The Salary Calculator

The Financial Services Authority (FSA) have today released mortgage reform proposals which are designed to regulate mortgage lenders and help prevent a repeat of the house price bubble that burst at the end of 2007. The approach they have set out is to prevent “reckless” lending to borrowers who can’t afford to repay the loan, which leads to foreclosures and repossessions and ultimately declines in the housing market.

The proposals seem to be designed to protect the borrower, by making it the responsibility of lenders and mortgage advisers to check that the mortgage is indeed affordable. There are proposals to prevent lenders charging the borrower for being in arrears, as long as the borrower is trying to reduce those arrears. However, as the BBC are reporting, there are fears that these measures would make it even harder for people to get a mortgage as lenders (who are already limiting the mortgage options available and the ease with which they can be taken) will insist of tough checks to make sure that the applicants really can afford the repayments.

Some commentators think that this might hurt the housing market, which currently needs all the help it can get, because it will mean fewer people buying houses. However, we should bear in mind that at this stage they are only proposals by the FSA, they may be modified or relaxed before they are introduced, and they are unlikely to take effect for 12 months or more. We may find, therefore, that a number of borrowers will try to take mortgages out before the new rules come in and lenders may be tempted to take advantage of this crowd by offering more and better deals. It’s not all bad news for those looking for a new mortgage, and we may see that this helps (in the short term) both house prices and the mortgage market. Long term, the reason behind the proposals is to make house prices and the market in general more stable, instead of the boom and bust that we have seen in recent years. This will mean house prices are unlikely to increase at the rate they did in the mid-2000s, but should manage a steady climb that is more reassuring for borrowers and lenders alike.

I mentioned in an earlier post that The Undercover Economist was a good book for anyone trying to get an understanding of how economics shapes our world. As a reader pointed out at the time, another good book is Freakonomics, by Steven D. Levitt and Stephen J. Dubner.

Freakonomics: A Rogue Economist Explores the Hidden Side of Everything, to give it its full title, explores not just how the financial side of everyday life is determined, but also how economics applies to other parts of life. There are details of interesting studies into how the name of a child affects his or her employability later in life, how statistical analysis can spot cheating sumo wrestlers, and why most drug dealers still live with their mother.

Where The Undercover Economist explains how economic theory and practice affect us on a day-to-day level, Freakonomics goes into the detail of how a wider application of economics can tell us more about the world, and even explains some of the methodology used to spot trends and draw conclusions. The analysis work is covered in some detail but never gets boring – the writing style is clear and entertaining, leaving you to think about the implications of the studies covered.

Click on the link to the right to buy the book from Amazon, and you’ll be doing your bit to support this site!

I have a trip to Paris coming up and it’s prompted me to check out the current exchange rate on the excellent X-Rates site. As you’ll see if you click on that link, Sterling has been falling over the last month or so.

As I wrote a few months ago, the Pound had improved both against the Euro and the Dollar during the summer months, which was good news for those of use on holiday there. It didn’t reach the highs of 2008, but it had improved since last winter. However, during August and particularly in September, a lot of the ground the Pound had made up was lost against both currencies. The pound is currently worth €1.09, from a high during the summer of €1.18, making travelling to Europe very expensive for us Brits.

I believe the reason for the Pound’s decline is the fact that the UK is still in recession whereas the powerhouses of Europe, Germany and France, have successfully grown their economies. Hopefully we will see in the next few months Britain exit from recession, and then the Pound will become a more attractive currency for investors, making it stronger and (importantly) worth more.

A reader has asked me about this campaign pledge from the Lib Dems, where they say they will increase the income tax personal allowance to £10,000 if they win the next election. They say this could mean an extra £700 a year for low- and middle-income voters.

Let’s look at the numbers and see if they are right. As you can see on The Salary Calculator “about” page, the current allowance is £6,475 for under-65s. Increasing this to £10k would give everyone an extra £3,525 untaxed, and for those in the 20% tax band this would be £705, matching what the Lib Dems claim.

However, they have to raise this extra money from somewhere – as you can see on their website they have listed some areas they might take the money from, including taking National Insurance on benefits in kind and second jobs. Also, they may lower the threshold between the 20% and 40% rates, meaning smaller savings for those in the higher bracket.

At first glance, those in the 40% tax bracket will save even more with this increase in personal allowance (up to £1,410!), but if the threshold were lowered this effect would be smaller, and as you can see on the Lib Dem website, they also talk about modifying tax relief so that pension contributions are only tax free on the 20% rate. As always, the devil is in the detail!

Needless to say, should they come to power The Salary Calculator will be updated when they make good on this campaign promise.

There’s still a lot of bad news on the employment front, with a lot of large companies making layoffs and plenty of school leavers with no job to go to. You might think that this is a bad time to look for a new job – especially if you are employed at the moment. But there are still employers with opportunities for the right person, and those helpful people at My Job Group may be able to find one for you.

They have many different websites covering all areas of the country, such as local London jobs, my Edinburgh jobs and my Birmingham jobs. This allows them to target jobs to the area you’re interested in, without you having to sort through results to find those near you. They have listings from many local employers and a search engine to help you find the right opportunity for you.

On each site they also have a Careers Centre with tips on how to improve your CV, write a good cover letter or prepare for the interview – some of these ideas and suggestions might be just what you need to get into your new job! If you’re currently out of a job or just fancy a change, I recommend you take a look and see what’s available in your area.