Which? agrees with Winston

Following on from my blog about what Winston Churchill had to say about people insuring themselves correctly, here is what Which? had to say - so again, don't take my word for it!

Which? has included life insurance and income protection (IP) on its list of the best financial products.

The consumer association previously listed IP as a preferred alternative to payment protection insurance when PPI made its worst financial products list.

It described income protection as "vital if your employer doesn't cover your salary when you are sick, or you don't have a big savings pot."

Which? added that life insurance is a must-have if you have dependants, saying: "It's not a pleasant thought, but, if you die young, you need to make sure your family is covered. Don't put it off either, the younger you are, the cheaper it is."

It also highlighted the importance of having a comprehensive will to protect your wishes.

"Wills aren't something you really want to think about, but not writing one could mean real financial worry for your family. Making a will ensures your money goes to who you want it to," it concluded.

One area that i am undertaking a lot of work on just now with my current clients who want or have any life insurances is the area of trusts which can have a very significant impact in terms of both probate and inheritance tax mitigation in terms of ones financial independence and financial planning.

If you wanted to find out more about any of the above, please do feel free to get in touch.

a voice from history

Winston Churchill once said

“If I had my way I would write the word ‘Insure‘ upon the door of every cottage and upon the blotting book of every public man, because I am convinced for sacrifices which are inconceivably small, families and estates can be protected against catastrophes which would otherwise smash them up forever. It is our duty to arrest the ghastly waste, not merely of human happiness, but of national health and strength, which follows when, through the death of a breadwinner, the frail boat in which the family are embarked, founders, and women and children of estates are left to struggle in the dark waters of a friendless world”

In 2010 almost half of Britons are jeopardising their financial futures by neglecting to take out insurance to cover loss of income through illness or death, new data shows.

Twenty four million people are thought to have no cover in place for such an event, according to research.


Those without cover who said they had considered taking out an insurance policy to provide if the main earner of a household was unable to work or died, would be underinsured by an average of £14,500 a year.


A third of people estimated that they could live on less than 35% of their take home pay if they suffered a serious injury or illness. 


That equates to just £171 per week for an average earner – £300 less than the current average household expenditure of £471.

So did we listen to Churchill?…….apparently not.

Three MPC members vote for rate rise

The Monetary Policy Committee (MPC) vote was split over a rate rise in February with one more member, or three out of nine, voting for a rise.

The keenly anticipated minutes revealed Spencer Dale joined hawk Martin Weale, to vote for a 0.25% rate rise, with Andrew Sentence voting for a 0.50% move upwards.

Bank of England governor Mervyn King voted alongside six other members to hold the interest rate at 0.5%.

The Governor invited the Committee to vote on the propositions that Bank rate should be maintained at 0.5% and the stock of asset purchases financed would stay at £200bn.

Just one member, Adam Posen voted to increase the size of the asset purchase programme by £50bn to £250bn.

Howard Archer, chief UK and European economist, IHS Global Insight said: "The hawks within the MPC are growing in numbers and gaining ground, with an interest rate hike looking ever more likely within the next few months."

Archer said Dale was always the most likely to be the first Bank of England internal member of the MPC to break ranks as he has shown more hawkish tendencies before.

Howard added: "Furthermore, Andrew Sentance has upped the ante by voting to raise interest rates by 50 basis points to 1% rather than the 25 basis point rise to 0.75% favoured by Dale and Weale. This puts Sentance even more into conflict with Bank of England Governor Mervyn King who gives the impression that he currently is still against any early interest rate hike."

According to the minutes, other members did not feel the case had been made for a rise yet.

This inflationary risk was limited said members, according to the minutes, because the recent rises in inflation could be explained by the increases in energy, other commodity and world export prices.

However, of the members who voted against a rate rise, some thought that the case for an increase had strengthened.

Nevertheless, the Committee concluded: "A rise at this juncture could damage household and consumer confidence, which remained fragile."

MPC member calls for immediate rate rise

Monetary Policy Committee (MPC) member Martin Weale has said interest rates must move now in order to contain inflation and prevent sharper, more damaging increases in the future.

