Economic recovery depends partly on continued lending

The deputy governor of the Bank of England, Paul Tucker, has recently spoken out about the future of the UK’s economy, and has stated that in his opinion the future of the economy partly depends on continued credit being extended by lenders. Read more

The pros and cons of the base rate cuts

Between 2006 and early 2007 many people were horrified as a result of the base interest rate increases which saw the base rate rise from 4.5 percent to 5.75 percent. Borrowers and homeowners found that their financial commitments went up considerably, although the rate increases came as far better news for other groups such as savers, who hoped to get better returns on their money as a result of the rate increases. Read more

Banks could make billions from increasing profit margins

According to a recent report many of the UK’s major banks could end up making billions of pounds in extra profits by increasing the margins on loans and mortgages. It is thought that the banks could end up making around £3.6 billion as a result of these increases, so although the Bank of England base rate has fallen from 5.75% to just 3% over the past year the banks are still set to make huge profits. Read more

Payment Protection Insurance For Loans

Every year many people in the UK take out a loan in some form or another, whether it is a secured loan that is secured against the home or whether it is a contract based unsecured loan. And for most of us the thought of not being able to meet repayments on the loan one day never really crosses our minds when we are actually taking out the finance. However, there are many unforeseen circumstances that could result in the borrower being unable to meet repayments on the loan, and this could lead to severe consequences, particularly in the event that the loan is a secured one. Read more

Tips on getting a loan with bad credit

It is nothing unusual these days to have damaged credit, and in fact and increasing number of us are finding out just how difficult life can be with poor credit. Read more

The importance of keeping your credit clean

Over the years more and more of us have become reliant on credit for the things that we need in life, whether it is a new home or a new car or whether it is to fund a wedding, and education, or even a luxury holiday.

Most of us would be lost without our credit cards, and the majority of us take the ability to be able to open a current account for granted. Yet, if you find yourself facing severe credit problems you could find all of these things impossible, leaving you to deal with a very bleak and difficult financial future.

This is why it is so important to keep your credit in good shape. Those with good credit can enjoy a far easier financial future, with access to a choice of financial services and products from a wide choice of lenders. People with good credit can get the best interest rates, making it more affordable to take out finance. Whether you are looking for a mortgage, a personal loan, a secured loan, a credit card, a store card, or any other type of finance you will find that having good credit can make a huge difference to the amount you pay on your borrowing – and whether you are even eligible to get the credit that you need.

Your credit can be affected in a number of ways. Firstly, it is important to remember that having no credit rating can be as bad as having a poor credit rating, as it means that lenders have no way of knowing whether you are going to be a viable risk when it comes to taking out finance. Therefore, it is important to kick start your credit as early on as possible. One thing that has a major effect on your credit rating is your repayment habits – those that pay their bills and debts on time, regularly, and for at least the amounts requested will enjoy a good credit rating and access to some great deals on finance.

If, however, you make regular late repayments on your financial commitments, or worse still you default on your financial obligations, you will find that your credit rating rapidly declines, and this is where you will start experiencing problems. Those with poor credit will find that their access to finance is greatly reduced, and many lenders will not take risks on those with damaged credit, particularly in the current economic climate. Those with very bad credit may find that they cannot get any form of unsecured finance, and will have to rely on credit that is secured against their homes – even then the interest rates charged are likely to be very high.

There are other factors that can adversely affect your credit, such as fraudulent activity, out of date information, or mistakes on your credit file. This is why it is advisable to order a copy of your credit report on a regular basis and checking through the information on the file. You may find that there are mistakes and inaccuracies that could having an adverse effect on your credit, out of date information that needs to be updated, or even suspicious transactions that could result in your credit rating taking a knock. If you pick up on anything like this you should contact the credit reporting agency as early on as possible to get it rectified.

