Best Loans News

Equity release schemes are finally beginning to lose the stigma which they earned in the late eighties and early nineties for being high risk, or even dangerous plans which could leave a customer worse off than if they had not embarked upon the scheme in the first place.

Since the introduction of SHIP (Safe Home Income Plans) with their clear literature, independent legal advice and no negative equity guarantee, equity release loans and mortgages have continued to increase in popularity, never more so than over the course of the last year or so.

Despite the fact that the total number of conventional mortgages and loans has declined dramatically over the course of the last year, equity loans and mortgages have seen an increase in sales of over 10 per cent in the last three months alone and the news has been welcomed by Saga, who have said that they regard the schemes as a vital component of an individual’s retirement planning.

A major reason for the increase of popularity of equity release loans is undoubtedly due to the fact that the vast majority of people are failing to make sufficient provision for their retirement by conventional means, such as pensions and investments, coupled with the fact that many of those who have invested have seen the value of their funds diminished by poor investment returns over the past few years.

Many people face retirement “asset rich but penny poor”, with all their money locked into the value of their home. An equity release loan allows them to release the value of this asset, whilst maintaining ownership of the property, without risk of losing it in the future.

Alex Edmans of Saga Equity Release Advice Services said “In the face of soaring pensioner inflation, we still believe that equity release can be a vital way for older people to tap into some of the value they’ve built up in their properties and use it to maintain their lifestyle in retirement. In particular, we’ve seen an increasing number of people who are reluctant or unable to sell their homes using equity release to pay for renovations.

We expect sales of equity release plans to continue to grow as it becomes more recognised as a key element in retirement planning.”

Earlier this week the Government issued new protocols to the courts for use with cases of repossessions, where home owners have fallen into arrears with the repayments on their mortgage or home loan, which are designed to protect the interests of home owners and make repossession a last resort of the lender.

On the back of these changes, the Council of Mortgage Lenders (CML) has introduced their own guidelines for lenders in order to ensure that their arrears handling procedures comply with the new requirements.

In compiling the guidelines, the CML has taken into account the Financial Services Authority’s (FSA) rules on how mortgage and home loan providers should handle arrears and possession cases, along with their “treating customers fairly” principles.

The CML has also been in discussions with various advice agencies, such as the Citizens Advice Bureau (CAB), to ensure that the guidelines meet the needs of both lenders and those borrowers who may be in arrears with their loan so that repossession may be avoided wherever possible. The guidelines have been welcomed by consumer protection organisations who say that the notes will help strengthen suitable procedures for responsible lenders and also provide helpful advice for borrowers who may be struggling with their loans.

Michael Coogan, Director General of the CML said “Despite the fact that the rate of repossession is modest, we recognise that there is a significant public concern about this subject. The new guidance should help to reassure consumers that lenders are genuinely committed to seeing repossession as a last resort and that checks and balances that protect consumers are in place.”

Teresa Perchard of CAB said “People facing payment problems worry about whether they will get fair treatment and may put off seeking advice as a result, but the earlier people seek advice, the better. We welcome this guidance, which acts as a good yardstick for borrowers and money advisers about the kind of practical treatment they might expect to see from responsible lenders.”

Due to the recent concerns over the increasing level of arrears and possession proceedings which have been brought against UK home owners who have been struggling to keep up with the repayments on their mortgage or homeowner loan, the Government has introduced new measures to help individuals remain in their homes and also maintain ownership, by making changes to the way court proceedings for repossession are dealt with and also proposing the regulation of sale and rent back schemes.

New protocols have been introduced for court hearings for repossession cases to help to protect struggling home owners. The onus will now be on the provider of the mortgage to demonstrate that they have done everything they possibly can to help the borrower avoid repossession, including discussions with the customer on alternative solutions to their problems, thus ensuring that repossession is only considered as an absolute last resort. Once a case does make it as far as the courtroom, the lender will have to produce documentary evidence to support its case that it has done all it can to save the customer from losing their home.

The other course of action being proposed is to introduce regulation by the Financial Services Authority (FSA) for those companies operating sale and rent back schemes, following the recent report from the Office of Fair Trading (OFT) on this sector, which highlighted the need for regulation and increased consumer awareness of a product which can cause “severe detriment” to home owners struggling with their loan repayments.

Other Government assistance is likely to be in the form of new guidance for local councils and home owners on housing benefit eligibility, increased levels of free legal assistance for those facing a repossession hearing over their homeowner loan, more free debt counselling and advice, along with literature produced in association with the National Homeless Advice Service entitled “worried about your mortgage, get advice now”, which will be available from local councils and Citizens Advice Bureau offices.

There has been a lot of talk about irresponsible lending within the mortgage and personal loan industries over the past few months, as an ever increasing number of borrowers are finding themselves in financial difficulties as the credit crunch tightens and they struggle to meet their monthly repayment commitments.

Many individuals are blaming the various lenders for the current problems, as they claim it has been too easy to obtain credit in the past and lenders have not made suitable checks on affordability for customers before offering a new loan.

