Best Loans News

After the past couple of years or so, when we saw companies withdrawing from the loan market and in some cases closing down altogether, it is a refreshing change to see companies returning to the market and starting to offer loan products to the market once more.

This week, Link Loans has announced that it is returning to the loan market, with a new range of secured loan products aimed at the prime lending market, which will be available to both employed and self employed borrowers.

Link Loans has been able to return to offering loans with the assistance of the Royal Bank of Scotland Equity Finance division, who are providing the funding for the new loan products.

The new range of secured loans will only be made available through financial intermediaries and loan brokers and will offer simple loan products with a transparent charging structure.

Loans will be available up to a maximum loan to value of 75 per cent for employed people and 70 per cent loan to value for the self employed. Rates will start from 11.9 per cent and loan amounts will range from £5,000 to £30,000 over a term of between three and twenty years.

David Johnson of Link Loans said “The market has never been better for a prime lender to enter with massive unsatisfied demand. The old, secured lending business model relied too much on ancillary sales such as insurance and as a consequence migrated to increasing risk and reducing margins to drive volume. The subsequent pressure on income, combined with huge restrictions on funding, forced lenders to withdraw. We have brought Link Loans back to the market with a realistic, common sense model that is transparent and simple, offering sensibly priced products with prudent lending criteria.”

The equity release loan and lifetime mortgage market has had quite a negative stigma attached to it over the years, particularly since some of the horror stories of the eighties and early nineties with regard to how some of these loan products worked.

Since the introduction of SHIP (Safe Home Income Plans) and regulation from the Financial Services Authority (FSA) for this sector, equity release loans have become clearer to understand and much safer, thanks to things such as no negative equity guarantees.

Despite this, many people remain extremely cautious of equity release loans as a part of their retirement planning.

Last week, however, an all party parliamentary group endorsed the use of equity release loans as a key factor in retirement planning for individuals, in helping to bridge the gap between their income from pensions and investments and their actual financial requirements.

The all party parliamentary group focused on the insurance and financial planning needs of retired people and those approaching retirement. It identified that equity release loans were an important part of retirement strategy, although the sector needed government support in the following areas:

• The urgent need for initiatives to increase the public trust in the equity release market,
• The need to ensure and maintain a high standard of advice to support growing demand
• The requirement for government to go further in their support for the industry as a key retirement funding solution.

Andrea Rozario of SHIP welcomed the news and said that it was “Gratifying to see housing equity taking its place in the mainstream retirement funding canon”, although there was still along way to go in developing new loan products and building public confidence in recognising equity release loans as an important part of retirement planning.

In the aftermath of the recent banking crisis in the UK, several of the major high street banks in the country had to be bailed out with help for the Government in the form of Treasury loans, in order to keep them afloat and not breach liquidity rules.

One of the main criteria of being granted these government loans was that the banks should be at the forefront of leading Britain out of recession by offering competitively priced cheap loans to customers who need them, in order to provide a boost and help get the economy going again.

But new research from Moneyfacts.co.uk has found that many of these state owned banks are actually charging a higher rate on their loan products than many of their privately owned competitors and some people have accused them of charging higher loan rates to their customers in order that they may repay their own loan debts back to the Government.

The exception to this rule is the Royal Bank of Scotland, who is currently offering one of the most competitively priced ranges of home owner loan deals on the market, with an average rate of 3.84 per cent. However, home owner loan interest rates from Cheltenham and Gloucester, the Halifax and Northern Rock are all well above the average rate for the rest of the loan market place.

Michelle Slade of Moneyfacts.co.uk said “Many hoped that the state owned banks would be at the front of the queue for unlocking the mortgage market, but this isn’t the case. Some state funded banks appear to place a higher priority on getting out of Government ownership, rather than helping with competitive rates the customers who supported them.”

It is widely expected that the next general election is likely to take place during the month of May this year and one minister has announced that if Labour are re elected, then they will introduce a new socially responsible financial system.

Helen Goodman MP, Secretary of state for work and pensions, made the announcement during a speech to the Northern Money Conference last week, in which she said that Labour was planning to introduce a “People’s bank”, which would be made available to individuals through the Post Office network in the UK.

The new bank will be designed to offer banking services such as personal loans and savings accounts to those individuals on low incomes, as well as to be able to offer bank accounts and loans to those individuals who may have been rejected by the main high street banks, due to having a bad credit rating.

Mrs Goodman said that the new bank will include “a reformed social fund, a strong credit fund, increased pressure on loan sharks and an expansion in good money advice services.”

