall will not mind my quoting extensively from it. Here’s my edited version, with my own comments in CAPS.
How to rent in retirement
by Zoe Dare Hall
Retirees are increasingly turning to renting rather than owning their homes.
If life goes to plan, you spend your active years scaling the property ladder. Then, in retirement, you sell up, rent, and enjoy the proceeds.
“IF LIFE GOES TO PLAN … YOU SELL UP …” – I’M NOT SURE I AGREE WITH THAT. MOST PEOPLE I KNOW TRY TO PAY OFF THEIR MORTGAGES BY THE TIME THEY RETIRE, SO THEY CAN CUT THEIR COSTS BY LIVING MORTGAGE-FREE.
SOME USE EQUITY RELEASE TO FREE UP CASH, BUT THAT’S ANOTHER MATTER.
THE IDEA OF SELLING UP AND THEN RENTING, THOUGH IT HAS ADVANTAGES WHICH ARE DISCUSSED HERE, SEEMS RELATIVELY NEW TO ME.
Given the trend of house price increases – Halifax records a 30% rise in the past decade – and the fact property accounts for 40% of our individual wealth, more people are becoming renters in retirement.
It is not always through choice, however, according to Prudential, whose recent report into the matter finds one in seven people will retire with no pension. Of the one in four retirees who rents their home, almost half of them (42%) were previously property owners. Their main reasons for selling up were to pay off debts, finance divorces, boost retirement income or help their children.
DON’T GET THE LOGIC OF THIS TOTALLY. RENTING TO BOOST RETIREMENT INCOME (OR TO HELP YOUR CHILDREN) ASSUMES YOU CAN EARN MORE INCOME FROM INVESTING THE PROCEEDS OF YOUR HOUSE SALE THAN YOU’LL PAY IN RENT. AND IT’S A CHOICE, DESPITE WHAT THE ARTICLE (OR THE PRUDENTIAL) SAYS.
However, for people choosing to rent in retirement, there are many benefits. Average rents tend to keep up with real incomes as opposed to inflation, so if history repeats itself, this can keep your housing costs down.
THERE ARE INDEED BENEFITS BUT I DON’T SEE THIS AS ONE. HISTORY ALSO TELLS US RENTS CAN GO THE OTHER WAY.
You can also avoid the burden of maintaining your property. Landlords are typically responsible for repairs and maintenance and over a 10-year period that can amount to anything between £10,000 and £20,000.
AGREED: THAT WAS A MAJOR BENEFIT FOR ME, ESPECIALLY AS I RENT A VICTORIAN PROPERTY. GIVEN THE POOR CONSTRUCTION QUALITY OF SO MANY BRITISH HOUSES, PASSING THE MAINTENANCE RESPONSIBILITY TO A LANDLORD COULD BE AN ATTRACTION FOR MANY.
The other benefit of renting is flexibility. Typically, tenancy agreements in the private rental sector have a minimum six-month break clause. Some canny retirees stay in the UK for the summer months and then rent abroad during the winter, saving the hassle and risk of owning a property abroad.
OK, PROVIDED YOU ARE ORGANISED ENOUGH TO MOVE SOME OR ALL OF YOUR EFFECTS INTO STORE FOR THE MONTHS YOU ARE AWAY.
There are, of course, certain downsides to renting, too – unwelcome in your advanced years. Landlords can decide to sell up or increase the rent unexpectedly, subject to the contract, and some fail to maintain the property adequately. Additionally, if you fall ill and end up in hospital, you will still need to pay your rent.
ALL GOOD POINTS.
Financially, selling up may not always put you in the strongest position either, as research shows renting typically requires more funds than owning. Prudential suggest retirees pay an average rent of £423 a month, whereas – purely in terms of their home loans, not including maintenance costs – homeowners pay £257 a month.
IF THOSE NUMBERS ARE TYPICAL, THAT CONTRADICTS THE CENTRAL IDEA OF SELLING UP TO BOOST RETIREMENT INCOME.
That said, renting can be a way to boost your pension pot, acquire flexibility of tenure and remove the responsibility of maintaining a home.
THE ARTICLE ALSO INCLUDED THE FOLLOWING SECTIONS:
“Ways to rent in retirement.”
“What to watch out for.”
“The cost of renting.”