You should also bear in mind that a log is made on your credit file each time you apply for finance, and the more rejected finance applications that are logged onto your file the more your credit rating will suffer. Therefore if you are turned down for finance you should resist the temptation to keep on making applications. Instead, try and find out what may have affected the lender’s decision by going through your credit report, and wait at least three months before you make another application.

Related articles:

• How To Build Up a Good Credit Rating
• Credit Building Tactics

External links:

• Credit Reports
  Every time a customer applies for a financial product such as a credit card, the credit company will consult that customer’s credit file. This file records all their financial activity in terms of credit applications and banking activity.
• Credit Cards Designed To Improve Your Credit
  Credit cards have become very popular over the years because of the ease, convenience, and flexibility that they provide, and these days there are many different types of credit card available
• Applying For Credit Cards When You Have Bad Credit
  For those with a poor credit score, getting a credit card is harder. However, there are solutions and we will discuss and offer these in the article.
• Using Your Credit Card To Build Credit History
  Let’s say you want to buy a house, but you need to get a mortgage to help pay for the house. However, you have no credit history to speak of, so how can you apply for the mortgage to get your dream home?

Darling accused of incompetence over Northern Rock loan

Chancellor, Alistair Darling, found himself the recipient of a vicious verbal attack by the shadow chancellor George Osborne earlier this week, when he was challenged in the Commons over the loan that was granted to Northern Rock by the Bank of England.

The chancellor has been accused of exercising secrecy in authorising the loan to ailing bank Northern Rock, and the attack came on a day that saw the Rock’s shares plummet again, falling by over 20% in the light of no successful sale to rescue the bank.

Osborne accused Darling of misleading the public by not making the loan public, but Darling stated that the way the Northern Rock loan was handled was normal operating procedure for the Bank of England, and that making the public aware of every move could have adverse effects, which indeed it did when the public did finally learn about the loan. He added that the loan was secured against Northern Rock’s assets after being accused of putting taxpayers’ money at risk.

Mr Osborne stated: ‘Can the Chancellor tell us that all the money lent by the taxpayer will be repaid? Yes or no.’

He also said: ‘This is a tale of incompetence and weak leadership from a government that now reels from one disaster to another. We have a Chancellor who made loans he kept secret from Parliament. We have a Chancellor who has made guarantees to the taxpayer he cannot be sure of honouring. And we have a Chancellor whose weakness is contributing to the instability of the financial system. That is why we have a Chancellor whose job is on the line.’

Darling has been accused by the shadow chancellor of withholding information from the public as well as from parliament, but Darling insists that he did the right thing in authorising the loan for Northern Rock, and said that there was no secrecy involved.

Tom Smith
30th November 2007

FSA clamps down following mis-sold sub-prime mortgages

The UK’s financial regulator, the Financial Services Authority, has come down hard on a handful of brokers that have been found to be mis-selling sub-prime mortgages in an already volatile financial market.

Chaos has resulted from a credit crunch that was sparked in the sub-prime mortgage sector of the United States. In fact, of the three brokers that have felt the wrath of the Financial Services Authority over this issue, one has been closed down altogether whilst the other two have been fined.

The three small brokers include Homebuyer Securities, which was closed down as a result of mis-selling sub-prime mortgages, the Loan Company, and Next Generation Mortgages. The latter two were fined by the FSA but remain in operation.

According to FSA officials the firms had been offering inadequate sales and advice procedures, and as a result of this had put their customers at risk. The companies were all found to be mis-selling sub-prime mortgages, which are mortgages that are targeted towards those with poor credit and those that are unable to prove a regular income.

An official from the Financial Services Authority stated: “Firms who do not comply with FSA standards taint the entire mortgage industry which is totally unacceptable. Any firms who place their customers at risk of receiving unsuitable advice through inadequate business processes can expect strong action from the FSA.”

According to a recent report a fine of £31,500 was imposed on the Loan Company, which was found to be offering inconsistent information and providing mortgage loans without checking that the borrower could afford to make repayments.

