Official tries to explain banks’ low business lending levels

It was announced recently by the Business Secretary, Vince Cable, that the big banks in the UK were failing to meet their agreed targets with regards to lending to small and medium sized businesses. Figures were released recently showing that based on quarterly results the banks had not met their targets, and were therefore not on target for meeting their annual business lending minimum figure.

The banks have argued consistently that the reason behind the low lending figures for small and medium sized businesses was that in the current climate many businesses did not want to take out loans. Banks claim that whilst they are making credit available for business customers the low demand for finance means that there is little they can do to increase their lending figures until demand increases.

This has now been backed up by an industry official, Anthony Thomson, chairman and co-founder of Metro Bank. He said that his bank is now targeting small businesses as its main customer but that demand for borrowing is low. He said that whilst many businesses had signed up to the bank the demand for finance was much lower than had been expected, which meant that the bank was unable to lend as much to business customers as it may have anticipated. He also said that businesses were failing to look for the best rates on loans.

He said: ‘I hate to sound like I am defending the big banks but our experience is that there is just not the demand for credit from small companies.’ He also said: ‘I always thought small firms would be very sensitive to interest rates, but they are even less concerned about the rates than consumers.’

Tags: industry, banks in the uk, Anthony Thomson, borrowing, Metro, business

Mortgage lending hits ten year low for August

Recent figures released by the Council of Mortgage Lenders has shown that mortgage lending levels for August fell to the lowest levels in ten years for the month. The CML said that activity in the housing market remained ‘exceptionally’ low for the month, with lending levels for the month making for gloomy reading.

The CML has now stated that the second half of the year is likely to be a difficult one, with lending levels expected to be below the level seen during the final months of last year. This is partly due to the fact that activity was more buoyant in the final months of last year due to the fact that the stamp duty holiday provided by the former Labour government was coming to an end at the end of the year.

The group did state that there was a slight drop in average mortgage rates for the month of August, as competition in the mortgage market increased, driving interest rates down slightly. However, restrictions still remained tough amongst the various lenders who were being cautious about lending.

Banks and financial institutions have also continued to demand high deposit levels from groups such as first time buyers, which is still having an effect on lending levels, as it means that many are unable to apply for a mortgage because they do not have the necessary deposit to back it up.

Net6 lending for the month of September is set to remain subdued, as lenders have reported a slight fall in the number of mortgages that have been approved for property purchases for the month of August.

In the meantime the Bank of England has stated in its most recent quarterly bulletin report that lenders have been failing to pass on base rate cuts to consumers, partly due to the fact that they faced higher borrowing costs themselves.

Tags: mortgage, Mortgage loan, mortgage market, borrowing, gloomy reading, finance, group did state

Payday loans soar due to credit crunch

Payday loans have been at the centre of controversy for some time, and this is largely due to the high rate of interest charged by these lenders on an annual basis. However, some have argues that these lenders receive unnecessary bad press, because the interest charged is not that much providing the loan is paid back in time, and some officials argue that these loans can be very useful for those that desperately need short term financial help.

It has now been reported that the level of payday loans being taken out has soared partly as a result of the global credit crunch, which has left many people short of cash and in financial dire straits. In the space of four years the number of people taking out these payday loans is said to have quadrupled, as more and more people find themselves desperate for cash for a short term period.

The APRs that some of these payday lenders charge has caused a lot of concern over recent years, but for those that only borrow for a short period and repay the loan on time rather than rolling it over the cost of borrowing is not as bad as it sounds. Some charity officials have said that it is preferable for consumers to go to payday loan companies for short term loans to tide them over rather than unscrupulous loan sharks.

Whilst there have been calls for these loans to be banned officials from Consumer Focus said: ‘These products are controversial, but we don’t agree with calls for them to be banned. Outlawing payday loans could leave some borrowers vulnerable to illegal loan sharks. Instead we need sensible safeguards now to stop borrowers becoming dependent on this high cost credit and prevent even more stringent controls being needed in the future.’

Tags: Payday loan, concern, borrowing, debt, loan, rate

Spring bounce continues for mortgage lending

Recently released figures have suggested that the spring bounce seen in mortgage lending has continued, with the increase in mortgage lending continuing in May. According to the figures mortgage lending for the month of May was at its highest level so far this year.

The figures have been released by the British Banker’s Association, with the data showing that 36,709 mortgage loans were approved by major banks during the month of May for those that were buying a property. However, despite this encouraging data HM Revenue and Customs has released figures showing that for the past three months the number of completed property sales has remained flat.

