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The government has been criticised by loan debt campaigners, following its review of the consumer credit and personal loan market, since it failed to introduce any new legislation or plans to place a cap on expensive borrowing options, such as pay day loans.

The Department for Business, Innovation and Skills, along with the Treasury, announced a series of measures which have been designed to improve the personal loan and consumer credit market, but they took no action against pay day loan companies, some of whom charge up to 4000 per cent in annual interest rates.

Personal debt is becoming a huge problem in the UK, with personal loan and credit card debt increasing by around £629 million over the course of last month alone. The Office of Budget Responsibility (OBR) has predicted that households in the UK will have somewhere in the region of £2 Trillion worth of loan and card debt by the end of 2015.

Labour MP, Stella Creasy, has been leading a parliamentary campaign against pay day loans, calling for restrictions on this type of loan and a cap on the maximum interest which may be charged on a credit agreement.

However, the Consumer Finance Association (CFA) has claimed that such a cap on pay day loan costs would not actually make loans any cheaper, it would only mean that many people with no alternative options for a loan were denied credit, which could push them into the clutches of illegal loan sharks.

Mike O’ Connor of Consumer Focus said “we would like to see sensible safeguards put in place to stop pay day loan users from getting into spiralling debt.”

“Top of the list would be limiting the number of loans, or roll overs, that borrowers can take out in a year to five. We are also calling on banks to do more to provide shot term loans to cash strapped consumers and be lass opaque about their overdraft fees and charges.”  

A large number of borrowers in the UK have the option of overpaying on their home owner loan or mortgage, yet do not take advantage of this opportunity, even though they may be saving regular monthly amounts in a separate deposit account with their bank.

New figures from First Direct have shown that it could be beneficial for borrowers with a flexible home owner loan to make overpayments on their loan, rather than put their spare cash into a savings account.

Based on average savings and loan rates, based on a home owner loan of £100,000 and a regular monthly saving amount of £300, a borrower could end up being £42,909 worse off after 25 years, if they save separately, rather than reducing their loan balance by an additional £300 per month.

If the same borrower had overpaid on their home owner loan by £300 a month, they could have repaid their loan in full, twelve years earlier than the original term of the loan, saving themselves around £23,903 over the term in loan interest payments.

If the borrower then continued to save the same sum of money on a regular monthly basis for the remainder of the original loan term, they would end up with £17,762 more in their savings pot than if they had just continued to save and make the minimum home owner loan repayments.

Richard Tolchard of First Direct said “The analysis shows that borrowers are often better off paying down their loan debt ahead of saving as historically the average rate of interest paid on a mortgage has been consistently higher than the average amount earned in savings.”

“An offset mortgage offers the best of both worlds, offering easy access to your savings while still helping you to reduce the overall interest you pay and ultimately, the term of the loan.”

The financial regulator, the Financial Services Authority (FSA) has issued a warning to financial advisers and loan brokers regarding arranging bridging loans and buy to let loans for clients who should really be taking out a regulated home owner loan or mortgage.

With lending criteria becoming much tougher in recent times for a traditional home owner loan or mortgage, many individuals are finding it harder to be accepted for the loan they actually require to buy their next home and in many cases this is due to a lack of suitable income, making the loan unaffordable.

As a result of this, some potential borrowers are approaching financial advisers and loan brokers to arrange a bridging loan or buy to let loan as an alternative to a traditional home owner loan or mortgage, despite the fact that this type of loan is unsuitable for them an is in actual fact loan fraud, as the resulting loan is not being used for its intended purpose.

Sheila Nicoll of the FSA said that she appreciated the fact that business is currently particularly difficult for those working within the loan industry at the moment, however, loan brokers should not be pushed towards using loan solutions for clients which could t best be described as “imaginative”.

The FSA are currently finalising the details of the Mortgage Market Review (MMR) which will introduce new regulation for the loan industry and possibly regulate some loans which have previously fallen outside the scope of the FSA.

Sheila Nicoll said “Bridging loans have clear consumer benefits in unlocking property chains but they are likely to be a far less appropriate option for those borrowers in payment difficulties who may simply be putting off the inevitable by taking out a bridging loan.”

“Other imaginative solutions include using buy to let for customers who cannot verify the income for the property the want.” 

As part of the measures being introduced to try and stop the UK falling back into recession, the government has announced plans to provide cash to support business loans to companies throughout the UK and help to provide kick start to the struggling economy.

The Chancellor of the Exchequer, George Osbourne, is expected to announce the details of the new measures later today, when he makes his autumn statement. Apart from the plans to provide up to £40 billion worth of business loans, he I also expected to place a limit on rail fare increases and freeze fuel duty, to help commuters.