THEY ARE WELL WORTH A READ, IF YOU FEEL THAT RENTING IN RETIREMENT IS AN OPTION THAT MIGHT SUIT YOU.
SEE BELOW FOR LINK.
I’VE PICKED JUST TWO ITEMS FROM THOSE SECTIONS; HERE THEY ARE WITH MY COMMENTS.
1. “Purpose-built retirement developments.”
… A NEWISH TREND IN THE UK, THOUGH COMMON IN THE STATES, BUT WORTH LOOKING AT IN MORE DETAIL FOR OLDER PEOPLE.
ESTHER RANTZEN WRITES IN PRAISE OF THIS IDEA IN THE SAME ISSUE OF MONEYWISE.
2. “Apart from in Scotland, where it is illegal to charge tenants any fees to rent a property, you may have to pay
- Application/referencing fees (up to several hundred pounds). SEE BELOW!
- Deposit (normally four to six weeks’ rent). NO PROBLEM THERE. THAT’S TO BE EXPECTED.
- Inventory (from £50 to £150). This may or may not be included in the application fee.”
DON’T GET ME STARTED ON AGENTS CHARGING TENANTS!
THE LETTINGS AGENT’S CLIENT IS THE LANDLORD, NOT THE TENANT. SO HOW IS IT THAT THE AGENT CAN CHARGE FEES (APPLICATION FEES AND INVENTORY FEES) TO BOTH PARTIES?
SURELY AN AGENT CANNOT REPRESENT BOTH PARTIES TO A TRANSACTION. IT IS A CONFLICT OF INTEREST AT BEST, A RIP-OFF AT WORST.
CLEARLY THE SCOTS HAVE A MORE LOGICAL APPROACH.
AND HERE’S THE JOURNALIST’S CLOSING SENTENCE:
“…a final word of advice: Make sure you consult a property inheritance tax expert before you sell up.””
WANT TO KNOW MORE?
For a copy of “How to rent in retirement”, click HERE.
For info about my book “Back to the Black”, click HERE.
According to the Financial Ombudsman Service (FOS), even higher earners are falling foul of payday lenders nowadays.
Martin James of the FOS – quoted by Holly Thomas in the Sunday Times on 2 June – said that “in some cases, lenders (that’s both payday lenders and mortgage providers – Ed.) were found to be unsympathetic with borrowers on higher earnings, assuming they were not in financial difficulty because of the high value of their homes. Many asset-rich people are cash-poor.”
In cases of payday lenders “assuming they were not in financial difficulty”, that sounds like a good excuse. But I don’t imagine too many people would seek funds from a payday lender unless they were in financial difficulty, even if it were only a temporary cashflow problem. And the lenders must know that.
Holly Thomas’s article continues with advice from a variety of impartial experts on how to clear debts:
- Don’t prolong the situation.
- Consider downsizing your home if it’s feasible. (That of course assumes you can sell in today’s market.)
- Ask your lender to vary the terms of the loan; e.g. to extend a mortgage term, or even switching to interest-only. (but the latter only for a period – Ed.)
- Negotiate a debt management plan with the help of one of the free advice services. (National Debtline, Citizens Advice or StepChange)
WANT TO KNOW MORE?
For the full Sunday Times article (but note there is a paywall), click HERE.
This week I read in the papers that there’s a risk of increased repossessions in the UK, as mortgage costs are predicted to rise next month. Several lenders have already announced rate increases and others will probably follow.
Obviously mortgage is a priority debt and any arrears need to be sorted as soon as possible. In “Back to the Black” I felt I could do no better than quote what Citizens Advice say on the subject.
DEALING WITH PRIORITY DEBTS: mortgage arrears (source: Citizens Advice: see below for link)
If you are in mortgage arrears then your first priority must be to find a way to clear them. If not, your lender can take legal action to have you evicted.
However, if the lender knows that you are making a serious effort to sort out your debts, they might allow you more time. Once more, the key is early communication: don’t sweep the problem under the mat.
Reducing your costs
There are several options for cutting down your mortgage costs. Depending on the type of mortgage, you might be able to:
- switch from repayment to interest-only mortgage
- increase the term
- reduce your monthly interest payments
- shop around for a cheaper deal with another lender. However, you may have to pay charges for the switch and you’ll still have to pay off the arrears.