A further fine of £10,500 was imposed on Next Generation Mortgages, which was accused of failing to assess customers’ needs properly and failing to provide warnings about the risks associated with its mortgages.

Alan Wright
25th November 2007

Three interest rate cuts predicted for 2008

According to city economists homeowners in the UK will be able to enjoy easier financial management next year with predictions that interest rates will fall two or three times over the course of the year.

Since August 2006 interest rates have risen five times, each time by 0.25%, and this took the base rate from 4.5% to 5.75% in under a year. Since July of this year interest rates have remained stable at 5.75%, despite calls from some agencies for the Bank of England to cut rates.

Economists are now predicting that interest rates could fall back to 5% next year through a series of interest rate cuts. Some economists predict that there may be one interest rate cut by the end of this year and a further one early or mid next year. However, the timing of interest rate cuts will be dependant upon data reflecting continued economic slowdown. GDP growth forecasts have been downgraded for next year, and this is because of factors such as the series of interest rate rises, volatile financial markets, and the current strength of the pound.

One economist stated: ‘Crucially the Bank has validated market expectations that we are going to see two or three interest cuts in 2008.’

Another said: ‘The report is markedly more doveish and indicates that at least two interest rate cuts are likely.’

Any interest rate cuts are likely to be welcomes by homeowners, who have seen their repayment rocket over the past year, with interest rate rises adding hundreds of pounds to the mortgage repayments of some homeowners. There is also set to be financial turmoil for those due to come of cheap fixed rate mortgages deals over the coming months, and an interest rate cut could help to ease the financial impact.

Alan Wright
24th November 2007

Payment Protection Insurance Cover

Anyone that takes out finance likes to have the peace of mind that they are protected against situations that could render them unable to make repayments, and payment protection insurance cover is an effective way to do this. Read more

ICICI to expand in UK

Indian bank ICICI is planning to expand its operations in the UK, offering consumers the chance to take out personal loans, current accounts, and insurance services.

The bank is planning to expand its services over the next year. In addition to expanding operations the company has stated that it will also improve on the time it takes to respond to customer queries, which currently takes between 24-48 hours.

ICICI is a subsidiary of the second largest bank in India, and was established in 2003. It has enabled consumers in the UK to enjoy excellent rates on savings accounts, and due to its high rates on savings has gained popularity amongst consumers in the UK. However, one thing that has gone against the bank is that many consumers have never heard of it and therefore have avoided it despite the high rates of interest offered on its HiSave Account.

Until recently the bank had refused to sign up to the Banking Code in the UK, and consumers were concerned about this as well as the bank’s reputation when it came to dealing with customer complaints and queries. One official from ICICI stated that the reason that it had not signed up to the Banking Code previously was because its bank cards were not yet chip and pin compliant.

One official from the bank stated: ‘The major obstacle was that our cards weren’t compliant. Customers can now change their pin numbers as they like and, as our systems have become more automated, we have cut down on the time it takes to open a new account to bring it in line with the industry average.’

Alan Wright
15th November 2007

Competition Commission still investigating PPI

The controversy over payment protection insurance has been going on for some time now, and regulators have been investigating the problems surrounding the sale of PPI after it was found that many consumers were being mis-sold this insurance, and that in some cases the cost of PPI was higher than the interest costs on a loan.

The Competition Commission has stated that its investigation into PPI is still ongoing as no conclusions have yet been reached.

The Competition Commission has stated that the issues that are being considered are complex and therefore more time and consideration is required. The Competition Commission plans to publish its provisional findings in May of next year. The chairman of the inquiry stated that the Competition Commission had already reviewed a substantial amount of evidence, but added that there were areas that needed to be looked into further.

The chairman stated: “We are far from making up our minds. But we are focussing on the amount of competition for PPI that distributors face at the retail level.”

He added that the Competition Commission was aiming to complete the inquiry as soon as possible but had to take into consideration areas that needed to be looked at further. He said: “…we are also conscious that the issues we are deciding upon are by no means simple and it is vital that we carry out our work thoroughly, ensuring that all parties receive a fair hearing.”

