Best Loans News

Yes it’s the first Thursday of the month once more and as usual the Bank of England’s Monetary Policy Committee (MPC) has held its meeting to discuss, amongst other things, the base rate of interest which will be applied to home owner loans and other personal loans.

And for the third month in a row, in what is now becoming a regular occurrence, the Bank announced a further cut in interest rates, reducing it by one per cent.

The bank base rate of interest for the UK now stands at 2 per cent.

The reduction in rate has not come as any great surprise, although many experts were only expecting a cut of 0.5 per cent, following last months 1.5 per cent cut.

Those borrowers who currently have a tracker mortgage will be rubbing their hands together as a typical secured loan of £100,000 will now cost around £83 per month less than it did last month.

The losers in this news are those borrowers who took out a fixed rate home owner loan earlier in the year, as they will now be paying somewhere in the region of £250 extra for their loan since the recent rate cuts, than someone who opted for the tracker route, based on the same £100,000 loan amount.

The other losers in today’s announcement are, of course those individuals with savings in banks and building societies, who are likely to see their interest drop dramatically.

So far the Abbey and Britannia have said that they will pass on the full amount of the rate cut to those borrowers currently paying their standard variable rate on a secured loan and many others will probably follow, in many cases due to Government pressure. In the meantime a large number of lenders have withdrawn all their tracker products until further notice for new loans.

Over the course of the past couple of months we have seen the Bank of England reduce the base rate of interest on home owner loans and other secured loans by 2 per cent, to three per cent and it seems likely that we will see further rate cuts going forward, possibly even before Christmas.

Whilst this is great news for those borrowers with an existing homeowner loan or mortgage, particularly those with tracker rates on their loans, many of whom have made significant savings on their monthly repayments, it doesn’t seem to have made an awful lot of difference to somebody who is applying for a new loan to buy their home.

The latest figures from the Bank of England have shown that, although the monthly repayments on a new secured loan may now be more affordable than they were previously, encouraging more people to start thinking about buying a new house, many potential borrowers are still finding it extremely difficult to be accepted for a new home owner loan, as banks and building societies are still severely restricting their lending criteria and declining loans to potential borrowers who would probably have been accepted on prime rates just twelve months ago.

Even though it is likely that we will see further interest rate cuts over the coming months, it looks as though it is the hands of banks and building societies to provide the much needed boost to the housing market and this can only realistically be achieved by them relaxing their lending criteria and actually starting to offer new loans, on a sensible basis, with higher loan to value levels, affordable interest rates and charges, as per the Government’s conditions which were laid down in their recent financial rescue package for banks.

As the effects of the credit crunch continue to have an impact on many individuals in the UK, with the prospect of worse to come over the course of the next twelve months, a large number of people are facing the situation where they are falling into arrears on their secured loans and home owner loans.

In fact, banks and building societies are starting to see record levels of arrears on their customers’ loan accounts, even those who have previously had a clean credit history and not just those with bad credit loans.

But lenders are now being forced to be even more careful of how they deal with arrears cases on their secured loan books, since the Government issued its recent rescue package and now the Financial Services Authority (FSA) has written to the heads of all home owner loan companies to ensure that they are meeting the requirements for treating their loan arrears customers fairly.

The letter from the FSA is a follow up to a previous investigation by the regulator, which found that a large number of lenders did not adequately meet the necessary standard on their arrears handling procedures, particularly for those customers with bad credit loans. The FSA letter clearly instructs lenders to critically review their practices and procedures with regard to arrears handling to ensure that they are doing all they can to treat customers fairly.

Jon Pain of the FSA said “Conditions in the mortgage market are difficult and it seems likely that these conditions will persist for some time. In such a challenging operating environment it is particularly important for senior management to ensure the fair treatment of customers, including when they go into arrears.

The fair treatment of customers in arrears will continue to be a priority for the FSA throughout 2009. Where we find that lenders are not complying with our requirements we will make appropriate and properly targeted use of our existing regulatory tools, which may include enforcement action.”

Over the course of the last two months we have seen the Bank of England base rate of interest on loans and mortgages fall to a record low level of three percent, from five per cent only two months previously.

Many people with secured loans and homeowner loans have seen the monthly cost of their repayments reduce in line with these cuts, but sadly this is not the case when it comes to personal loans.

According to research conducted by Moneysupermarket.com, the cost of a personal loan has risen in comparison to the base rate by almost double in the last two months alone.

According to research, the average rate currently being charged on a personal loan now stands at 8.46 per cent, in excess of 5 per cent above the bank base rate.

Prior to the recent rate cuts, the difference between base rate and the typical personal loan rate was less than three per cent. As was reported last week, the Competition Commission (CC) is proposing to ban the sale of Payment Protection Insurance (PPI) Policies at the same time a loan is arranged, which will have the effect of reducing profit margins for loan companies and therefore pushing the cost of a personal loan up even further.