Speaking to BBC Radio 4, Weale said raising base rate would protect the country from a "squeeze" later on and reduce consumers' inflation expectations back towards 2%.

However, Weale said that raising rates would not mean inflation will fall quickly, with the Bank of England forecasting that CPI could hit 5% after rising to 4% in January.

He said: "I certainly wouldn't expect raising interest rates in the short term to bring the inflation rate rapidly back to target."

Weale, who joined the MPC in 2010, warned that the recent rise in inflation could affect 

people's expectations of future inflation and make price rises self-perpetuating.

He said: "If businesses and people bargaining for wages expect high rates of inflation, then there's a risk that they may build those expectations into their current behaviour."

Weale joined MPC hawk Andrew Sentance in January in calling for Bank base rate to be increased to 0.75%.

King hints of 1.25% Base Rate before year end

The Telegraph reports today that the Governor of the Bank of England has given his clearest indication yet that the Base Rate will need to rise by up to three quarters of one percent before the end of the year.


Any rise in interest rates would end nearly two years of stability with record low interest rates of 0.5 per cent, hitting the majority of mortgage holders, but giving some hope to hard-pressed savers.

Leading economists seized on a key passage in the governor's letter to George Osborne, the Chancellor, explaining why inflation was above target for the 13th consecutive month. They said Mr King's words were a clear signal that interest rates could rise three times before the end of the year, to hit 1.25 per cent.

The official data revealed that inflation, as measured by the Consumer Prices Index, climbed from 3.7 per cent in December last year to 4 per cent in January, the highest level for over two years. The surging price of oil, petrol and the increase in the rate of VAT, which pushed up the price of alcohol and restaurant meals, were the main reasons for the jump.

Mr King warned that the immediate outlook was one of continuing rise in prices, because of the high price of oil, wheat, copper and other commodities on the global markets.

Mr King said: "Inflation is likely to continue to pick up to somewhere between 4 per cent and 5 per cent over the next few months, appreciably higher than when I last wrote to you. That primarily reflects further pass through from recent increases in world commodity and energy prices."

However, he then explained that inflation was equally likely to be above or below the target two or three years away, crucially, “under the assumption that Bank Rate increases in line with market expectations”.

Economists said this key phrase meant that Mr King had backed market predictions that interest rates would rise on three occasions before the end of the year.

Philip Rush, economist at Nomura. He said Mr King’s letter saw the governor “come as close as he can to support market rate expectations” without explicitly giving away the Bank's plans.

Michael Saunders, the respected economist at Citigroup, said: "This in effect is an endorsement of the market rate profile – which projects three hikes by year end– as a roughly appropriate path for policy."

An increase in interest rates would cause further problems for the already slow mortgage market. An increase to 1.25 per cent would add £54 to the average first time buyer's monthly mortgage payments, taking them up to £722 per month, according to Capital Economics, the think tank. It said: "For new borrowers who are already being asked to stump up historically high deposits, that is not a trivial amount."

High inflation is bad news too for most families, whose average wages are not keeping track with the increases in the cost of living. The Office for Budget Responsibility has forecast that average earnings this year will increase by just 2.2 per cent, followed by an increase of 2.4 per cent in 2012, raising the prospect that workers will suffer from effective wage cuts for the next two years.

Ann Robinson, the director of Consumer Policy at uSwitch.com, a price comparison site, said: “Consumers are facing a perfect storm that could see household finances knocked for six this year. When salaries fail to keep up with inflation it spells misery for consumers. These figures could be a cruel and costly combination for households, many of whom are already struggling to stay afloat in these stormy economic times."

The Retail Prices Index, a measure of inflation that many believe more accurately reflects the true cost of living because it contains housing costs, increased from 4.8 per cent to 5.1 per cent. The RPI is often used by companies and trade unions to negotiate salaries. At 5.1 per cent it is now 3 percentage points higher than national average wage increases.

Many households have already felt the full effects of inflation when they come to fill up their cars at the petrol pumps, with the price of petrol hitting a fresh high almost every day in January, because of the rising price of oil and higher fuel duty.Beer, too, has shot higher in price, with the average pint of lager climbing the £3 barrier for the first time. Publicans warned it would increase even more after the Budget next month when an inflation-busting duty increase is expected to add a further 10p to the price for pint.