Sadly, none of these is entirely pain-free. Solving the short-term problem could either involve fees, in the case of changing lender, or it could increase your interest payments long-term. Consult an independent financial adviser first if you are thinking of taking any of these steps and, once again, consult the lender. They may be able to help; but only if you get in touch with them.
Paying off arrears
Before you do discuss paying off the arrears, you should first work out your discretionary income; see elsewhere in this book for how to do that.
You will also need to decide how to pay off those arrears. You may have several options for doing this:
- pay extra towards the arrears each month on top of your regular payments
- have the arrears added to your capital and paid back over the remaining term; this will, of course, increase your overall interest costs
- give up your endowment policy, if you still have one, or sell it to an investor, and use the lump sum towards your arrears; however, you will need to find another way to pay off the capital and you might also need to find alternative life insurance cover, so consult a financial adviser first.
Dealing with your lender
Once you have worked out a way of dealing with your mortgage arrears, write to your lender and set out your offer. It should be one which you can keep to and it should clear the arrears within the period of the mortgage. Include a financial statement showing how you have worked out the offer. If the lender resists at first, stress that an affordable offer is in both of your interests, because you are more likely to keep to it.
You should start to make regular payments against the arrears, even small ones. Even if your lender doesn’t accept the offer, it may help your case if you are ever taken to court.
If you haven’t been able to reach agreement on how to pay off your arrears, they will probably take you to court and try and get possession. However, the good news (if there is any good news in all this) is that, before they take you to court, they have to follow a fixed procedure called a protocol. This involves their taking a number of steps, such as discussing the reason for the arrears with you and giving you notice that they will start legal action if you have broken a payment agreement.
If you do go to court, the judge may allow you to stay in your property as long as you keep to an agreement to pay. The judge will take into account whether the mortgage lender followed the protocol. If you are in this situation, get help from an adviser.
If you can’t pay your arrears
If you aren’t able to clear your arrears, a court will probably give your lender permission to evict you from your home and your lender will sell the property. If they don’t make enough from the sale to cover the money you owe on your mortgage, you will have to pay the difference, which is called a shortfall.
If you can’t find any other way of clearing your arrears, it might be better to try and sell the property yourself, rather than wait to get evicted and let your mortgage lender sell it. This is because they are likely to get a lot less for it than you would, leaving you with a debt to pay. Properties which have been repossessed often sell for a lot less. Also, lenders often sell at auctions where sale prices tend to be lower.
Selling the property yourself and downsizing, or renting for a period, would give you a lump sum which you could use to pay off your mortgage; if you have enough left over, you may even be able to use it to pay off other debts.
Another option you may want to think about is a mortgage rescue scheme. These schemes are also known as buy back, sale and rent back or a sale and lease back scheme. These are schemes which offer to buy your property and rent it back to you. However, be very careful about signing up to a mortgage rescue scheme run by a private company. Not all these schemes are trustworthy and some companies will buy at below the market value. Schemes run by local authorities or housing associations are generally better, but there aren’t many of these.
Don’t be tempted to just leave the property and hand back the keys to your mortgage lender unless you’ve sold the property or there is a court order to evict you. You won’t gain anything because you will still be responsible for mortgage payments and buildings insurance until the property is sold, and will still have to make up any shortfall if the sale doesn’t make enough to cover what you owe.
If your lender asks you to give up the keys, you don’t have to do so unless they have a court order.
NOTE: This section on mortgage arrears has been based on an extract from the Citizens Advice organisation’s “Adviceguide” website. Readers who are in mortgage arrears should check that site for any changes to protocols.
WANT TO KNOW MORE?
Citizens Advice “adviceguide” website: LINK
I appear to be stalking Simon Read of The Independent. If so, that’s because payday loans are again in the news and this is a story and a cause he has taken up and because he writes well on the subject.
The latest twist in the story: research by Shelter (a UK housing charity) reveals around seven million people are turning to credit to try to keep a roof over their heads.
A million use payday loans to cover rent or mortgage
In the past year alone, almost one in seven of those – i.e. just under one million people – have resorted to payday (i.e. emergency) loans to cover rent or mortgage payments.
The Independent has warned that payday lenders are cashing in on the struggles of millions who are unable to borrow from mainstream lenders and those companies charge interest rates of up to 5,000 per cent.
The impressive Campbell Robb, CEO of Shelter, said that this “… shows the extent to which millions of households across the country are desperately struggling to keep their home.
