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One of the most popular articles on MoneyHighStreet.com is that petrol may soon cost £5 per gallon. Well it certainly took a lurch towards that disconcerting figure this week.

For the first time, I saw diesel being sold at £1.02 per litre today.

With 4.55 litres to the gallon, this brings the cost of diesel to £4.64 per gallon. The problem is that there will be an additional 2p tax increase on fuel in April. So without any further increases in oil prices, that additional tax increase will drive the cost of diesel upwards to £4.73 per gallon.

Maybe our proficy of £5 per gallon is nearer than we expected, which is not good news to end the week on.

Interest rates were held at 5.75 percent today by the Bank of England, which is welcome news for mortgage owners. As this was the first opportunity for the Bank of England (BoE) to change the base rates since the Northern Rock problems, it seems that the Bank wants to assess the impact of the recent credit problems before making any adjustments.

With the changes to the economy taking time to work through, the BoE is being sensible to act cautiously. As interest rates fell by 0.5 percent in the USA earlier this month, there may even be a case for base rates to fall in the UK slightly, although it is probably more likely that they just won’t be increased.

If we are at the top of this interest rate cycle, then mortgage owners could breathe a sigh of relief as long as lenders don’t tighten credit even further.

Less welcome news to the home owner is that house prices are not growing as fast as they were. The Halifax announced today that annual house price inflation decreased by 0.6% in September. The Halifax is also predicting a further slow down in house prices throughout the autumn.

This is not saying that house prices are falling, but that house prices are not increasing as fast as they were.

So is that two pieces of good news?

I guess it depends on your circumstances, but a period of calm both with interest rates and house prices will probably do us all good.

I’m getting closer to replacing our family car.

I’ve recently written a post about the Ford Mondeo (terrible depreciation) and the Toyota Prius (costly for what it is, despite its green credentials), however I decided to speak to a few car finance companies today to gets some quotes.

There are some good finance deals around at the moment, depending on what car you want, however the wise words of one person I spoke to today have really struck a chord with me.

“If it appreciates - buy it. If it depreciates, rent it.”

Cars depreciate, unless they are sought after by collectors. That depreciation can cost you £5000 per year for a Ford Mondeo and most cars will lose at least 50% of their value over three years. Putting your hard earned savings into such a depreciating asset just doesn’t make sense.

Even with a low APR finance deal, such as Nissan are offering at the moment, you still have to supply a hefty deposit for a personal contract plan with a balloon payment after two or three years. Invariably that deposit will be whittled away by the dreaded depreciation.

So how am I going to finance our next car?

It will almost certainly be by taking out a three year personal car leasing contract. I’ll pay three months deposit and then 35 monthly rentals. At the end of the three years I just hand the car back and sort out another car and finance deal.

I’ll literally save thousands of pounds with a personal contract hire plan.

Here are three car leasing companies that I spoke to today:

• Tilsun Group
• Leasing4u
• Cars 2 Vans

A block of 24 quality flats is being built two minutes walk from the main line station in our town. Most of the building work is nearly completed and the inevitable estate agents hoarding is displayed to sell as many of the flats “off plan” as possible.

At this stage of the development you’d expect to see that at least half the flats had been sold. Not with these flats. As far as I know, not any of them have been sold yet, which must be causing the developers a few sleepless nights.

A few months ago these flats would have been snapped up by buy to let investors, given the great location and high specification.

It is not just newly built flats in this area that are no longer attracting buy to let investors. A friend runs a property management business, specialising mainly in maintenance work for buy to let investors owning large portfolios. At least two of his customers are selling up - if they can.

With mortgages starting to get more expensive and lenders tightening their criteria to minimise their risks, buy to let investors are starting to feel the pinch.

The TV property programmes such as Homes under the hammer are still packed with eager investors, however these were filmed at least six months ago. Things seem to be changing and from what I’m seeing, there are less people wanting to become buy to let investors now.

As I’m looking to change our car at the moment, I’ve been trying out a few cars such as the Toyota Prius, Ford S-Max and the new Ford Mondeo.