Many claimed that elderly people, especially those who relied on their savings as a key source of income, were the hardest hit.Basic rate taxpayer with £10,000 in instant access savings account, which now pays an average of just 0.67 per cent, earns £53.60 a year net, but effectively loses £400 once inflation is taken into account. It produces a total net loss of £346.40 in a year in real terms.For a higher rate taxpayer, the net loss in real terms is equivalent to £359.80, according to the calculations by personal finance website Moneynet.

Ros Altmann, director general of Saga, said: "This latest surge in the CPI is a further kick in teeth for older people who often live on fixed incomes and who rely on their savings for additional income. If the Bank of England needed further evidence of the need to increase interest rates sooner rather than later, it surely now has it."The retired population spends more of its income on food and transportation costs, which has been a big contributor to the inflation increase and their spending power is being severely squeezed."

Intermediaries and Brokers remain crucial to the mortgage market

The Intermediary Mortgage Lenders Association has welcomed evidence that shows intermediaries continued to play a crucial role in the UK mortgage market in 2010

Figures from the Council of Mortgage Lenders show that intermediaries proved a key source of advice and support for people buying their first home during 2010, with lending via intermediaries accounting for 66% of mortgage sales in terms of the total number of loans in the year and 65% by the value of those loans.

The figures also highlight the value that homebuyers and remortgagers continue to place on the expertise and service levels offered by the mortgage broker community. Intermediaries were responsible for introducing 53% of all home mover loans, rising to 55% by value, and 59% of remortgages, rising to 62% by value.

IMLA, the specialist trade body representing the interests of lenders who market their products through brokers, has declared 2011 as the year the mortgage industry needs to return to confidence and it is imperative that lenders and intermediaries work closely to achieve that.

Peter Williams, IMLA's Executive Director, says:

"The mortgage market can be a confusing and daunting prospect for people looking to buy their first home, those looking to move and those looking to refinance their existing property. There is a paucity of mortgage availability and consumers need help and support when searching for a suitable product.

"This is where mortgage intermediaries excel and add value to borrowers and mortgage lenders. They are adept at matching a borrower with a lender, saving time and money for both parties and it underlines the fundamental importance of this channel, not just to consumers but also to lenders as a flexible and highly effective route to market.

"2010 was a difficult year in terms of mortgage supply but, even so, mortgage intermediaries dominated the market in terms of sales. We expect this channel to perform equally strongly in 2011." 

Bank of England are missing the warning signs

The Bank of England’s (BoE) decision to hold interest rates at 0.5% yesterday for the 23rd straight month represents yet another missed opportunity to combat rising inflation, experts believe.

The BoE's Monetary Policy Committee has been under mounting pressure to increase borrowing costs to fight off rising inflation, but opted against a base rate rise.

Dr Ros Altmann, director general of Saga, says the MPC again failed to show it wants to control inflation."It is disappointing the Bank of England has once again ignored the warning signs," she says."With the UK economy showing every intention of shrugging off December's poor GDP figures, and with high and ever-increasing inflation strengthening its already firm grip on the UK economy, the MPC has missed yet another opportunity to signal that it really is serious about controlling inflation."It also missed a chance to give savers at least some crumb of comfort that their suffering may be nearer an end."

Meanwhile, Royal London Asset Management economist Ian Kernohan believes the MPC must now increase rates soon if recent economic trends continue.

"We were not expecting a move at this meeting, however, assuming the economic recovery signalled by the main business surveys remains on track, interest rates look set to rise later in the year," he says."Next week's Inflation Report should help prepare the ground for such a move and will be a tad more hawkish than the November report."

Women earners are failing to insure themselves properly

Women are increasing their earning power but less likely than men to have financial protection should they suddenly be unable to work, according to new research.

The Women and Protection report released by Bright Grey found that women were taking more control of household finances but neglecting to protect themselves.