The number of sales for May came in at 73,000, and this equates to around 1000 more than the numbers seen in March and April. These figures are higher than those seen a year ago, but are still far lower than figures from 2006, 2007, and 2008.

With regards to the increase in mortgage approvals members of the BBA have said that this is the third month in a row that mortgage approvals have increased, indicating that the spring bounce in mortgage lending is set to continue.

The BBA also said that in the current climate, with the base rate still at its record low of just 0.5 percent, many people were still focussing on paying off their debts rather than trying to save money, as they were able to save more on borrowing interest than they were able to earn on savings interest, making this a more favourable option.

David Dooks, Director of Statistics at the BBA, said: “The low interest rate environment is resulting in customers choosing to reduce or pay off borrowing, particularly personal loans, rather than saving.”

Tags: finance, data, mortgage, debts, Director of Statistics

Interest rates need to rise in the UK

It has been claimed by an organisation that the base interest rate in the UK needs to be increased in order to keep inflation under control, with the group claiming that it is necessary to increase the rate this year and increase it further over the course of next year.

The claim was made by the Organisation for Economic Co-operation and Development, which has stated that the base rate needs to be increased this year and by the end of next year needs to be at around 3.5 percent in order to keep a lid on inflation, which has already been soaring past the government target of 2 percent.

The base interest rate has been at its lowest level in the history of the Bank of England for well over a year now, standing at just 0.5 percent. However, inflation has been soaring and some officials now believe that in order to bring inflation down the base rate will need to be increased.

If the base rate does go up the cost of borrowing could also rise, which means that consumers may have to pay more interest on loans and mortgages. The OECD has said that whilst the government made the right move by reducing the base rate to this rock bottom level during the recession it was now time to consider increasing it.

A report from the OECD stated: ‘The gradual drift up of some measures of inflation expectations implies a need to increase interest rates earlier than previously thought and no later than the last quarter of 2010. The projected increase of core inflation to the Bank of England target warrants an increase of the policy rate to 3.5% by end-2011.’

Tags: Mortgages, interest rate, cost of borrowing, OECD, inflation, order, borrowing, finance

Consumers should shop around for Christmas credit cards

With the festive season almost upon us once again many people will be looking around at credit card deals so that they have the credit that they need to make their purchases for Christmas. Read more

Tags: purchases, Daskaloff credit card rating system, repayment, borrowing, christmas credit cards, Credit Cards, consumer, festive season

Banks try to recover by making customers pay

It has been suggested that many banks and building societies in the UK are trying to rebuild their financial portfolios and profits by making customers pay, according to a recent report. Read more

Tags: level, change, percent, fixed rate, borrowing, cost of borrowing, banks

Consumer may end up paying through the nose for using overdrafts for Christmas spending

Industry officials have warned that many consumers may end up paying through the nose for using their overdraft facilities to fund the expense of Christmas. Many may also be planning to dip into their overdrafts to make purchases in the January sales, resulting in an increase in the number of people that will be hit with these charges. Read more

Tags: expense, New, borrowing, Christmas spending, base, sales bargains

MP claimed consumers were wealthier than ever

Most consumers are now feeling the pinch to put it mildly with household budgets stretched to their limits due to rising living costs, soaring petrol prices, increased food costs, and high borrowing costs. Yet, according to a recent report one Labour MP has branded the British public as being miserable and has said that consumers in the UK are actually wealthier than ever. Transport Minister, Tom Harris, made the comments some weeks ago, and was slated by other officials given the financial crisis that many households are suffering. Read more

Tags: arrogance, Household, MP, country, new level, shopping, borrowing, prime minister

Consumers must curb borrowing, says Osborne

The shadow chancellor George Osborne has said that people need to make an effort to curb their borrowing and take out fewer loans.

Speaking on Channel 4’s ‘News at Noon’, Mr Osborne said that in order to get inflation under control, people must cut their spending.

“People have to be cautious about entering into long-term financial commitments. For example, looking at how much they’re borrowing and watching the pennies basically,” he commented.

This comes just as MGM Advantage has revealed that 55 per cent of Brits are putting their money into savings accounts, although one in five of those in debt still prefer to keep their money at home than in the bank.

According to a recent survey by the company, at the other end of the scale, one in four of those who have more than £1 million in assets also shun savings accounts in favour of stashing their cash at home.

Tags: finance, borrowing, channel, cash, inflation, Brits

UreLife promotes “earn before you spend” mentality

Consumers should be careful with their finances and manage their money sensibly during the current credit crisis, advises UreLife.