The Prius, as good as it is, seems too expensive for the hybrid technology at the moment. The S-Max, which seemed to tick all the boxes with space and seating for a family with two children, suffered from very bad road noise at speeds above 55 mph. So that leaves the Ford Mondeo as the best contender so far.

I must admit that it is a really good car for the price. It’s big and quiet and comfortable and is reasonably priced. No wonder Audi and BMW drivers are considering it seriously now. The hatchback boot is so big that you don’t need an estate car, even with two children, and the 2.0 diesel engine seems superb and delivers good fuel efficiency.

So that’s that then. The Mondeo is the car to go for!

Well not quite. Talking to the salesman about various finance and purchase option soon turned up a horrifying fact about this good car.

Depreciation.

I was shocked. We ran some figures on a Ford Mondeo costing just over £23,000 new. After three years, having only done 30,000 miles, that same car would be worth £6,800! That car would lose around £16,000, 66 percent, in value in three years.

At a depreciation cost of £100 per week, buying a new Ford Mondeo is plain daft, unless someone else is paying for it. Buying a “nearly new” or second hand one with that first tranche of depreciation paid by someone else, would make sense, however.

The latest Mondeos are very rare on the second hand market at the moment as they are so new, however I have just been contacted by our local Ford dealer who has one coming into their showroom later this week. With only 3000 miles on the clock, it could be interesting……

In a short and to the point sentence, the Nationwide has summed up the new situation for mortgage borrowers following the recent credit crunch problems

“From now on risk must have its price”

This is what they mean by this statement:

• High loan to value (LTV) mortgages, which are inherently more risky than those with lower LTV’s, will be more expensive from now on. For example 95% mortgages now have 0.45 percent higher rates than 75% mortgages.
• Sub prime borrowers, who also represent more risk to the lender, will also pay more for their mortgages from now on.

The Nationwide also predicts that as highly leveraged borrowing (mortgages with high LTV’s) will become more expensive, the number of these mortgages will decline in the future. This will probably impact the property market, particularly the buy to let sector, which depends on high LTV’s to raise funds to purchase property for growing portfolios.

It is not just budding property entrepreneurs who may be affected by this tightening of lending criteria. First time buyers largely depend on 95 percent or even 100 percent mortgages to buy their first home. They too will find mortgages more expensive and more difficult to obtain, particularly if they have any credit impairment.

So there do appear to be a number of factors that could force house prices downwards, or, at least, slow the rate at which they increase in value.

All is not bleak, though. The Nationwide also predicts that Bank of England interest rates are less likely to rise now, which is good news for those who are willing to borrow less and have taken care of their credit records.

Barratt Developments, one of the largest house builders in the UK, is warning that house prices may fall in the short term as a result of the recent interest rate rises and a squeeze on credit resulting from the recent problems with Northern Rock.

This is a quote from the Barratt Chief Executive:

“The recent credit squeeze has further affected customer sentiment and pressure on lending institutions has led to a tightening of lending criteria and mortgage availability.

“It is not yet clear how quickly the market will recover but we have to assume that there will be downward pressure on [house] volumes and price inflation in the short-term.”

I guess that this is to be expected after the recent turmoil in the financial markets, however it is interesting to note that Barratt are not mentioning home information packs (HIPs) as a factor that might depress market demand.

It is too early to see how the credit crunch is affecting consumers, however the Bank of England seems to think that it is corporate, rather than consumer lending, that will be squeezed the most.

So if one of the largest house builders is preparing for falling house prices in the near future - though they remain confident that housing demand will outstrip supply - then we, too, should prepare for a fall in the value of our homes.

Self certification mortgages sound a great idea. Tell the mortgage company that you are earning more than you actually are and you have access to bigger mortgages, even though the monthly payments may be close, or even exceed monthly take home pay.

Much of the buy to let market is fuelled by self certification mortgages and apparently around half of all sub prime mortgages are self certified. Sub prime mortgages and remortgages attract high commissions and brokers often charge huge arrangement fees knowing that sub prime applicants often have very few options if they want to extend their borrowing.

