Shouldn't Interest Rates be Increased?

Oh, but it is true. You own the house absolutely 100%. If that were untrue, you would not get the benefits of (or suffer the consequences of) any upward (or downward) movement in the house's value during the period the debt is outstanding. But of course you have pledged the house as security for the loan, and it is reasonable for the lender to safeguard their interest by imposing reasonable conditions on what the owner must and must not do. Taking custody of the deeds is one such condition (and note that the deeds will show you, not the lender, as owner). Requiring the property to be properly insured and maintained is another, and reserving the right to withhold permission to let is another.

No, it simply suggests that the steps they have taken are effective at safeguarding their money against the possibility of your failing to keep to your side of the loan agreement. Anyway, the lender can't just sell your house whenever they feel like it (but the owner can but must repay the loan before the lender will discharge the security and release the deeds), they can only do so if the owner is in substantial breach of contract.

I'm self employed with clients in three figures so even if 10% of my clients went bust I'd still have plenty of others. My earnings are only limited to the amount of work I'm able and willing to do.

I'd hate to be a salaried employee. I wonder how long it will be before they disappear.

Predictions, at least some of them, are so grim that you may find

10% to be just the tip of the proverbial iceberg. What if it went to 50%? Would you still be able to fund emergencies from cashflow? Or would you at last be able to feel what it's like for probably most people, that nearly all their inflow is committed to current expenditure, with nothing left over to divert into voluntary debt reduction?

Indeed, they wouldn't all need to go bust as such. In a downturn many business owners will find themselves with more time on their hands and no way to spend it productively because they can't get as many customers as they used to. If they are also looking to cut costs, they might decide that they can prepare their accounts themselves, now that they have time to spare. They only employed an accountant before because in the time it would have taken them to DIY, they could have earned more in their own line of business than their accountant cost them.

That seems extremely unlikely. You don't really foresee the day when supermarket shelf stackers and checkout chicks will be working in a self-employed capacity, do you? Or did you mean "salaried" to exclude "waged"? But even if you were only thinking of educated professionals, such as teachers, doctors, and judges, it still seems unlikely that they would all change to SE status.

In theory, yes, you can have a payment holiday. AFAIAA, the only restriction on how I can use my account is that transactions in excess of 100K have to be notified to the bank in writing in advance.

The statement just says how much you are ahead or behind "plan" and how much you need to save that month to stay in that position (I've never been behind plan but I've been ahead of plan and then gone and withdrawn fairly large sums without any eyebrows being raised at all, not even a "courtesy" call.)

However, I have recently been called to find out if I need my "facility." I do have plans for it if/when the right opportunity arises but I'm not certain that it won't unilaterally be withdrawn at some point in the future before I'm ready to use it.

That wouldn't seriously inconvenience me, other than having to negotiate to borrow funds for that "right opportunity" as I have other savings accessible. But for someone who has all their savings tied up in their mortgage that could suddenly mean that they have no access to funds.

(My account is a Natwest One account where there isn't a separate savings and mortgage account. If they are separate, even if with the same bank, then it's probably harder for them to withdraw the facility but I guess still not impossible)

Tim.

It would take a while to feel the effects. I would just be able to do work quicker.

This crisis has been brought about by both individual and government reckless spending as well as financial institutions reckless lending. People in most other countries save a lot more before buying a house or even build it from savings. I don't work 9 - 5 although I have an office job. If people are in financial difficulty they should look around to see if they can get an extra job. Where I live there's plenty of vacancies. I accept it's not the same all over the country.

That's interesting because one of my clients tried that. He ended up paying me more to correct his errors.

I've recently had more clients come to me asking me to do more work because they don't want to do so much themselves. You quite often find that the situation isn't always like the impression the papers give.

I mean everybody. The government now seems to be taking notice of what most sensible people have been saying for years regarding benefits. It wont be long before there's a similar realisation that employment legislation is a disincentive too.

This doesn't follow at all. I'm sitting on available cash funds that would buy a property. Apart from about 10% which I should be getting access to very soon, I've also got it in accounts that I can have instant access to so I'm not getting particularly good rates at the moment.[1]

But that's all part of my plan to move if/when the right property becomes available in the right location at the right price without being forced to sell my current house first. If he market is still falling at that time and my current house turns out to be too difficult to sell then I will let it out if that is possible instead.

But I'm not going to speculate in the property market at probably -10%+ p.a. for the next few years rather than keep it in cash at 0%.

If I find the right house then I'm prepared to lose money on my current house in order to get the house I want. I'd rather not, of course, but I see this downturn as possibly enabling me to buy my ideal property without committing me to a high paid job for the rest of my life.

Tim.

[1] I do wonder whether I've made a mistake and I should have recommitted it to 12-36 month bonds. I'd anticipated the down bit of the down turn being fairly quick and then a number of years of bumping along at the bottom before things started recovering. But the way governments are playing this it's going to be a long slow decline instead.

