Peer-to-Peer: A Brief Introduction

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With Peer-to-Peer (P2P) Lending ISAs fast approaching, it is likely that many more people will start considering this kind of investment.  Some may be those who are altogether new to investment and keen to get more out of their savings. Others may be more experienced investors who have never seen a need for P2P in their portfolio, but have been attracted by the prospect of tax-free status. If you are considering putting money into P2P once the new ISAs are launched, there are a few basic facts you need to know.

What is P2P?

Peer-to-Peer companies specialise in matching people who want to borrow money with those who want to invest. Through the intermediary of the P2P lender, you simply provide your funds to a borrower and they pay you back with interest as they would any other loan. As interest rates on loans are much higher than on savings accounts, P2P firms can offer both competitive rates to borrowers and attractive returns to lenders while still taking a cut for themselves.

Exact rules vary between providers, but it is possible to start lending with as little as £20 or even less. This is because many loans are essentially “crowd funded,” with a number of investors clubbing together to make up the total amount the borrower has requested. Obviously you will have to invest far, far more than £20 to see worthwhile returns but having such a low limit is useful for those who want to test the water with minimal exposure in the beginning.

How Risky is It?

One of the attractions of P2P is that it is considered a fairly low-risk investment, especially for the levels of returns that are on offer. It has been described as “not much riskier than a bank,” making the upcoming P2P ISAs all the more attractive to those who are essentially seeking an alternative to a cash ISA. Most P2P platforms have policies in place to ensure you get your money if a borrower doesn’t repay. You can usually see information about a borrower’s credit history or some other indication of risk level, such as a grade assigned by the P2P platform, so that you can choose a level of risk you are happy with.

However, some experts have voiced concerns that P2P may get riskier after the new ISAs are launched. Currently, many platforms have quite robust criteria for borrower acceptance, or else a clear grading system to help investors identify riskier borrowers. The new ISAs are expected to bring in a lot of new investors, and P2P platforms will have to provide borrowers for them to lend to. If they cannot source enough new business using their current criteria, some fear they may have to lower their standards in order to maintain the balance.

2015: When to Look for Property Bargains

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Are you thinking of getting onto the property ladder in the coming year? Or perhaps you are considering picking up an investment property to boost your savings and hopefully outpace the interest your bank are paying you. Timing can make a big difference to your chances of getting the best price, and there are a few times in the coming year when the odds will probably be stacked a little more firmly in your favour.

Why are Some Times Better Than Others?

This is essentially a matter of demand. Buyers tend to purchase at some times of the year more than others, and these favoured parts of the year become high-demand periods for the housing market. Conversely, the periods that are least favoured see very little demand. This brings down prices, and makes buyers more likely to accept a lower offer in order to secure a sale when they are finding it difficult.


One such low-demand period is already underway, so if you are ready to make your purchase you might want to act quickly and seize the opportunity. Buyers tend to be less active in the winter, when cold weather puts them off the idea of viewings, house moves, and potentially doing fix-up jobs on a new property. January is a low-demand period, with February picking up a little but still giving a relatively favourable climate to bargain-hunters. When Spring arrives, things pick up and sellers find it easy to secure a sale without offering lower prices.

The Election

Most predictions hold that it is decidedly better to buy before the general election this year than afterwards. As the country waits to find out which party, and which set of policies, will rule the UK for the coming years, there will be a lot of uncertainty in the housing market. This will put off many buyers, especially buy-to-let investors, who prefer to wait until they know the situation. The result will be low demand and a better chance of securing a property at a good price. When the election is over, it is expected that this pent up demand will be suddenly released, and the housing market will receive a flood of buyers resulting in high competition levels.

The End of the Year

It may seem like a long way off, but the last four months year could be a good time to buy a property. This is true for much the same reasons as the fact that the market is currently seeing low competition. Autumn and, later, Winter will have arrived once again. Demand for properties will drop off after the relatively busy summer period. If you want some time to pull together a bigger deposit, get ready to pass mortgage affordability checks, then the later part of the year could be a good choice. September is often a good time to buy. At this time demand has dropped off reasonably suddenly after the summer, and many people remain on holiday.

