Best Loans News

As the average level of debts on personal loans and credit cards continues to increase for consumers in the UK, a new survey has revealed the impact that this is having, not only on individual’s finances, but also on their health and family life.

The survey, which was conducted by the debt charity Consumer Credit Counselling Service (CCCS), found that out of 372 people interviewed who had large loan and card debts, 83 per cent claimed that their debts were having a huge negative impact on their lives.

Unmanageable personal loan debts have been blamed for placing a large strain on the borrower’s close relationships with their partners and in some cases, their children. Around 37 per cent thought that their loan debts had had an adverse effect on their relationship with a partner.

This could go a long way to explain why many individuals choose not to tell their partners about their loans and credit card balances, with only around one third of people turning to their partner for help and support.

Ten per cent of borrowers say that they have told nobody about their loan problems, largely out of shame or embarrassment that they are unable to handle their personal loans and manage their money well.

It is not only relationships which are suffering. Personal loan and card debts are also having a negative impact on people’s work and health, with almost half of those interviewed saying that their loan debts were affecting their health and 65 per cent believing that they were struggling at work due to their debts. 

Delroy Corinaldi of the CCCS said “There is a lot of focus on the economic implications of the personal debt crisis but we are only starting to understand the human cost of the problems.”

We have reported recently on how the Financial Services Authority (FSA) is planning to place a complete ban on self certification loans and fast track mortgage applications, whereby a borrower does not need to provide evidence of their income. Under the new proposals, a borrower would have to be able to provide proof of their income in every case to justify the loan.

According to the latest figures from the FSA, around 43 per cent of all home owner loans were completed on a self certification basis in the first three months of this year, with no income verification taking place.
This suggests that lenders are either not embracing the FSA’s proposals, or they are making the most of self certification loans before they are banned completely.

However, a survey from the specialist lender Paragon Mortgages, has found that from the financial intermediary and loan broker market, only 0.7 per cent of all loans were completed on a self certification basis in the second three months of the year.

Back in 2007, self certification loans accounted for around 13 per cent of intermediary business, but along with bad credit loans or sub prime loans, this figure has steadily dropped over the past few years, to the point where it is almost non existent.

John Heron of Paragon Mortgages commented on the decline of business, he said “It is not surprising that the level of both self cert and sub prime business going through brokers has declined over this period because lenders simply aren’t making the products available.”

“Since the onset of the credit crunch, lenders have focused the majority of their available funding on prime residential mortgage customers, meaning that “non conforming” borrowers are unable to step onto the property ladder.”

“Those lenders that do offer self cert or sub prime mortgages appear to do so direct rather than through the intermediary market.”

There have always been issues over levels of fraud being committed when it comes to applying for a loan and a home owner loan or mortgage in particular. This can range from a potential borrower simply overstating their income in order to be accepted for a loan, right through to falsifying documents and even more serious fraudulent activities.

According to the latest figures from BDO LLP’s Fraudtrack, home owner loan and mortgage fraud accounts for around 20 per cent of all fraud cases in the UK. Almost half of all reported fraud cases relate to the finance and insurance sector and within this 36 per cent of all cases relate to home owner loans and mortgages.

The figures show that in the first half of this year, the level of fraud has increased significantly, with fraud losses accounting for more than £1 billion, which is much higher than the previous six months and almost the same level as the whole of 2008.

It is quite common to see level s of fraud and loan fraud in particular, increase during difficult economic conditions and recession as individuals use increasingly more desperate measures to be accepted for the loan they require.

BDO have predicted that fraudulent losses will continue to increase over the course of the year and it seems likely that there will have to be some additional, more stringent regulation within the loan and finance sectors in order to combat the rising problem.

 Simon Bevan of BDO suggested that regulators were likely to “act tough” he said “We have a combination of political pressure and the understandable desire, in a downturn, for the public sector and corporates to be seen to have a zero tolerance policy. We are therefore likely to see increasing regulatory action.”

Despite the fact that activity in the home owner loan and mortgage markets is particularly slow at the moment and that first time buyers are having extreme difficulty in obtaining the loan they require in order to buy their first home, the average cost of a typical home owner loan is now at its most affordable level in the past 35 years according to a recent survey.

The research, which comes from the Council of Mortgage Lenders (CML) found that home owner loans are now at their most affordable level for those individuals moving house since records began in 1975.

The survey found that those people who were moving house in May this year ended up spending an average of just 9.5 per cent of their income on their new home owner loan interest payments, largely due to the particularly low level of interest rates at the moment.