The Urelife card, which combines prepay Visa debit with proof of age and a colour photo of the cardholder, encourages an “earn before you spend” mentality, according to Mark Dalton, a spokesperson for the company.

Since the market is moving away from credit facilities, consumers should be looking to set a monthly budget which they do not exceed.

“Increasingly, people have been maxing out their credit cards and the prepay debit card is the ideal product for people who want to take full responsibility for their finances,” Mr Dalton comments.

Credit Action recently said that although credit card spending is still a “very popular” form of borrowing, the growth rate has slowed over the past year.

This is partly due to banks tightening their lending criteria, however it also suggested that consumers are becoming more aware of the importance of managing their finances in a sensible way.

Tags: rate, Visa Debit, credit facilities, Debit cards, action, money, borrowing, age

Credit crunch makes it ‘harder’ for UK consumers to get cards at low-rates

UK consumers are “finding it harder” to get credit cards with low rates of interest due to the credit crunch, one financial expert has claimed.

Credit Action said that credit is not as widely available as it was 12 months ago and in those places where credit can be found, it is often more expensive.

Chris Tapp, director of Credit Action, said: “So credit cards and all kinds of credit have become a less widely available and a more expensive option for borrowing than they were in the recent past.”

However, he added that the popularity of credit cards is still enduring and they are not about to go away as they are now a “very normalised part” of the way that people manage and borrow their money.

Recent research from MoneyExpert.com released at the beginning of the month shows that 3.2 million of us own five or more credit cards and 28 per cent of us applied for more plastic last year.

The news comes despite mounting concern about debt problems as the credit crunch hits home.

Tags: plastic, credit crunch, normalised part, borrowing, past, crunch, Credit score, director of Credit Action

British parents help children choose first home

British parents have collectively paid out more than £27 billion to help their children buy their first homes, according to new research.

Findings from Abbey Mortgages revealed that an average of £5,874 is given to each child to enable them to take that first step onto the property ladder.

Up to one in seven first time buyers receive money from their parents to invest in their home with one in sixteen borrowing money.

Nici Audhlam-Gardiner, head of Abbey Mortgages, said: “Because house prices have increased so much over the past few years, buying that first home is also a bigger and more daunting investment than it was for the previous generation so guidance is undoubtedly needed.”

The research also showed that finding a home for their offspring also costs parents time, with an average 17.8 hours spent helping with choosing the property and 22.5 hours spent helping them move in.

According to figures from the Office for National Statistics Social Trends survey, more young people are living with their parents for younger with the rises in property being blame, reported ITN.

Tags: Banking, Mortgages, GBP, head of Abbey Mortgages, Trends, british parents, borrowing, step

‘Concerned’ Brits struggle with debts

Many Brits are struggling to keep their debts under control as over one in ten reveal they are “very concerned” about their financial situation.

This figure (11 per cent) has gone up from seven per cent in just three months, with around 2.7 million people saying they have sunk further into debt by over ten per cent, according to MoneyExpert.

Sean Gardner, chief executive of the company, commented: “With the festive season just around the corner, we can only predict that the number of people worried about their ability to deal with their debts is likely to increase.

“Christmas is a massively expensive time of year so you can’t help but worry that many more are likely to become increasingly concerned about how they’ll cope.”

However, he said, there are signs that people are beginning to get their borrowing levels down, with 27 per cent of Brits successfully cutting their debts over the past three months.

Mr Gardner added that consumers must, above all, work out a repayment plan and avoid burying their heads in the sand when confronted with debt.

Tags: Business Finance, Sean Gardner, Brits, repayment plan, borrowing, sand, work

Credit card protection ‘important’

Consumers who use credit cards on a regular basis should look to take out payment protection insurance (PPI), it has been advised.

Shane Craig, managing director of Paymentcare.co.uk, has suggested that PPI can be as important for credit cards as it is for personal loans.

He acknowledged that currently more people were taking out PPI for loans because the amounts were often higher than the average credit card balance.

However Mr Craig advised: “For people who tend to max up their credit cards, protection is just as important.”

“With credit cards being the most expensive way of borrowing money, the cumulative effects of not being able to make your repayments are punitive,” he added.

Mr Craig went on to confirm that payment protection on any borrowing was something to consider because events such as job loss and illness can come completely out of the blue.

In December 2005, 47 per cent of consumers had unsecured borrowing of £10,000 or more. The average household owes £7,650 and the overall British consumer debt is £1.3 trillion not counting mortgages.