Improve Your Chances of Mortgage Acceptance

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Earlier this year, tough new rules were introduced that govern the way lenders grant mortgages. More recently, similar rules were extended to mortgages for buy-to-let investments as well. It is now tougher than ever to have your mortgage application accepted, thanks to the stringent state of regulations and affordability criteria. However, there are a few things you can do to improve your chances of acceptance. Some of the steps you can take include:

Cut Your Spending

The new affordability checks are extremely comprehensive, and designed to consider every aspect of your unique, personal financial situation. For this reason, lenders will probably want to look at your recent bank statements to get a complete picture of your spending habits including things like food shopping. Cutting your spending and trying to be as frugal as possible in the months leading up to your application will make those statements look a lot more positive and will count in your favour.

Get Rid of Debt

If possible, it is wise to get rid of any debts you currently hold. Loan and credit repayments are an important financial commitment and drain on your budget, and naturally lenders will take this into account when assessing your ability to pay back a mortgage. If you are able to pay off any debts you hold, they will be completely removed from the equation and you will be in a better position to have your mortgage application improved.

Boost Your Credit Rating

There are a number of things you can do to improve your credit rating, and it is a good idea to start doing them. A mortgage is a type of loan, and as with any other loan you take out the lender will pay close attention to your credit report. This is a guide to your borrowing history and one of their most valued tools in assessing the way you handle debts and repayments. A strong credit history will really count in your favour when you apply for a mortgage, and a weak one could cripple your application’s chances of success.

Eliminate Regular Savings

In almost all circumstances, building up savings is a road to financial security. However, in some cases it can count against you on a mortgage application. If you have any regular, ongoing saving commitments such as monthly payments into a pension fund, this will be counted as a regular expense and will therefore be seen as a factor that harms your ability to repay a mortgage. If possible, pause such payments until after the process is over.

Four Alternatives to Putting Money in Your Savings Account

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Interest rates on savings accounts and ISAs are disappointingly low at the moment, and this is leading more people to look at alternatives. If you want to get more from your money than your bank is offering, there are a few different things you could try.


One of the more popular options at the moment is investment. This is for those who are willing (and can afford) to take some risk in the pursuit of getting more from their money. Options such as property investment, stocks and shares or peer-to-peer lending can potentially bring in much more than a savings account. Stocks and shares can also be placed into an ISA so any earnings are tax-free, and next year the same will apply to peer-to-peer lending. However, your capital is at risk and there is also the possibility of losing money. Make sure you understand the risks before entering into any investment.

Premium Bonds

Those who are not so happy with risk and want to get a bit of fun out of their investment could consider buying premium bonds. There is no risk per se, as you can withdraw the same amount of money as you put in at any time. However, premium bonds are a gamble in one sense, because your money will not earn any interest. Instead, you will be in with a chance of winning monthly prizes. You may earn nothing and just have your original funds, or you may earn much more than you would from a savings account. In fact, many bond holders win even less than the interest rate. However, while interest rates do not look like much to miss out on, more and more savers are deciding it is worth a try.

Extra Mortgage Payments

This is a tactic designed for long-term gain at the expense of short-term loss. Initially, you will be worse off in the sense that you will no longer have your money. However, the interest rate on your mortgage is likely to be significantly higher than that on your savings account. By paying extra on your mortgage, you are reducing the amount of interest that your debt will accrue. This will save you far more than you would have earned in savings interest, and ultimately you will be better off.

High Interest Current Accounts

Some banks offer current accounts with higher interest rates than savings products, albeit for limited times and a limited amount of money. In some cases, interest rates after tax remain higher than the average ISA. While the improvement over a savings account is not huge, it is still an improvement. Unlike many alternatives, it also allows you to keep hold of your money and have it readily accessible. This makes a high-interest current an option that is definitely worth considering for at least part of your savings.


Improving Your Credit Rating

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Perhaps you want to get a good mortgage, or maybe you simply want to qualify for better rates on credit cards or personal loans. Whatever the case, a good credit rating can be invaluable. There are a number of steps you can take to give your rating a boost. Some are long-term strategies, while others are surprisingly quick.

Look at Your Credit Report

You will be in a far better position to look at your credit rating if you actually have a look over your credit report. This can help you identify where your situation is at the moment, but also see if there are any mistakes. Sometimes, information relating to someone you live with or even a previous occupant of your home can accidentally become attached to your credit report, and this can result in you being falsely marked down. If you don’t identify the problem and request it be corrected, the mistakes will just sit there, unnoticed except for the effect they have on your overall rating.


