Best Loans News

As the effects of the credit crunch began to properly take hold at the beginning of this year, the Council of Mortgage Lenders (CML) warned us of an increase in the number of repossessions of people’s houses.

The institution predicted that we would be likely to see around 45,000 properties repossessed by the end of this year, through individuals building up arrears and defaulting on their home owner loans and secured loans and so far the figures seem to backing up this estimate, despite the Government intervening in the secured loan market by injecting large amounts of cash into the banking system, in order to restore liquidity to lenders and help to avoid this very problem.

Now, the Home Owners Advice Centre has suggested that banks and building societies should adopt alternative strategies when a borrower gets into difficulty with their loan repayments and actually try and help them, rather than go down the route of repossession, which is clearly not in the best interests of either the borrower, or the lender, particularly in the current economic circumstances.

Al Elliott, of the Home Owners Advice Centre, has proposed that a better plan might be for lenders to allow borrowers facing financial difficulty to reduce their monthly loan repayments and in exchange for this they would take a charge over a larger share of the equity in the property, thereby increasing their level of security for the loan. This would help avoid the unpleasantness of repossession proceedings and once the market recovers, the borrower would have the option of either repaying the increased balance of the secured loan, or selling the property at a profit and repaying the debt from the proceeds of the sale.

This idea could certainly help avoid the repossession process in many cases and with the Government stating that lenders should only go down the possession route as a last resort, it could possibly make life quite a lot easier for all concerned.

Times are starting to become hard for many individuals living in the UK today, with the average level of disposable income reducing by around 30 per cent and a large number of people only having enough money in their salary cheque to cover their essential bills and outgoings each month, many people are being forced to cut back on non essential items and luxuries in order to save some money.

But a recent survey has shown that people appear to be cutting back in the wrong areas, announcing that around 24 per cent of people with home owner loans or other personal loans do not have any insurance products to protect themselves, or their loans, in the event of anything untoward happening.

The survey, which was conducted by Fairinvestment.co.uk, revealed that 24 per cent of people have either not taken out insurance on their home owner loan, or have cancelled their policies in order to try and save money.

In the case of Payment Protection Insurance (PPI), which is designed specifically to cover the repayments on an individual’s personal loan or mortgage in the case of accident, sickness or unemployment, only twelve per cent of borrowers had taken out such a plan. The same is true of life insurance, with only 10 per cent of young borrowers having any cover and just over half of people between 51 and 55 having life insurance on their loans.

It would seem that the younger generation are less likely to see the need for insurance on their loans, with less than half of the 19 to 21 age range having any form of cover, clearly taking an “it won’t happen to me” attitude, whereas only 6 per cent of borrowers in the 46 to 50 age range had gone without any type of loan protection.

A spokesman for Fairinvestment. co.uk said “as budgets get tighter, I can understand why Brits are cutting back, but insurance should be one area that is sustained. When it comes to life insurance, young people should be more aware as you never know what is round the corner.

If you are the main breadwinner and have a mortgage loan or rent to pay and something happened to you, your partner or loved ones would be left to foot the bill, whereas a life insurance policy could cover such expenses.”

As the credit crunch deepens and people are finding it increasingly hard to obtain a personal loan, or other finance through more conventional methods, such as a bank or building society, a large number of individuals are turning to desperate measures such as loan sharks and pay day loan companies, just to try and make ends meet each month.

According to Credit Action, more and more people are taking out cash loans which charge extremely high interest rates, often with large penalties for early repayment.

A recent study by Abbey has also shown that the average monthly disposable income for a person living in the UK has reduced by around 30 per cent and that somewhere in the region of ten per cent of individuals are currently spending 90 per cent of their salary each month just to keep up with their home owner loan repayments and other bills.

These are the people who are particularly vulnerable to this type of less ethical loan company and are often taken advantage of, with the prospect of cash now, without realising what the loan will actually cost them over a longer term.

Francis Walker, a spokesperson for Credit Action said that even pawn brokers were seeing a dramatic increase in business as people continue to fall on hard times and try to raise extra cash by whatever means possible, and warned potential borrowers against the “desperate” measures of entering into a loan agreement with a pay day loan company, or similar organisation who would be likely to charge high levels of interest, potentially making a small loan extremely expensive.

She advised people who might be considering this option to find out where their nearest credit union is located, as they will provide loans of a similar level, but at much reduced interest rates.

As the effects of the credit crunch continue to have an impact on many people’s lives in the UK, an increasing number of individuals are starting to seek advice regarding their personal loans and other debts, according to a recent report from Lloyds TSB.

The survey, which was conducted across 150 branches of the bank throughout the country, has shown that there has been a dramatic increase in the number of individuals who are concerned about their current financial situation.

The enquiries from customers ranged from seeking advice with regard to planning their monthly budget more effectively, to more serious worries over debt problems.

77 per cent of those customers interviewed were concerned about exceeding their overdraft limit each month, whilst almost half of the enquiries were from borrowers who were finding it difficult to maintain the repayments on their personal loans and credit cards. Almost a third were bothered about the repayments on their mortgage, or other secured loans.

Following the results of the survey, Lloyds TSB have introduced “financial health specialists” into many of its branches and has launched a campaign designed to offer support and to encourage customers who may be struggling with their finances to get in touch with the bank and ask for help before it’s too late.