Tags: repayments, payment protection insurance, cumulative effects, Insurance, credit, december

Fool.co.uk: House price standstill could ‘imprison’ first-time buyers

Many first-time buyers may fail to sell their home at a price high enough to cover their mortgages if house prices begin to fall.

Fool.co.uk states that people who have recently bought homes on 100 per cent mortgages could suffer from the evening out of house prices and that they have cause to be “concerned”.

Although 100 per cent mortgages are not a significant part of the market, the Council of Mortgage Lenders estimates that they are taken out by one in every 20 first-time buyers.

The website warned that these homeowners would suffer from even a small downturn in prices, leading them into negative equity.

However, David Kuo, head of finances at Fool.co.uk, advised: “They can tip the scale in their favour by ensuring that they choose repayment mortgages rather than the cheaper interest-only options. They should also overpay their mortgage as often as they can afford.”

Mr Kuo added that doing this would help them to chip away at their debt and give them more equity in their homes allowing them an improved choice of mortgage provider.

In the UK, house prices have seen a slowdown in recent weeks with borrowing costs still high and the Bank of England’s decision to hold interest rates at 5.75 per cent meaning the pressure on people repaying mortgages remains high

Tags: negative equity, market, chip, people repaying mortgages, David Kuo, bank of england

Victims of mis-sold endowments owed millions

According to a recent report the victim of mis-sold endowment policies are owed at least £200 million collectively.

Endowments are policies that are sold alongside interest only mortgages, and this is where the mortgage repayments made by the borrower will only cover the cost of the interest, so at the end of the mortgage term the initial loan amount is still outstanding even though the interest on the loan will have been paid off in full over the term.

Although the popularity of interest only mortgages has fallen, with some lenders refusing to offer mortgages on an interest only basis, they were very popular in the 1980s and 1990s. In order to be able to pay off the initial loan at the end of the mortgage term those taking out interest only mortgages also had to pay towards an independent investment, which was the endowment, and this was designed to mature over the mortgage term to raise enough cash to pay off the initial loan once the mortgage ended.

However, according to many reports consumers have been mis-sold these policies in many cases, where they were not warned of the risk associated with this sort of investment and were instead led to believe that the investment would definitely raise enough to cover the principle loan amount at the end of the mortgage term. However, many consumers have been informed that their endowments are under-performing, which could lead to severe problems once their mortgage term ends.

Many companies that sold these endowments have now put aside funds to deal with claims, and there are various campaign groups such as Which? offering advice to those that feel they were mis-sold an endowment policy. Because standard charges were also used when selling these policies in the past the impact of charges on future returns was also underestimated.

Tom Smith
1st October 2007

Tags: borrowing, Mortgages, endowments, Loans, savings, interest

Mortgage lending down

Mortgage lending fell in April of this year but is still markedly higher than the same period in 2006.

Figures from the Council of Mortgage Lenders (CML) show that borrowing fell to £28.8 billion in the month.

That is down nine per cent on the £31.7 billion which was borrowed in March but remains 18 per cent higher than figures from April 2006.

It is also the highest ever figure recorded for April but CML officials say that the market is levelling out.

“Lending is still strong, but it does seem to be stabilising in 2007 following its major growth in 2006,” said Michael Coogan, director general at the CML.

“With higher interest rates now beginning to have an impact, the modest slowing in activity that we have been expecting over the rest of the year looks set to materialise.

“Even so, we continue to expect lending in 2007 to be around four to five per cent higher than in 2006,” he added.

Tags: modest slowing, rest, materialise, borrowing, economics, month, April, figure

Costs may fall on 100% mortgages

The fact that many first-time buyers are taking out 100 per cent mortgages may be a good thing.

Many commentators and industry experts have warned that the mortgages are dangerous as youngsters are being saddled with large amounts of debt.

However, Ray Boulger, a senior technical manager at John Charcol, says with more people getting them, we will soon start to see 100 per cent mortgages that are value for money.

“Despite the furore surrounding the availability of mortgages reaching as much as 125 or 130 per cent of a property’s value,” he said.

“In actual fact, very few people qualify for that amount of money and the average plus size loan to value is more like 103 per cent.

“The good news for borrowers here is that as competition increases, the premiums usually associated with these kinds of mortgages should be reduced,” added Mr Boulger.

The rise on popularity of 100 per cent mortgages is down to an increased number of people going to universities, according to Mr Boulger, with more people coming away with debt which prevents them from being able to save up for a deposit.

It is predicted by the technical manager that the cost of borrowing on a 100 per cent mortgage will “come down by the year end”.

Tags: mortgage, popularity, economics, year end, Ray Boulger, fact, borrowing, actual fact