Whether you have actual bad marks in your credit history or are just an unknown quantity with no history of borrowing, the best way to improve is to take out some credit. This is easiest to do with a credit card. Even if you don’t qualify for the kind of credit card deal you want at the moment, take out the best card you can and use it for small amounts of spending. Pay them back promptly, before interest accrues, to build up a reputation as a reliable borrower.

Cancel Old Cards

If you have lots of old credit cards you no longer use, now is the time to cancel them. A lender looking at your credit report won’t be aware that the cards are disused. They will simply see that you have a lot of credit cards in your name, and be concerned that this might mean you are struggling to manage your finances. Making sure you cancel your old cards will noticeably improve your rating.

Know What Goes on Your Report

It is useful to know exactly what does and doesn’t go onto your credit report in order to appreciate which things will have an effect on your overall rating. For example, many people don’t realise that bill payments can appear on their credit report. Late payment of a bill can bring your credit rating down in much the same way as a late loan repayment.

New European Laws see Buy-to-Let Mortgages Tightened

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New laws have been passed by Europe which tighten up the regulations surrounding buy-to-let mortgages and make it harder for would-be landlords to obtain loans. Tens of thousands could find they are newly ineligible to take out a buy-to-let mortgage, and many other borrowers will have to pay more than they would previously have done.

The changes will have to take place by March 2016 at the latest. It is expected that they will place further strain on a housing market that has already been weakened by other changes to mortgage rules. September has seen zero growth in the British property market, according to data from Hometrack – the first time this has happened for more than a year and a half.

The changes are designed to affect “accidental landlords,” and change the ways in which they are able to obtain credit. This category includes those who let after failing to secure a sale, for example, or those who let a property that they have inherited. These are cases where, as a document from the Treasury put it, the borrower finds themselves in the position of landlord “as a result of circumstance rather than through their own active business decision.” It is thought that these “accidental landlords” could represent up to one in five current buy-to-let mortgage holders.

The introduction of tough affordability checks could also affect older landlords who wish to supplement their upcoming retirement income through letting a property. This is because lenders often stipulate that borrowers must be on-track to repay the full amount prior to retirement.

To obtain a “regular,” home-buyer’s mortgage, borrowers have to go through strict checks to ensure that they will be able to afford their mortgage not only in the short term but also in the event of future rate-rises. To establish this, lenders assess both their income and their outgoings in-depth. Previously, much of the regulation surrounding these mortgages and affordability checks has not applied to buy-to-let mortgages, but under the new system a much stricter framework will be imposed that is more in line with the mainstream mortgage system.

There are currently around 1.6 million holders of buy-to-let mortgages in the UK, and 151,000 new buy-to-let mortgages were taken out last year.

A number of experts have expressed concerns over the impact of the new rules. Speaking about what constitutes an “accidental landlord,” Rosanna Bryant, a partner at Addleshaw Goddard, said “The line that is drawn isn’t that obvious.”

Finance and Leasing Association head of consumer finance Fiona Hoyle expressed concerns about the speed with which lenders would have to implement the changes.

“Firms will only have nine months to get to grips with it, and that’s not really how mortgage lending works – there is a pipeline.”

Number of mis sold PPI claims drops for the first time

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The number of claims concerning Payment Protection Insurance (PPI) has dropped for the first time in years according to the latest figures from the Financial Services Compensation Scheme (FSCS).

In the 2013/14 tax year, the FSCS dealt with 12,000 claims compared to around 19,000 the previous year. In total it paid out £243m in compensation, protecting more than 34,000 people who could not get redress from their lender.

A financial claim safety net

These claim figures and compensation amounts may seem low, but that’s because the FSCS only deals with financial claims where the lender has gone bust. It is a safety net for mis sold consumers who would otherwise have no hope of getting their money back. The number of Payment Protection Insurance claims handled by the FSCS only makes up a small portion of the total number of PPI claims being made in the UK, with the majority being processed and paid out by banks themselves. Many of which used a ppi claims calculator to worth out their refund.

Since 2001, the FSCS has paid out billions in compensation to over 4.5m people but in 2013/14 it saw an overall fall in the number of financial claims in received. The Scheme received around 39,000 new financial claims compared to 62,000 the year before. These claims can be about anything from PPI and mortgages to bank account fees and savings products.