The Finance Industry Standards Association (FISA), which is the self regulatory and compliance organisation within the secured loan industry, has called on the Office of Fair Trading (OFT) to carry out a specifically focused project into the area of irresponsible lending, in order to deliver some guidance and principles to both lenders and brokers working within the loan industry.

FISA has also suggested that the guidance should be tailored to suit different types of loan, as lending criteria can be very different between for example, unsecured loans and secured loans.

FISA is encouraging the OFT to focus on two specific areas.

Firstly, that all loan providers have a responsible lending policy within the company, which is used as a base for lending decisions along with a suitable affordability model and secondly, that brokers and intermediaries who offer secured loan services to their clients, should be clear about their own responsibilities when it comes to giving suitable advice.

John Parker of FISA said “FISA recognises the importance of this OFT project and has been involved from a very early stage. In the current economic and political climate the need to avoid irresponsible lending is of critical importance. Producing guidance to help define the responsibilities of both lenders and brokers will be of major importance and we look forward to continuing our work with the OFT to help shape the project.”

Everybody in the UK with any kind of mortgage or loan breathed a sigh of relief a couple of weeks ago at the prospect of cheaper monthly loan repayments, as the Bank of England announced a cut in the base rate of interest of 0.5 per cent.

However, in many cases this optimism was short lived as a large number of lenders failed to pass on the savings to their customers, due to the cost of inter bank borrowing actually increasing, rather than following the trend of the base rate.

On the back of this news, a number of providers in the unsecured loan market have actually increased the rate they charge borrowers for a personal loan.

Over the course of the last month, eight lenders have increased their loan rates by anything up to 9 per cent and these have been joined this week by Direct Line and Mint, who have both increased their unsecured loan rates by 4.8 per cent on loans of between £5000 and £7499, giving an Annual Percentage Rate (APR) of 13.9 per cent, although this rate is lower for larger loan amounts.

Louise Bond from the price comparison website U Switch said “The current economic climate is unpredictable and volatile. The recent decrease from the Bank of England may provide some relief to home owners where the rate cut is passed on, but consumers looking for a personal loan may not get as good a deal as they expected.

However, there are still some good loan deals out there, it’s just a case of shopping around to make sure they are not paying over the odds.”

Since the collapse and subsequent nationalisation of Northern Rock last year, the newly appointed board of directors is continuing to attempt to turn the lender around and repay the money which has been pumped into the organisation by the UK taxpayer.

The mortgage and homeowner loan provider is currently on target with its repayment schedule by encouraging borrowers to redeem their loans and remortgage with other lenders, thereby returning funds to the lender. However, this plan is now facing problems due to increasing levels of arrears on the high loan to value “Together” mortgage range.

The Together range of mortgage loans allowed customers to borrow up to 125 per cent of the value of their property, instantly placing them in a negative equity situation and with house prices dropping over the course of the last twelve months, this problem has only got worse.

These loans are now causing quite a headache for Northern Rock, as customers are unable to remortgage anywhere else, due to other providers significantly reducing their maximum loan to value ratios, along with the fact that the level of arrears on these loans is increasing dramatically and accounts for a significant proportion of all repossessions, not only within Northern Rock, but within the mortgage market as a whole.

Ron Sandler, executive chairman of Northern Rock said “The arrears figures on Together loans has continued to increase at a faster rate than non Together loans. They also accounted for three quarters of property possessions during the third quarter.

As our mortgage book shrinks, this has now contributed to the fact that our proportion of arrears has increased. We anticipate that it will be more challenging in the future to maintain the 2008 redemption levels, given the significant slow down in the housing market and reduced availability of mortgage financing.”

As the global credit crunch continues to affect everybody in the UK in some form or other, many individuals and families are being forced to cut back on the amount of money they spend on the luxuries in life in order to be able to meet their regular monthly financial commitments.

For the majority of families, the number one priority is maintaining the repayments on their mortgage or homeowner loan, followed by credit card payments and personal loan repayments. But once these major bills have been paid, the next priority for many is to keep up saving for their children’s future, according to a new survey from Family Investments.

The research from the Child Trust Fund and savings provider has revealed that parents are prepared to cut back on what they spend on themselves, in order to put money to one side for their children and more than 80 per cent of those parents interviewed said that they had reduced the amount they spent on things like make up and clothing for themselves to be able to do this. In addition to this, almost half said that they would be cutting back on holidays over the coming year. Only 6 per cent claimed that they were not making any changes to their spending habits.

Clearly it is a good idea to save for your child’s future and long term savings can go a long way to providing a deposit for a house, or paying for University and college fees, particularly now that first time buyers are unable to get high loan to value mortgages and the typical student leaves university with an average debt of around £20,000 on student loans, credit cards and overdrafts.

A spokesman for Family Investments said “In our experience saving for a child’s future is a parental obligation, so when things are getting tough this is the last area that parents are willing to cut back on. Despite the strain on the current economic climate, 85 per cent of parents will be continuing to top up their child’s trust funds by the same amount, it’s just a matter of cutting back on little luxuries when things are tight to ensure their children’s savings don’t suffer.”