“Turning to short-term payday loans to help pay for the cost of housing is totally unsustainable. It can quickly lead to debts snowballing out of control and to eviction or repossession and ultimately homelessness.”
What’s the alternative?
I cannot disagree with anything that’s been said above. It’s a sad state of affairs and I’ve no doubt payday loan companies in general are cashing in on the misery, despite what was said by the boss of Wonga to Simon Read and which I reported in an earlier post. There have been calls for these firms to be outlawed. But for the people who feel they have no alternative, what will they do if that happens?
Anyone in debt crisis who consults an adviser at one of the debt charities – such Citizens Advice or National Debtline or CCCS, here in the UK – would probably be told to avoid payday loans. But I wonder how many of the million people mentioned in Shelter’s report have actually talked to such an adviser.
I know that these resources are stretched; and as the charities reply to some extent on grants from the public sector, they may well become even more stretched because of spending cutbacks.
Need for financial advice
I don’t know the full answer – and of course it’ll be different in every case – but wider access to free, impartial and high-quality financial advice must be part of it. What’s more, financial education has to have a higher priority than it does now.
WANT TO KNOW MORE?
For the Simon Read article (4 Jan) click here:
For information about my book “Back to the Black”, click here:
I heard recently about what seems an excellent source of independent advice for anyone with mortgage payment problems. My informant in this case was that much-hyped, but also much-maligned, social networking and microblogging service: Twitter.
Twitter the time-waster?
Many people (including many of my friends) are scornful of Twitter, calling it nothing more than a self-indulgent waste of time and / or a gossip-mill. I used to be one of them.
However, now that I use Twitter more-or-less regularly, I find it worth the effort of keeping up with the sure, there is some rubbish on there. But if I see that one of the people I “follow” tells me nothing more interesting than where they went for coffee or what movie they planned to see tonight, then I hit that useful button called “unfollow”. For those of you who find themselves swamped with “too much information” but who have never found the “unfollow” button, that’ll be because it is not obvious. If you are following sometone who flooding your timeline with dross, find their profile and you’ll see a large green icon with a tick, and the word “following”. Simply hover your cursor over that icon and the green changes to red amnd the word “unfollow” appears. Simply click and hey presto, that person is now an ex-followee.
Twitter the information goldmine?
On the positive side, and I do like to be positive, the amount of useful stuff I have first heard about on Twitter has been massive.
Many (but by no means all) of the people I follow are financial journalists or related experts. Some of them are household names and they appear regularly on TV talking about the national economic situation, such as Paul Mason; some write for the newspapers; some are independent advisers.
YouGov guide for hard-pressed mortgage-holders
One of these very journalists recently recommended on his Twitter feed a very useful guide for hard-pressed mortgage-holders. It is published by those helpful people at YouGov (i.e. the government). So I think you’d have to agree it is free of commercial bias.
I have to admit that I can’t remember who recommended this guide, otherwise I’d give him or her a credit. And as it was a week or so back, trawling through my Twitter feed to find this particular recommendation would take too long. Moreover it would keep me from an important task; switching on the TV at 2 pm to watch Shane Williams’ last international rugby match:Walesv.Australiaat the Millennium Stadium. Bound to be an emotional occasion; however the famously competitive Australians are unlikely to cooperate by making it easy for him to cap his career with (yet another) try.
PS: the result went against Wales, in the event. As a keen supporter of that country’s rugby, I have to admit that the scoreline flattered them slightly, because the aforementioned and surely legendary Shane Williams skipped out of a tackle and ran in for a try in the final minute (in fact the 81st) of his final match for Wales. You couldn’t have scripted it better and from the crowd’s reaction you’d have thought that Wales had won the World Cup at that moment.
Citizens Advice Guide
Finally: I would suggest that this YouGov guide should be read in conjunction with the excellent information and personal advice available from Citizens Advice (the CAB).
WANT TO KNOW MORE?
For “Mortgages and repossessions: a YouGov guide”, go to:
Struggling with your mortgage payments? Put together a simple action plan to help you keep your home
What you can do if you are facing repossession to make sure you keep your home
Where to get advice about managing housing costs and how your lender may be able to help you manage your mortgage payments
What to do if your lender takes action to repossess your home, and how repossession can be postponed
Make sure you attend your court hearing and find out how to get free legal help on the day
This scheme may help if you are having difficulties making mortgage repayments and are in danger of becoming homeless
For Citizens Advice (CAB) AdviceGuide:
There’s been some Twitter traffic lately about student debt, including some tweets just yesterday.