PPI claims management companies proving popular

Although the total number of PPI claims received by the Scheme dropped, the number of claims that are PPI related compared to non-PPI claims actually rose from 30% to 37.5% suggesting other financial claims dropped off more severely than PPI. Over two-thirds of the PPI claims received by the FSCS came through claims management companies.

About the FSCS

The FSCS is funded through a system of levies imposed on financial institutions, the idea being that the money is there for consumers should that lender go bust – it’s like an insurance product.

In 2013/14 the levies totalled £1.1bn compared with £726m in 2012/13, but the amount is subject to change depending on how well the FSCS does its job. As part of its commitment to reducing costs for levy payers it recovered £353m from the estates of failed firms during the year, meaning existing banks pay less of a levy.

Speaking about the Scheme, FSCS Chief Executive, Mark Neale, said: “The FSCS is there for consumers when authorised financial services firms go bust. Last year we paid out more than £240m in compensation to people that might have put their savings into a credit union that failed, had a PPI mis-selling claim, or might have been given bad investment advice.”

Government Debt increases by further £13bn

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In May the government borrowed more than expected which further put a dent in Chancellor George Osborne’s effort to shrink the deficit. Official figures from the Office of National Statistics (ONS) stated that public borrowing had no escalated to £13.4bn for the month of May. This is somewhat shocking due to the fact that the public deficit for this year alone has already amounted to £24.3bn making it 8.7% higher than it was a year ago. The figures for the previous month were initially estimated to be around £9.35bn.

The Office of Budgetary Responsibility (OBR) has calculated the estimate yearly borrowing for the public sector to be £96bn for the 2014/15 financial year. However, economists doubt that this will be true by stating that the chancellor will have a tough time meeting this borrowing target. A statement released by the treasury however said that the government is well “in line with the budget forecast”.

The Treasury explained it’s larger than forecasted borrowing figures by stating they were predominantly effected by abnormal receipts in the past month when the Bank of England transferred £3.9bn in interest payments that were due on government bonds. Further, the government received a boost of £0.9bn in a deal with Swiss authorities in charge of tax to compensate them for the schemes designed to allow UK nationals to dodge tax. Further positives were seen from the income received from income tax and national insurance which were 0.3% better than the same time last year.

However, so far this year tax and NI receipts are 0.8% less than they were in the first two months of the previous tax year. Government officials stated that this is because individuals and companies delayed their bonus payments to be given when the top rate of tax is reduced from 50% to 45% at the beginning of the new tax year.

Inevitably, many people would ask the question, if figures show that more people are in work then why is the government not receiving more in income tax? Since last year there has been an increase in the employment figures by 700,000 more people now in work. However, it would appear that a good proportion of those people are in part time work and in low paid jobs. Nevertheless, a good reason remains unknown. It is for the Chancellor and the government now to reflect on the previous month’s borrowing and readjust their spending plans for the remainder of the financial year in order to meet their expected borrowing figures and avoid further increasing the UK debt.  

A Summary of the 2014 Budget

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The following is a basic summary of this 2014′s Chancellor’s Budget:

The GDP is estimated to increase by 2.7% and by 2.5% in 2018. Meanwhile the estimated deficit in 6.6% of GDP in 2014, then declining to 0.8% by 2017 and 2018, this will bring an extra 0.2% in 2018 and 2019.

Borrowing is estimated to be £108 billion in 2014, which will lead to approximately extra £5 billion in 2018 and 2019. The discount rate to businesses will be extended for a further 3 businesses too for a Government lending to UK businesses  to help with exports rose to £3 billion and these interest rates have been reduced by a third.

In 2017 there will be a new 12 sided £1 coin in circulation.

There will be a rise of25% on duty on fixed-odds betting, however duty on Bingo will be reduced to 10%. Duty on tobacco will increase by 2% higher than inflation. Despite duty on Beer will be reduced by 1p per pint. Duty on cider and spirits will remain the same.

Fortunately the duty on fuel will remain the same and a cap on the carbon price to £18 per ton; this should save families £15 a year.

In the housing sector, £140 million will be available to maintain and repair flood defence and £200 million will be on hand to repair pot holes. Fresh legislation will enable Welsh government to control tax and borrowing, which will help improve the M4 and other infrastructure requirements.  Also there will be 200,000 new homes built.

There will be a cap on Welfare of £119 billion in 2015 and 2016, which will increase to £127 billion in 2018 and 2019. Child benefit, incapacity benefit, winter fuel payment and income support will be affected but Jobseeker’s Allowance and the state pension is excluded from this cap.