There was also some more positive news, along similar lines, for first time buyers during May. The average first time buyer only borrowed around 3.14 times their income with a loan of just 75 per cent loan to value. Loan interest payments accounted for 13.2 per cent of a typical first time buyer’s income, the lowest percentage since March 2004.

May also saw a general increase in the number of loans being approved, both for house purchase and remortgage, although the CML are more pessimistic about the second half of this year.

Michael Coogan of the CML said “House purchase lending continues its recovery but positive comparisons with equivalent months a year ago look unlikely to continue. Activity picked up in the second half of 2009 due to the stamp duty holiday, but, with the Government’s austerity drive picking up momentum, we are unlikely to see a repeat of those buoyant numbers this year.”

Since the Bank of England reduced the base rate of interest on savings and loans to its lowest ever level in the history of the bank, of just 0.5 per cent, a large percentage of borrowers with a home owner loan on a variable rate loan deal, have seen their repayments fall significantly as lenders standard variable rates reduce in line with the base rate.

In fact many borrowers with a tracker of variable rate home owner loan have saved several hundreds of pounds every month on their loan repayments and are therefore extremely happy with their existing loan and see absolutely no reason why they should consider switching their lender.

However, new research has found that somewhere in the region of 75 per cent of all borrowers with a standard variable rate home owner loan could actually save money on their monthly loan repayments by switching to a cheaper loan deal.

To obtain the best loan deals on a new home owner loan, a borrower must have a maximum loan to value of no more than 85 per cent and the research from Yorkshire Building Society has shown that approximately 1.7 million people with home owner loans in the UK would now qualify for a cheaper loan than they are currently paying.

It is estimated that if all these 1.7 million borrowers switched to a cheaper loan, they could collectively save somewhere in the region of £1.8 billion over the term of their loan.

Tom Girling of Yorkshire building society said “Our analysis shows that the vast majority could make significant savings by switching to a better rate mortgage. And with around three quarters having at least 15 per cent equity in their home, they are free to switch lender right now.”

Equity release loans, or lifetime mortgages have been around now for many years and can be used for a wide range of purposes, from enhancing income in retirement, paying off existing loans and other debts, buying a holiday home, or helping family with a deposit for a new house, just as a few examples.

One provider of equity release loans has now introduced a plan specifically designed to pay for the cost of long term care funding, or nursing home fees, without forcing the individual to sell their home in order to fund the expenditure.

Partnership have launched the new loan, which is called the Care Plan Payment Option (CPPO) and works along the lines of a traditional equity release loan, where the loan interest charged is rolled up into the debt and no monthly repayments are made, with the loan being repaid on death or sale of the property.

In the past, many people have seen their children’s inheritance eroded, or even wiped out completely, by having to sell their house in order to pay for nursing home fees and it is hoped that this plan will go some way to reducing this financial burden.

Partnership recently announced that it was to introduce an equity release loan product which would provide an additional lump sum or income above a traditional loan, for those with impaired health.
Chris Horlick of Partnership said “For many people, the most realistic way to fund care home fees is through the sale of the family home.”

“Whilst the property must be vacant at the time the Care Plan Payment Option completes, the loan enables the property owner to rent out the property once the CPPO loan has completed. There is also the option to return home should the services of a care home no longer be required.”

We reported recently that the Financial Services Authority (FSA) was planning to introduce new regulations which banned certain types of loans and introduced rules for previously unregulated products such as secured loans.

The first discussion paper for the Mortgage Market Review (MMR) as it is known, outlined the initial proposals for the additional regulation of home owner loans and was published in October last year.

Yesterday (13th July) the FSA published its latest consultation paper on the MMR, which outlines the new proposed rules for home owner loans and mortgages, designed to offer a higher level of protection for potential borrowers and place more pressure on lending institutions to offer loans more responsibly.

The idea is to return to the principle of responsible lending on various types of loans and to stop problems with loans arrears, for example, before they occur.

The most significant proposals are that there will be a strict affordability test for a potential borrower before they are accepted for a loan and they must be able to provide proof of income to justify the loan. In other words there will be a complete ban on self certification loans and fast track loan applications.

There will also be an extra level of protection introduced for those borrowers with a poor credit history, who may have suffered with loan arrears or repossession of their home in the past.

Lesley Titcomb of the FSA said “There is a clear link between financial overstretch and mortgage arrears and repossessions and we are determined to protect vulnerable consumers by making sure that everyone who takes on a mortgage can afford to pay it back.”

Although the proposals are designed to protect borrowers, some experts believe they could stop many perfectly credit worthy individuals from getting the loan they need and can easily afford. The consultation period ends in November this year.