Firstly, this from @CashQuestions (Annie Shaw):
“There’s some sort of bullsh*t doing rounds that student debt shdn’t count if u apply for a mortgage. It counts when u come to pay tho – doh”
That was, I think, a response to this tweet from @little_mavis (Mary Wombat) (and retweeted by @CashQuestions):
“I hate the ‘student loan debt isn’t really debt’ or ‘a different sort of debt’. A DEBT IS A BLOODY DEBT. YOU OWE SOMEONE MONEY.”
“Yeah but no but”
So … are student loans are a different sort of debt?
No, absolutely not, in that you owe someone money.
However, yes, in that the debt does not fall due unless and until your income goes above a certain level. In that way it becomes more like a tax.
If you had a bank loan, the bank would not say “OK, that debt is not due; you don’t have to pay me because you don’t have a job – or you have a low-paying job – right now.”
In that way a student loan is better than other kinds of debt, as far as the debtor is concerned.
Effect of bankruptcy
However, if the worst comes to the worst and someone goes bankrupt who still has student loan debt: in that case, the student loan is different too. In my book “Back to the Black: how to become debt-free and stay that way”, I say this:
When you are bankrupt you do not, in general, make payments to your creditors; they make a claim to your trustee instead. There are, however, a few exceptions, payment for which you remain responsible. For example:
- secured creditors (e.g. any mortgage you may have)
- “non-provable” debts (e.g. court fines and maintenance arrears under divorce settlements)
- student loans.
Repay or delay?
Here is another interesting issue around student loans. As Martin Lewis says (30.08.2011) on his excellent “Moneysaving Expert” site, student loan is (relatively) cheap debt; therefore should you repay it faster than you’re required to (if you’ve got spare cash) or is it better to save?
The answer depends, of course, on your situation, so the site has a calculator to help answer the question.
WANT TO KNOW MORE?
The MoneySavingExpert site and calculator: click HERE:
“Back to the Black”: eBook on managing debt
To sample for free, or purchase (£0.70 / $0.99), my debt advice book:
- “Back to the Black: how to become debt-free and stay that way” is available in the Kindle store. Click HERE:
- It’s also available in all e-formats, including .pdf, at Smashwords. Click HERE:
Today I read a great piece from Simon Read of the Independent, calling for the wider availability of financial advice. I posted a comment as follows:
Great piece! More strength to your pen! I absolutely support your call for wider availability of quality financial advice; ten years ago I narrowly avoided personal bankruptcy and found a better solution with the help of two excellent advisers at the local CAB; but not everyone is as lucky and I know what the queues are like at the CAB in Bristol.
Have RTed your tweet.
I too quoted Mr Micawber in a book about my debt experiences (“Back to the Black: how to become debt-free and stay that way”). The version of Micawber I used was worded slightly differently from yours, in that mine was income / expenditure, ending: “Annual income twenty pounds, annual expenditure twenty pounds, ought and six, result misery.”
The debt-to-income comparison you mention is interesting. I found some alarming debt / income ratios in the Times a year or so back, which I interpreted in my book as follows:
As Credit Action’s website succinctly puts it: “Individuals owe more than what the whole country produces in a year.”
The trend of increasing personal indebtedness, a by-product of our consumer culture, certainly contributed to the financial crisis.
In early 2010, a typical UK household containing one wage-earner on average pay has, according to the Halifax (a division of the Bank of Scotland plc), outstanding mortgage debt that’s equivalent to 507% of income (i.e. of the ONS figure for average annual income). By way of comparison, the UK Government’s ratio of debt to income – a ratio that was widely castigated as unsustainable during the election campaign of spring 2010 – was “only” 170%. (“Worried about national debt? Mr & Mrs Average are in a far worse state”: Ian King, Deputy Business Editor, The Times, 19 Feb 2010) Go figure, as my American friends might say.
Most personal debt is of course, at least in the UK, secured mortgage debt: levels of home ownership have traditionally been higher here than in most other European countries. It has always been considered that mortgage debt is safe debt; that was true for as long as the housing market continued its customary rise but at times of recession in the housing market …. Etc, etc
One could also add the risk of rate increases leading to a rise in the numbers of mortgages in arrears, repossession or forbearance … a number that’s already high, as you mention.