She also commented that the new bank will be able to offer cheap loans with particularly low interest rates, to those people on low incomes who may not normally be accepted for a personal loan.

Meanwhile, the Liberal Democrats claim that the Government are still not doing enough to force the main high street banks to offer loans to UK businesses, as the latest figures for investment by businesses fell by 24.1 per cent over the course of last year.

John Thurso of the Lib Dems said “This dramatic slump in business investment bodes ill for economic recovery. Banks are failing to meet their lending commitments, starving businesses of capital needed for investment. The Government needs to get a grip and make sure the banks’ lending agreements are more concrete and better policed so that recovery doesn’t peter out.”

Yesterday (Thursday 4th March) the Bank of England held its usual monthly meeting of its Monetary Policy Committee (MPC). During this meeting it was decided not to change the current level of quantitative easing, of £200 billion and the bank base rate of interest on loans and savings would remain at the same record low level of 0.5 per cent.

It has now been 12 months since the bank base rate reached this historical low level and although it is inevitable that interest rates on loans will increase at some point in the not too distant future, many borrowers have breathed a sigh of relief for another month.

Those borrowers who have faired best over the past twelve months have undoubtedly been those on a standard variable rate or tracker rate home owner loan, as they have seen their monthly loan repayments drop significantly.

With standard variable rates and tracker rates falling to particularly low levels, it has not been in the interests of borrowers with this type of loan to look for a remortgage to get a cheaper loan deal, as most products on the market at the moment are significantly more expensive than their existing loan.

The losers in the low interest rate environment are those people who opted for a fixed rate loan prior to rates dropping, as many of these individuals will have been tied in to higher rates, without the option to remortgage to a cheaper loan due to restrictive early repayment penalties on their existing loan.

Similarly, those individuals who have been looking for a new loan to purchase a house over the course of the past twelve months will have had a difficult time finding a cheap loan deal to compare with lenders’ standard variable rates, as tighter lending criteria, lower loan to value ratios and a lack of wholesale funding has pushed up the cost of most home owner loan products currently available.

It may be hard to imagine, for someone who has just recently taken out a home owner loan or mortgage that twenty years ago today, the Bank of England base rate of interest on loans and savings reached its all time record high level of 15.4 per cent.

In complete contrast to twenty years ago, the Bank of England base rate has now been at an all time low of just 0.5 per cent for one year, this month and this is leading many people (particularly those with large loan balances) to ask the question- when will interest rates on their loan start to increase?

No one really knows for sure exactly when loan rates are likely to change, but with rates as low as they currently are, they can only move upwards and experts are trying to predict when this will be and how quickly the cost of a loan is likely to go up.

The majority of experts believe that when loan rates eventually do start to rise, any increases will be handled cautiously and therefore only be slight. Although we are unlikely to see similar rates to twenty years ago, many experts think that the base rate for loans and savings will reach around 6.5 per cent over the course of the next five years.

Over the next few years, the banks who received loans from the Government, will have to repay their debt of around £300 billion and the easiest way to raise this money would be to increase interest rates on customers’ loans.

Martijn van der Heijden of HSBC said “The next few years are going to be difficult to predict in terms of mortgage rates and some volatility for borrowers may well be unavoidable. The message for borrowers is that if you couldn’t afford an increase of up to 3% on your mortgage, you should seriously look to fix your payments.”

Most people living in the UK aspire to own their own home at some point in their lives, even if this has a home owner loan or mortgage attached to it. But the latest survey from the Council of Mortgage Lenders (CML) has shown that home ownership is on the decrease as many individuals simply can not afford to get onto the housing ladder.

Although the average cost of a house has dropped by around 20 per cent since the start of the credit crunch, the cost of a new loan has become unaffordable for many would be first time buyers, due to tighter lending criteria and reduced loan to value ratios from banks and building societies.

In order to get the loan they require to buy a house, the average first time buyer is now having to find somewhere in the region of £34,000 as a deposit, which in many cases is far more than their annual gross salary.

As a result of this, a growing number of potential first time buyers are seeking financial help from their parents in raising sufficient deposit and even with the home owner loan repayments.

In 2006, approximately 38 per cent of first time buyers sought financial help from their parents to get the loan they needed. In 1996 this figure was just 10 per cent, but prior to the credit crunch this had risen to 45 per cent and now the CML estimate that around 80 per cent of all first time buyers are receiving some kind of help with their loan, or house purchase.

It is hardly surprising therefore, that the average age of a first time buyer has risen significantly over the past few years and the number of individuals who are able to buy a house and get a home owner loan between the ages of 25 and 34 has fallen to half the number from ten years ago.