Mr Osbourne said that the government was planning to underwrite around £20 billion worth of business loans to small and medium sized firms, which will be provided from the National Loan Guarantee Scheme, but the total amount could end up being as much as £40 billion.

The idea behind the scheme is to allow high street banks to borrow wholesale funds at a cheaper rate, as the loans will be backed by the government, thereby adding additional security. This will allow banks to pass on the savings and offer cheap loans to businesses who desperately need the cash.

The government has said that they hope to get the “credit easing” scheme up and running by the early part of next year and that the scheme will run for a total of two years. The Treasury have described the loan scheme as a “game changer”.

Speaking on the BBC’s Andrew Marr show, Mr Osbourne said “We will be setting out all these sorts of measures on Tuesday to get the private sector into a more competitive place so that actually British companies can compete now, not just against their European counterparts but against companies in China and India and America as well.”

Equity release loans, or lifetime mortgages as they are often known, have been around on the market place for many years now, but have only just recently started to become particularly popular with retired home owners who are looking for additional income or a lump sum.

The percentage of individuals who are now considering using an equity release loan as a part of their retirement planning has almost doubled over the course of the past twelve months, according to the latest figured from the Equity Release Solicitor’s Alliance (ERSA).
The figures show that 38 per cent of home owners are now considering an equity release loan to help with their retirement funding, compared with just 20 per cent twelve months ago.

In the past, equity release loans have had some particularly bad press for a variety of reasons, but with the introduction of regulation in this sector and trade bodies such as SHIP (Safe Home Income Plans) setting a clear and concise code of conduct, the perception of equity release loans has improved significantly, with 63 per cent of those interviewed having either a positive or neutral view on this type of loan.

A lack of pension planning, coupled with poor investment returns and high levels of personal debt on things like credit cards and personal loans, has left many individuals short of funds at retirement age and for many, an equity release loan is an ideal way to either pay off existing loan debts, or to bridge the income gap in retirement.

Claire Barker of ERSA said “Both awareness and demand have grown significantly in the past year as public sector cuts, inflation and financial obligations have encouraged retirees to seek alternative sources of capital.”

“While it is extremely positive that media coverage and word of mouth recommendations play such a large part in awareness of equity release loans, this is a major financial decision and people need financial advice from professional IFA’s and specialist solicitors.”
 

The continued down turn in the UK economy is having a serious effect on the finances of many households at the moment, which is often made worse at this time of year, as families face the additional cost burden of the festive season.

If you are feeling the financial pinch at the moment, it may be little comfort to know that you are not alone. A recent survey from the financial planning website, rplan, found that around three quarters of people in the UK are feeling worse off financially than they did three years ago.

Almost half of those interviewed said that their household bills along with personal loan and credit card debts had increased by around £250 per month, whilst 14 per cent said that they were now at least £500 a month worse off than they were three years ago.

With the cost of living increasing and the average wage remaining static o decreasing, more and more individuals are struggling to stay on top of their household bills, home owner loan repayments, as well as their credit card and personal loan debts.

This has forced around two thirds of people in the UK to revisit their financial plans, whether this is to cut back on their savings, or take out a debt consolidation loan in order to combine their expensive debts into one cheap loan.

One of the biggest financial worries for individuals was being able to pay off their personal loan and credit card debts, along with being able to manage the repayments on their home owner loan or mortgage.

Whilst almost half of the population have been forced to make some level of cut backs on their finances, others are using credit in the form of personal loans, credit cards or even pay day loans to bridge the income gap, which could lead to serious financial problems in the very near future.

We have reached the time of year when traditionally many people in the UK forget about their personal loan debts, lack of finances and other financial worries and decide to have a good Christmas and spend money, regardless of whether or not they can afford it.

As a result, many people take out new personal loans, or run up a large credit card bill, or even take out a pay day loan to help them pay for their festivities and then begin to worry about how they will pay for this short term loan debt in January.

But it looks as though attitudes towards Christmas spending are eventually beginning to change across the country as many individuals are already struggling to pay their existing loan and credit card debts, as well as their normal household expenses, leading to many people cutting back on their spending plans over the course of the next month or so.

A new survey from the insurance company Legal & General has found that the current economic conditions in the UK are having a dramatic impact on household budgets, leaving people saving less than they feel they should be and planning to spend significantly less on Christmas than they have done previously.

 The survey found that somewhere in the region of a third of the population intend to spend less on Christmas this year than they did last year and half of those interviewed said that they certainly would not spend any more than last year.

Only one in five intend to use a credit card or a loan to pay for Christmas this year, compared with one in three at the same time last year.

Mark Gregory of L&G said “Perhaps this reflects a more prudent attitude to credit card debt in these straightened times. Last month we reported that a million households are worse off now than they were a year ago.”

“So it comes as no surprise that in the current economic climate eight out of ten homes say they’re planning to curb spending on presents compared to last year.”