I know of one broker that charges over £3000 arrangement fees for a sub prime remortgage, but as these fees can be added to the mortgage, the borrowers swallow this even though it adds to even higher monthly payments.

Because sub prime mortgages are so lucrative, it is in the brokers interest to win this business, almost at any costs. Self certification allows the broker to encourage the applicant with credit problems to borrow more so that they earn more lucrative commission. Apparently some brokers have even encouraged applicants to fill their forms in in pencil so that they can tweak the earnings to meet the income requirements of larger loans.

Confronted with evidence from the BBC, the FSA is going to crack down on lenders and brokers involved in this overselling or mortgages and remortgages. It has even banned some brokers and intermediaries.

The problem is that these practises in the UK sub prime market echo the troubles experienced in the sub prime sector in the USA and we all know what damage that is doing. If the UK is to prevent a similar sub prime crisis, the FSA is right to crack down on the bad practises adopted by some brokers.

The lenders must take responsibility too by being vigorous in checking that stated self certified earnings are accurate and truthful.

This article from the BBC explains more about the problems with sub prime self certified mortgages

This link points to the BBC Radio File on 4 programme that illustrates some of the problems caused by self certification mortgage mis-selling.

I know that the title of this post sounds bad - after all we should all do our bit for the environment and I do care about my own carbon footprint.

There are many environmental benefits to hybrid cars, and we published an article about some of the ways in which the Toyota Prius can reduce motoring costs on MoneyHighStreet.com today. So please don’t think that I’m aganst green cars and all that they can do for our environment. I’m not - far from it.

However even though I am looking to replace our car at the moment, I have decided against the Prius for these reasons:

The cost (monetary) of the hybrid technology creates a car that is over-priced against similar cars. As the Toyota Prius costs just over £20,000 for the top of the range model, you can get a similarly sized and specified Ford, Peugeot, Citroen or Vauxhall for around £18,000. So you are paying approximately £2000 for the hybrid technology.

I wonder about the cost (environmental) of the additional electrical motor and electronics that are needed for the hybrid technology. The overall environmental impact of the materials required must be greater for a hybrid car than one with a conventional motor.

The last point is that I think it is better to wait until the next generation of diesel engines are available. The Volkswagen Polo BlueMotion, which is currently available, has CO2 emmissions of 104 g/Km, which are the same as the Prius. Very soon we will see more manufacturers releasing cars with CO2 emissions below 100 g/Km.

So there is a price to pay for being an early adopter of the hybrid cars and it’s one that at this point in time I don’t want to pay. I will buy a diesel car for the environmental and cost benefits that brings, but even though I think the Prius is extremely impressive, and leads the way for the future.

If I lived in London and could save the £8 a day congestion charge, it would be a different matter, but for now, the Toyota Prius is not for me.

The news that Abbey is considering providing 100 percent mortgages again got me thinking about how sensible they are at the moment.

The Abbey know what they are doing and take a sensible approach to lending but I personally wouldn’t feel confident in taking out a 100 percent mortgage in the current house market.

After all if you have a 100 percent loan to value then you are in negative equity from the start, when you include all the other costs of buying a home.

I recognise that it is very difficult for young people to get on the housing ladder and 100% mortgages are often the only way to achieve that vital first home. However I wouldn’t take one for these reasons:

• To move into positive equity in your home, you need house prices to increase. As I said yesterday, house prices during 2008 will probably plateau.
• Predictions for the property market in the future are no longer as buoyant as they have been as houses are now so unaffordable.
• It is too early to predict what the impact of home information packs (HIPs) will be on the property market.
• The rates of 100 percent mortgages may increase to offset the greater risks to the lenders, particularly following the recent credit crunch problems.

To those desperate to own their own home, this is not good news, however it must be sensible to rent for a while, building up a 10% deposit in a high interest savings account.

Whatever happens to the property market, it is unlikely that house prices will increase faster than your ability to save a deposit, as has happened during the last few years.

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