A single new Isa will replace separate cash and shares Isas and the tax – free savings limit will increase to £15,000 from July. The 10p tax rate will cease for savers. The Premium bonds limit will rise to £40k and then to £50k in 2015. A Pensioner bond for the over 65’s will be introduced with rates estimating 2.8% for a 1 year bond and 4% for a 3 year bond. There is a limit of £10k per bond.

However, it is good news for pensioners. They now have access to their pension pots without buying annuity. The taxable portion of the pension, taken as cash will be at the standard income tax rate, a reduction of 55%.

The lump sum that can be withdrawn from pensions has also been increased to £30k.

Mortgage Rates Explained

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House buying is a complicated business. First of all you’ve got to pick a location. For most, non-exorbitantly wealthy people this will be in an area that is not too expensive and not too crime-ridden (there will probably be some crime, but there is always some crime, unless you live in a wondrous utopia or a lawless dystopia). Once you’ve picked your area, you’ve got to pick your house. Hopefully it won’t be awful. Of course, it’s best to have a few backups in case your bid isn’t accepted, the house is taken off the market or you lose all your money in a complicated pyramid scheme that, at the time, seemed too good to be true and in actual fact turned out to be entirely that.

One of the final steps – along with the bidding process, the signing of contracts, legal wrangling (isn’t wrangling a great word?) and many a bank meeting – is negotiating the tricky world of mortgage rates.

A mortgage rate is essentially the amount you are charged to borrow money. This rate is determined by all kinds of things, many of them economic. One of the big influences on mortgage interest rates is that hoary old economic phrase: supply and demand. It affects everything from the price of a pint of milk to the price of a half pint of milk. And other stuff too. If the property market is booming and a lot of people are looking for mortgages the interest rate will go up. If on the other hand the market is not in peak condition then interest rates will fall to help encourage interest in the property market.

Another, more personal, issue that is going to affect the interest rate you are offered is your credit rating. This lifelong irritant can really screw thing up. Whether you’re looking for a giant mortgage or a phone contract, you got to have yourself a decent credit rating. If you don’t, well you might just be considered high risk and get yourself stuck with a high interest rate. Of course, impeccably credit rating and your interest rate will be low.

Either way, there’s not much you can do to affect either your credit rating (right now at least) or the current demand in the property market. What you can choose is the kind of mortgage you get. There are three principal mortgage types.

Fixed rate mortgages

A fixed rate mortgage allows the property owner to pay the same rate of interest throughout the entire life of the mortgage. Now as you might imagine this is great if you get a low interest rate and the economy suddenly picks up. You wind up saving a fair bit of money. Of course, if interest rates drop you could be stuck paying a lot more than you wanted to. If interest rates stay down for a long period of time you could potentially refinance you current mortgage to take advantage of this.

Variable Rate Mortgages

The alternative to a fixed rate mortgage is, of course, a non-fixed one, or a variable rate mortgage. That means your interest rate is determined by the current interest rate. If the interest rate is low, your interest rate stays low. The interest rate is generally updated every two years or so and if it does go up in that time then you could get laboured with a high interest rate, at least for a couple of years.

Tracker Mortgages

These are sort of like variable rate mortgages (mainly because the interest rate varies) but are not quite the same. Tracker mortgages are generally linked to the Bank of England’s base rate (this is the rate the Bank of England charges banks for secured lending and impacts everything from mortgages to savings). So if the rate falls you’re in luck, if not, hard luck.

Capped Rate Mortgages

Another variant of the variable mortgage with one subtle difference (the clue is in the title). Interest rates are paid at the lender’s standard variable rate. However if it rise above a predetermined threshold it is capped and will rise no further.

Interest Only Mortgages

An alternative is the interest only mortgage that means you only pay the interest on what you’ve borrowed for a certain period of time. This has plenty of advantages in the short term: lower payment rates, spare cash. However you will have to pay the full amount eventually and unless you plan on investing the money you save in the short term it’s probably best to go with option number one or option number two.

Over to you: Take Charge and Win Yourself… £60 worth of Amazon vouchers, by answering the following question:

What is the current base rate of interest as set by the Bank of England?

Email your answer and contact details to Ash at Answers must be in by 6th Feb. Winner will be randomly selected from correct entries, and notified on Friday 7th February via email. Good luck!