Of course not every business owner's numeracy skills are up to the job, and preparing accounts involves other stuff besides basic numeracy, so I accept that there will be quite a few who, when they try, will make a hash of it. But others, particularly having seen and learnt from the excellent work you've done for them, will have developed an understanding of what is required and will be able to apply the same principles to different actual numbers, and if they follow all the marvellous guidance available from those nice HMRC leaflets, will be able to get it right.

What deeds? Land (and house) ownership is recorded at the Land Registry, and my house (having been built in the last 20 years) has no "deeds" as such at all. Older houses have a package of papers that solicitors pass around out of habit, but they don't really mean much for ownership purposes. Mortgage companies certainly don't want to sit on your pile of papers any more - indeed there was a minor scandal a couple of years ago because they were sending back the ones they did have (to reclaim storage space) via dodgy couriers that left them lying on people's doorsteps in the rain.

If you look at the Land Registry record for your house (assuming you haven't been there for many many decades - registration started in the '20s and applied everywhere by the '70s or '80s) you will find it lists you as owner. If you have a mortgage it will be recorded as a "charge" on the property - so you can't sell it without their agreement - but nowhere will it say that the mortgage company own your house.

The reason they do this is to secure their position in the event of having to sell the house. There's an argument that lodgers might acquire some security of tenure, and not be able to be evicted if the lender has to sell. My mortgage agreement isn't phrased in terms of asking permission, but of notifying, so that they can then send out a very brief (half-page) contract that the lodger signs, acknowledging that the lender's rights trump their own in the event of my default. (In my case the notice that the lender gives them is the same as the notice in the main rental contract, so it makes no practical difference.)

Pete

I have two clients who studied accounting and it's interesting that while they may get 95% of stuff right the 5% that's incorrect makes the rest of the effort worthless.

Some clients have bookkeepers and I only have to do a few adjustments and prepare statutory accounts and tax which given my accounts production and tax software is great.

The rest of my accounts clients will either give me bank statements with documentation or keep spreadsheets for sales invoices, bank receipts, bank payments and business expenditure paid personally.

I love your confidence in clients getting it right. One client told me he was considering changing to the flat rate scheme. I asked him various questions and based on his answers I explained it would be to his advantage. Another client, who has a business relationship with the first client, discussed the flat rate scheme with the first client and rather than discussing it with me just told me he had changed to the flat rate scheme. I explained that the bookkeeping was totally different so I went to see him to explain it and it turned out he would end up paying a lot more VAT. One panicked phone call to HMRC later and they'd agreed to cancel his flat rate application. Although both clients are graphic designers one is mainly dealing with web work and the other deals more with printers and other materials suppliers. You'll find there's a lot more to this accounting stuff than people think. Watching somebody else for a few hours or reviewing working papers won't get you anywhere to what's needed.

I'm paying £600pm rent at the moment, but if my savings rates were to fall to 2%, I can buy a similar house and it would only cost me about £300pm, in lost interest.

But yes a possible drop of 10% or more, and the fact I can still get a bit more than 2% on savings, are factors.

I certainly did, having fixed rate bonds maturing in the first half of December! Just when the rates were crashing.

A month or two earlier, or a year or two later, would have been much better.

Banks can only have loans equalling capital and deposits. The idea banks can borrow a quid and lend ten is a common misunderstanding. Some people believe it with religious fervour.

Lower interest rates in theory mean people spend more freely since it's not worth saving. Likewise lower rates encourage people to borrow. But in a slump people are fearful and neither borrow or spend freely.

Savings enabling a loan to be made applies to Person A lending to B. It does not work like that with banks since loans create deposits back into the banking system. The current problem is basically aversion to risk. They've near gone bust and don't want to lose any more capital. A bank's capital is very slender.

Lloyds Group has 100s of billions in loans yet the expected loss of around 4 bil for the last year is a horror story. It's a precarious business when panic occurs and as Buiter told Parliament this week there is no such thing as a safe bank ever. The nature of the beast is that banks give long term loans funded by you n me who largely might withdraw at any time. Normally that's fine cos we don't.

If you are interested get a text covering banking. It's much easier than constantly puzzling! Begg Fischer Dornbusch's Economics is an excellent basic text full of info.

Sunday Times - 'Barclays has steadfastly refused to take big write- downs on many of its assets, such as loans to private-equity deals, insisting the loans are still on track to be paid back over time, even if their current value in the market has been depressed by the credit crunch.'

The nub of the fragility of banks. In a panic the losses in market value of assets are far above the likely losses if they go on trading. Any bank looks hopeless at the time capital being so small. 'Losses' are a moving target. Yet the papers don't make this clear and talk as though the losses were set in stone.