WANT TO KNOW MORE?
To see Simon Read’s original piece (The Independent, 16 July 2011): http://www.independent.co.uk/money/spend-save/simon-read-rising-poverty-worries-means-advice-is-crucial-2314442.html
To sample or purchase (£0.70 / $0.99) my eBook on managing debt:
- “Back to the Black: how to become debt-free and stay that way”, can be sampled (first 20% free) or bought as a multi-format eBook, at Smashwords: http://www.smashwords.com/books/view/22886
- It is also in the Kindle store, where only the first 10% is free (Amazon’s rules, not mine). Here’s a link: http://www.amazon.com/dp/B004PLMAQM
A BBC investigation has found that some debt management companies have been holding on to clients’ cash rather than paying it to creditors, The practice has left many debtors thousands of pounds worse off and facing financial ruin.
If a firm goes out of business and client funds have not been kept in a protected account, some or all of the money is likely to be lost and the debtor becomes liable for the shortfall.
The Office of Fair Trading (OFT) has condemned the practice as “totally unacceptable” and has promised a crackdown.
One couple mentioned in the report had to put their house on the market and could face repossession, after responding to a cold-call from a debt management company and taking out a Debt Management Plan or DMP.
That company, Global Debt Solutions, based in Bolton, offered to arrange a repayment plan for £40,000 of credit card debt and loans. However, after having made payments to Global Debt Solutions for several months, the couple found the money was not being handed over to creditors.
Those creditors have successfully taken the couple to court, so they now have County Court Judgements against them. They’ll also have to go to court on their mortgage, so their debt problems have got far worse instead of being solved. It could soon be at a point where they’ll lose their home.
A widespread practice?
Global Debt Solutions, later known as 3 Step Finance, has been shut down by the Insolvency Service, which found that it did not monitor payments properly.
However, it has emerged that other companies have adopted the same tactic of accepting money from people in debt and not passing it on to creditors.
A debtor taking out a DMP with a company using this tactic runs a real risk that the company might fail while the funds are in its account.
David Fisher from the Office of Fair Trading is promising action. “We regard the practice as unacceptable,” he warns. “Where we have evidence we will remove a company’s consumer credit licence, which means it cannot operate.
“We will also next month (i.e. June 2011) be issuing stronger rules for the entire sector, which explain what we expect of them.”
That is welcome news but sadly it is already too late for those debtors who are already dealing, or will soon be dealing, with a repossession order for their home.
Conclusion: take impartial advice
I conclude by saying what I always say: before making any important financial decision – including taking out a Debt Management Plan with a commercial company – take advantage of the free and impartial debt advice which is available these days. I stress the word “impartial”, because some advice is advertised as free but is not impartial, i.e. the organisation has a commercial motive for advising a certain course of action.
The advice you’ll get from the three major national charities working in this field – Citizens Advice, National Debtline and Consumer Credit Counselling Services – is indeed both free and impartial.
There are also many similar (i.e. “not-for-profit”) organisations that operate at a local level but check out carefully that they indeed “not-for-profit” before taking their advice. You can also refer to the Resources section of my book “Back to the Black: how to become debt-free and stay that way”; there you’ll find contact details for about 50 advice organisations.
WANT TO KNOW MORE?
The full BBC story is at: http://www.bbc.co.uk/news/business-13568152#story_continues_2
My book “Back to the Black: how to become debt-free and stay that way”, is available on the following retail sites:
Kindle Store: http://www.amazon.com/dp/B004PLMAQM
Smashwords store for other e-formats, including .pdf: http://www.smashwords.com/books/view/22886
I’ve been following articles and blog posts by Jeff Prestridge; he’s personal finance editor of Financial Mail on Sunday, thus a pretty influential guy. And he’s said some very complimentary things lately about the building society sector, especially by contrast with major banks. If I were in charge of media relations at one of those banks, I’d have found it uncomfortable reading.
One of his articles was in “Moneywise” (May 2011); on the front cover, the piece was flagged up with the words “why selfish banks put themselves first” and my first reaction was that this was just another blast at the major banks; justified, maybe, but not news. Well, yes, but there was more: a good-news story about building societies.