Graham Lindsey of Lloyds TSB said “We’ve been talking to our branch managers al over the country to find out how we can best support our customers during these uncertain times. We have always urged customers to talk to us if they are worried about their finances. But, we know how hard it can be for some customers to speak to us about their concerns.

Facing financial worries is always the best policy and having a plan of action puts you back in control. Our financial health specialists have been trained to help customers review their finances, manage their money better and give tailored guidance and support.”

Most people in the UK have applied for a personal loan or a credit card at some point in their lives, some more regularly than others.

If the application is accepted, all well and good, but in many cases the loan or credit card is rejected and this result is becoming all too common in recent months, as loan providers tighten their lending criteria across the board following the credit crunch, making it extremely difficult for someone, even with a minor blemish on their credit score, to be accepted for any type of personal loan or other credit at reasonable rates.

In a large number of cases, once a person has been rejected for a personal loan, they no longer pursue the matter, assuming that it is not possible for them to obtain any type of credit. The lender in question will certainly not offer any explanation as to why the application has been rejected, other than to say the applicant has not achieved a suitable credit score.

Although the process of applying for a loan will leave a footprint on an individuals credit file, a declined loan will not actually impair their credit rating and they should use the rejection in a positive way to find out why this has happened.

The main reason for being rejected for a loan or other credit is due to a bad credit rating, usually caused by arrears or defaults on previous commitments. The worse these are, the less likely someone is to be accepted for credit, although even the occasional missed payment can have a detrimental effect.

For a small fee, it is possible for someone to obtain a copy of their own credit file from any of the three major credit rating agencies and this will show up any problems and the likely reason for rejection, allowing the individual to clean up any irregularities in their finances and repair their credit rating.

By taking a little bit of positive action, it could be possible for a person to clear their record and be accepted for the loan they want in the future.

Following the welcome news last Thursday that the Bank of England’s Monetary Policy Committee had decided to cut the base rate of interest by 1.5 per cent to just 3 per cent, there was immediate concern that a large number of banks and building societies were not going to pass the savings on to their customers with homeowner loans and secured loans.

By the end of business on Thursday, only Lloyds TSB and Abbey had announced that they would be reducing their secured loan rates for existing borrowers in line with the Bank of England’s decision.

On Friday last week, the Government applied as much pressure as it could to lenders, with Gordon Brown meeting with UK bankers in order to persuade them to reduce the rate they charge on mortgages and secured loans accordingly and throughout the course of the day, the majority of lenders bowed to the pressure and lowered their lending rates.

Those individuals who took out a tracker rate on their loan will automatically have their rate reduced, for a typical secured loan of £100,000, the average borrower should save around £125 per month on their repayments. Interestingly enough, practically all lenders withdrew their tracker rate loan products for new borrowers earlier last week in anticipation of the expected rate cut.

The other big help for lenders on Friday was that the inter bank lending rate, LIBOR (London Inter Bank Offered Rate), fell to 4.5 per cent following the base rate cut, thereby allowing banks and building societies to cut their own lending rates. LIBOR has now reduced by 1.81 per cent since the 1st October, when the rate reached a high of 6.31 per cent.

In a speech on Friday, Gordon Brown said “We are determined not only that the interest rate cuts are passed through, we’re also determined that lending resumes so that homeowners looking for mortgages, small businesses looking for cash flow and families looking for the normal practices of banking to help them as they go through their lives, is properly resumed by the banking system.

The Government has done what it can, the Bank of England has done what it can to reduce interest rates and now it is up to the banks to take their lead seriously in what they have to do to resume lending and do so at rates that are appropriate and not rates that are excessive.”

In a surprise move yesterday (Thursday 6th), the Bank of England’s Monetary Policy Committee (MPC) announced a cut in the base rate of interest of 1.5 per cent, bringing the base rate down to 3 per cent.

This move follows a cut last month, when the rate was cut by half a per cent, to 4.5 per cent. A reduction in the interest rate had been widely expected by industry experts, but most had predicted another cut of half a per cent, with many calling for 1 per cent. The move to cut rates by this margin has taken most people by surprise, as previous interest rate cuts have typically been 0.25 per cent.

The main question now is whether or not banks and building societies will pass on the savings to borrowers with home owner loans and secured loans. Those individuals with a tracker loan will automatically see their monthly repayments reduce, for someone with a secured loan balance of £150,000, they should see a reduction of around £187.50 per month.

However, for those borrowers who are paying their lender’s standard variable rate, it is not guaranteed that the rate cut will be passed on, as the interbank lending rate (LIBOR) still remains at a much higher level than the base rate, although this is falling steadily and should reduce further following yesterdays news.

The Chancellor of the Exchequer, Alistair Darling, said that the Government would do all they could to apply pressure on lenders in order to pass on the savings and reduce the cost of secured loans and home owner loans to borrowers.

One industry expert said “The cut today is welcome, but sadly many borrowers aren’t going to benefit. There’s no obligation for lenders to reduce their standard variable rates (SVR’s) and if last month is anything to go by, most will be reluctant to cut their SVR’s significantly because these rates look relatively good value at the moment.”