It found over half (53%) of working women admitted that they have no life insurance cover in place, while four in five do not hold income protection (84%), critical illness (78%) or private medical insurance (81%).

This exposure is further exaggerated by figures showing that over 16% (equating to more than two million women nationally) who say they do not have a savings account.

And over a third of working females (35%) say they do not currently have a pension in place, compared to 30% of working men.

The increasing role of women in family financial matters is illustrated by a near parity with men in making decisions.

Nearly half (44%) of all working females surveyed stated they predominately made the financial decisions in their household - compared to just over half (53%) of working men. Almost three in five (59%) of married couples say they consult each other on all financial issues.

One major insurer believes women could be putting themselves and their families at risk by not protecting their income, especially if a household is dependent on their salary.

"We are calling for women to have adequate financial protection in place for themselves and their families," .

"By buying a protection product that pays out if they are unable to work due to a serious illness or disability, women can ensure they protect both their household income and current lifestyle. There are various affordable protection options in the market, and it is critical that women in the UK who are increasingly running their household finances are protected,".

The provider surveyed 2,010 UK adults for its report.

Interest rates to hit 2.75% by 2012 - CBI

The CBI projects interest rates could hit 1.25% by the end of 2011, rising to 2.75% by Q4 2012 with inflation forcing the BoE to raise rates from their historic low in the Spring.

Private sector employer trade body, the Confederation of British Industry expects inflation to stay "stubbornly high" this year, partly due to the impact of higher VAT but also due to pressure from rising energy and commodity prices.However, it continues to predict, that the UK economy will grow in 2011 but has downgraded its GDP forecast from +2% to +1.8%.

The CBI said the UK is on the road to recovery, with growth accelerating in 2012, and maintains the risk of a double dip into recession is low.

John Cridland, CBI director-general, said: "With household spending under some considerable strain, we will be looking to business investment and exports to help deliver economic growth over the coming two years."While this growth will still be lower than the long-term average and unemployment will continue to creep up, job numbers will also increase as the recovery picks up," he said.

Ian McCafferty, CBI chief economic adviser, observed that growth is far weaker than we would normally expect for the second and third year of an economic recovery.

"Persistently high levels of inflation, caused by rising energy, commodity prices and the VAT increase, are also a concern. This makes it more likely that the Bank of England will need to start putting up interest rates from their record low level from the second quarter of this year."The economist said he expects unemployment to hit 2.71m by the end of 2011 but drop slightly to 2.64m by Q4 2012.

Fixed rates at their highest level for six months

With interest rates at their lowest ever level, it is tempting to forget about the rate you are paying on your mortgage.

But The Telegraph reports that the latest figures suggest the cost of fixed rate deals has risen sharply during the past six months and will continue to do so amid fears that the Bank of England will increase interest rates sooner than expected.

The cost of a typical five year fixed rate deal has reached 5.45 per cent, the highest level since August last year, according to the research by personal finance website Moneyfacts.

The average three year fixed rate mortgage has reached 5.05 per cent, the highest level since September, while a two year fixed rate deal is at 4.49 per cent, the highest level since August.

It follows a 47 per cent increase in swap rates – the rates which lenders use to price their fixed rate mortgages – from 1.35 per cent for the two year swap rate in November to 1.98 per cent today.

It is a sharp turnaround in fortunes for those looking for a fixed rate deal. In November last year, the Bank of England reported the average rate on a five year fixed rate mortgage dropped significantly to 4.86 per cent in October, down from 5.04 per cent the previous month and the lowest five year fixed rate since the summer of 2003.

Michelle Slade, a spokesman for Moneyfacts.co.uk, said: “Fixed mortgage rates continue to rise as lenders pass on the higher cost of funding to borrowers.The majority of lenders have increased rates since the start of the year, with some mortgage deals seeing rate rises of more than 0.5 per cent.Borrowers who have delayed the decision to commit to a new deal will now find themselves having to pay higher monthly payments.On a mortgage of £150,000, a 0.5 per cent increase in rate would add £42 per month to a borrower’s repayments.With no signs of swap rates starting to fall, the likelihood is that mortgage rates will rise further.Recent reports are suggesting that a base rate rise could happen sooner than previously thought.