Around this time of year, just before and particularly just after Christmas, there is traditionally an increase in the number of individuals applying for personal loans, usually to be used for debt consolidation, in order to repay other loans and credit card bills which have increased over the Christmas period.

Moneysupermarket.com have warned borrowers to be careful when applying for a new personal loan, as in some cases the interest rate charged may actually be higher than that of the debts which are being repaid, although with some careful research it will still be possible to find some reasonably cheap loan deals.

It is fairly common knowledge that the average level of debt which individuals living in the UK hold on personal loans and credit cards is the highest it has ever been and is continuing to increase.

The majority of people who are still working and have the prospect of doing so for several years to come, are often unconcerned about this problem, as they have a long enough working life ahead of them to repay any outstanding loan amounts.

But a recent survey from Just Retirement has shown that it is not only the younger generation who have debt problems. According to the figures, 24 per cent of people who are approaching retirement still have personal loan debts and many individuals are being forced to continue working beyond their anticipated retirement age, just to keep up with loan repayments each month.

The cost of basic utilities such as gas and electricity have increased by around 40 per cent over the course of this year, coupled with the fact that poor investment returns have left many people with a lower level of retirement funds than they had expected, leaving pensioners with a shortfall in the amount of disposable income they require.

Of course the other main cause of this problem is due to a lack of financial planning over the years preceding retirement. Many individuals have lost faith in pension plans and other investments over the years and have also been unable to afford to save due to maintaining additional loan repayments through excessive borrowing.

This leaves many pensioners facing the prospect of retirement still having to work for a living, or taking out an equity loan to fund retirement, or in some cases, just repay existing debts.

With almost half of retired people worried about their level of income and 12 per cent continuing to work beyond age 65, people need to start thinking about retirement long before they reach it and start putting money away throughout their working lives in order to avoid hardship in retirement.

Following the Chancellors of the Exchequer’s pre budget report on Monday (24th November) this week and the announcement that the Government will inject a sum of £100 billion into the UK banking sector as part of the bank recapitalisation scheme to help restore liquidity to the market and allow banks to offer secured loans once more, the treasury has announced that it will be setting up a new lending panel, which will work closely with banks and building societies which are benefitting from the scheme.

The lending panel has been established to ensure that banks and building societies are actually doing what is expected of them and offering new loans to both businesses and individuals requiring a secured loan or mortgage and also that these loans are offered at competitive prices based on levels in 2007.

Apart from keeping a track of new loans, the panel will encourage a best practice principle across secured loan providers, to offer practical help and assistance to those borrowers who are facing financial difficulty and may be struggling to keep up with their home owner loan repayments.

The panel will be made up of members of the Government, lenders, consumer debt advice and trade organisations, financial regulators and the Bank of England and it will meet on a monthly basis, reporting back to the Chancellor and the Secretary of State.

The recent cuts in the bank base rate of interest and, more importantly perhaps, the inter bank lending rate (LIBOR), which has now fallen by more than 2 per cent since October this year, should also have a positive effect on lenders ability to grant new loans. Let’s hope that the new lending panel are able to use these factors to its advantage and force banks and building societies to start offering realistic secured loans at sensible rates and loan to value ratios.

It is a well known fact that if someone is applying for a mortgage or home owner loan, the larger deposit they have managed to save up, then the better deal they are likely to get on their loan.

Apart from the fact that a borrower with a larger deposit will obviously only require a smaller loan, therefore saving interest from the outset, a lower loan to value ratio will create a lower risk level for the bank or building society and therefore they are able to offer a more competitive rate of interest and in many cases, a lower administration or arrangement fee.

But a recent survey of the home owner loan market by mform.co.uk has revealed just how much of a difference a larger deposit can make to a borrowers loan repayments.

According to the research, a person with only a small deposit is likely to pay somewhere in the region of £2,230 extra on their loan, every year, than someone who has managed to save up a deposit of around 40 per cent of the purchase price.

The survey has shown that the best tracker rate on a home owner loan with a loan to value ratio of 60 per cent is now 3.99 per cent, but at a loan to value ratio of 80 per cent this increases to 5.99 per cent. If a borrower only has a 10 per cent deposit, then there are no tracker rates available and the best fixed rate would be 6.45 per cent. For some one with a typical home owner loan of £150,000, this can make a difference of £2,230 each year in their repayments.

A spokesman for mform.co.uk said “the mortgage market is entirely back to normal as long as you have a deposit of 40 per cent which is OK for some re-mortgagers, but of course that is a long way from normal and doesn’t help the housing market as by definition to move up to larger properties, families need to stretch their borrowing.

It is encouraging that there are good deals out there but disappointing that the choice is reduced for those with smaller deposits who will typically be first time buyers or those who have bought in recent years and have not seen a significant rise in their home value.”