Customer service excellence
Prestridge’s title praised the excellent customer service records of two particular building societies, especially by contrast with the majority of banks. They were Coventry Building Society, a mutually-owned bank, and Yorkshire Building Society, who are the country’s second-largest building society, with assets of £30 billion. That’s small by comparison with the £1.9 trillion assets of RBS in 2008, making it then the world’s largest company (did you know that?), but large by most other measures.
(I knew RBS’s total assets were larger than the entire GDP of the UK, then £1.7 trillion, but largest company in the world? As John Lanchester says in his fascinating book (see below), that’s “freakishly large”. Yet we had to bail them out. That’s scary)
Both scored highly in several categories of Moneywise’s own Customer Service Survey Awards but they were nonetheless profitable organisations. The article’s title was “Banks that look after us look after themselves”, the point being that caring for the customer makes commercial sense.
Executive pay restraint
The article also compares top management pay packages. Ian Corning, CEO of Yorkshire BS, donated both his entire 2010 bonus and his annual increase to the Society’s charitable foundation. That compares very favourably with the well-known and astronomical levels of pay and bonuses at the top clearing banks. (at RBS, bonus of £4.5 million, apart from salary).
According to a Bank of England study by Andrew Haldane and quoted by Lanchester, the bank directors were paying themselves these monster bonuses simply as result of taking bigger punts; “there was no skill, efficiency, intelligence or judgment involved: just riskier bets”. And we all know who picked up the tab if the bets went wrong: the taxpayer.
Compared with this, the relative restraint at the building societies seems even more admirable.
Because Moneywise is a monthly, Jeff Prestridge must have written that piece in April. Writing slightly later, i.e. for the Mail on Sunday’s 8 May edition, he says, talking pithily about the PPI scandal:
“Payment protection insurance has been a blot on the financial services landscape for far too long. It has angered those who bought it only to discover it wasn’t worth the paper its terms and conditions were written on.
It has nearly brought the Financial Ombudsman Service to its knees dealing with a deluge of complaints. And it has done untold damage to the already tarnished reputation of the banks that sold it by the shovelful.”
He then goes on, by contrast:
“BUILDING societies remain a key part of the financial landscape, providing consumers with a much-needed alternative to the banks, especially in the savings and stricken mortgage markets.
Although the credit crunch has not left the industry untouched, resulting in a bout of consolidation (that will continue for a while), there are signs that some bigger societies are emerging from the financial crisis stronger than ever.
Yorkshire and Coventry are leading the way. Both have managed to absorb smaller stressed societies into their fold over the past three years – Barnsley, Chelsea and probably Norwich & Peterborough by the end of the year in the case of Yorkshire, while Coventry has snapped up Stroud & Swindon.
Crucially, they have managed to do this without compromising either customer service or the competitiveness of their products.
The strength of these two organisations is such that both have declared an interest in acquiring Northern Rock – complete with 75 branches – from the taxpayer.
Given that the building society industry has survived the crunch with its reputation intact and without falling back on taxpayers for support (the demise of Dunfermline was its only blemish), it would be a great fillip for the sector and great news for consumers if Northern Rock (once a building society) were to be remutualised.
As David Webster, outgoing chairman of the Building Societies Association, said last week at its conference in Birmingham, building societies are primarily customer-focused businesses – which sets them apart from most banks (Metro excepted).”
At the end of his “Moneywise” article, Prestridge concluded: “Given a choice between Yorkshire, Coventry and any of the big banks, I know where my money would go any day. To the Coventry and the Yorkshire. They care about you – rather than themselves.”
I think he makes the point very well that this is enlightened self-interest; by caring for the customer they help themselves build a more sustainable business. What a pity not all businesses view the world in those terms.
WANT TO KNOW MORE?
Jeff Prestridge’s 8 May article in the Mail on Sunday: http://www.fmwf.com/media-type/ask-an-expert/2011/05/jeff-prestridge-banks-must-end-the-ppi-debacle-to-win-our-trust/
John Lanchester’s book “Whoops: why everyone owes everyone and no one can pay”: http://www.amazon.co.uk/Whoops-Why-everyone-owes-one/dp/1846142857/ref=sr_1_2?ie=UTF8&qid=1305882016&sr=1-2
“Back to the Black: how to become debt-free and stay that way”, is available on the following retail sites:
Kindle Store: http://www.amazon.com/dp/B004PLMAQM
Smashwords store for other e-formats, including .pdf: http://www.smashwords.com/books/view/22886