“Any rise in base rate would push mortgage rates higher, so borrowers looking to fix their repayments should act sooner rather than later.”

Insurance premiums set for radical change if EU ruling goes through

A ‘unisex’ ruling by the European Court of Justice is expected soon which could throw the insurance industry into turmoil.

The Court is to rule on whether it is illegal to take gender into account in setting insurance premiums.

The ruling, due to be made on March 1, could come into effect immediately. It would mean that UK insurers will no longer be allowed to differentiate between men and women when underwriting a whole range of financial products, including mortgage protection products.

Among those likely to be most affected would be specialist insurers. The Association of British Insurers (ABI) says that women drivers would have to pay 25% more for their cover and has warned that millions of women drivers would have to renew their existing insurance policies.

It also warns that insurance costs would rise across the board, although a notable exception would be young male drivers.

Men would, however, have to pay more for their annuities. Currently, they pay less than women because they have a lower life expectancy than women, but pay more for life insurance.

Private medical insurance rates would change. Men between 35 and 50, who are statistically less prone to illness than women of the same age, would have their premiums raised by 15%, whilst female premiums would be cut. 

Malcolm Tarling, spokesman for the ABI, said: “We believe this will be extremely detrimental to UK consumers. If insurers aren’t able to take into account risk factors, it will have widespread implications.”

Sheilas’ Wheels spokesman Adrian Webb expressed concerns that insurance premiums for young male drivers might be ‘artificially’ reduced. 

He said: “It is particularly alarming, given that the head of the Association of Police Officers in the UK in 2005 noted that the biggest killer of young women in Britain is their boyfriend’s and male friends’ driving.”

The Equal Treatment Directive, implemented in 2004, included a ‘derogating provision’ to allow EU member states to permit insurers to use gender in their calculations so long as this use was backed by robust and published actuarial data at a national level. 

But this exemption was challenged last year and an initial decision found it was wrong to charge men and women different premiums. 

House prices to rise five percent this year

Homeowners were treated to a surprise rise in house prices last month as values bounced back after steep falls. 


Mortgage giant Halifax said the average cost of a home in Britain rose to £164,173 in January, a climb of 0.8 per cent. 


Property experts say a shortage of good homes coming up for sale, low interest rates and higher rents could boost property prices by five per cent this year. 


Halifax said the rise came after steep falls amid December’s snow disruption, when prices suffered a 1.3 per cent plunge.

Economists warn that interest rates could change this week

There is a one-in-three chance that the Bank of England will raise interest rates next week, economists warned last night. 


Pressure is mounting on the monetary policy committee to lift rates from 0.5 per cent to put a lid on soaring prices. 


An influential panel of economists has told the Bank of England to ignore warnings about the strength of the recovery and to raise interest rates. 


For the first time since the onset of the financial crisis, a majority of the nine-member 'shadow' monetary policy committee (MPC) voted to raise rates, emphasising their concerns about inflation. 


The five economists who called for a rise all said rates should go from 0.5% to 1%. The shadow committee's decision appears to clash with the views of Mervyn King, the Bank's governor, who last month warned of Britain's 'fragile recovery' and signalled an imminent rate rise was unlikely.


Such a move would be a blow to borrowers but would be welcomed by Britain's army of savers who have lost out since rates hit rock bottom in March 2009. 


The economy shrank by 0.5 per cent in the final three months of 2010 after a year of stuttering growth.

Interest rate rise warning

The Bank of England may have to put up interest rates if the commodity price boom continues, deputy governor Charles Bean warned today in an article in the Guardian.


Suggesting further splits in the Bank's already divided monetary policy committee, Bean pointed to the substantial rises in food and oil prices in recent months as a reason for possible rate increases. North Sea Brent Crude hit $102.02 a barrel yesterday, amid concerns that the riots in Egypt could trigger the overthrow of regimes in the Middle East and north Africa. Metal prices are also at record highs. While the central bank expects inflation, currently at 3.7%, to fall back to its 2% target provided there are no further shocks, Bean said the economic boom in some emerging markets could drive commodity prices higher.