A number of issues relating to PPI are being looked into by the Competition Commission. This form of cover is designed to protect against falling behind on repayments on loans, credit cards, and other forms of finance.

Alan Wright
13th November 2007

Bank of England comes under fire for failure to reduce interest rates

Following its most recent decision to keep interest rates on hold for a fourth consecutive month the Bank of England has come under fire from a number of agencies for failing the economy by making the decision to keep interest rates unchanged at 5.75%.

Some say that the Bank of England is putting the stability of the UK’s economy at risk by failing to cut interest rates, and both lender and brokers had been hoping for an interest rate cut of at least 0.25% for November.

A broker from firm John Charcol stated: “A cut of 0.25% today would at least have pushed three-month Libor back down to about 6%. It would also have started to redress the Bank of England’s policy mistakes, as outlined in last month’s Financial Stability Report, in dealing with the credit crunch.These are all good reasons why the MPC should have cut today. Their failure to do so means that today’s opportunity to mitigate the potentially serious problems building up in the banking system has been lost.”

A property investment official added: “It’s about time that the Bank of England’s MPC saw sense and realised that the clear and present danger to the UK economy from the continuing effects of the credit crunch is more important than the less clear possibility of future pressures upwards on inflation.”

One economic adviser added: “Credit conditions have become tighter since August, both globally and in the UK. The dangers to the economy have worsened and businesses require easier credit conditions without undue delay, to avoid a nasty reversal. We urge the MPC to announce a small interest rate cut in December.”

Tom Smith
13th November 2007

Switching and saving is easier than ever

There are many different ways to try and save money on your monthly outgoings these days. You can go through your income and expenditure, and try and cut back on luxuries and money spent on social events. You can also go through and cancel any unused subscriptions, such as gym or magazine subscriptions that you don’t really make use of. Read more

Using the Internet to find affordable finance

There are many different types of finance available these days for those with good credit and those that own their own homes. Read more

Loans ‘good’ for debt consolidation if used wisely

People considering taking out a personal loa as a means to manage their finances are advised it is sensible if done sagely.

According to Moneyextra.com, if consumers are going to use this means to tame their finances, they must be careful not to build up debt on an overdraft or credit card at the same time.

Robin Amlot, senior editor at the financial services company, explained that debt consolidation is the “key reason” people chose to take out personal loans these days.

He advised a course of action for those doing so, saying: “Two key factors about taking out an unsecured personal loan as a way of consolidating your debts is that you are fixing your interest rate - so you know what you’ll be paying each month – and you are fixing a date in the future at which you will have cleared the debt.”

Recent research by Thomas Charles debt consultancy in association with YouGov found that 15 per cent of people in Britain are in serious debt, with men being more indebted than women overall.

Meanwhile, one in four Britons plan to avoid spending money on credit cards this Christmas.

FSA to publish new PPI guidelines

The UK’s financial regulator, the Financial Services Authority, is to publish new guidelines in relation to Payment Protection Insurance on its website next year.

Payment Protection Insurance, or PPI, has been at the centre of controversy over the past year, with many claims that this type of insurance was being forced onto borrowers, mis-sold, and in some cases added onto finance deals without the consumers even knowing about it. Banks and lenders make a lot of profit on the sale of PPI, but in many cases customers end up with expensive policies that they cannot even benefit from.

Payment Protection Insurance is designed to help those taking out finance, such as credit cards, loans, and other forms of credit. The idea behind the cover is that consumers will be covered for a specified period in the event that they are unable to work and therefore make repayments due to redundancy, illness, or accidents. However, research was carried out by various agencies, and the industry came under severe criticism for the inappropriate sale of policies amongst other things.

Many people have ended up purchasing PPI that is not suited to their needs as a result of this mis-selling, and the FSA aims to steer customers towards suitable plans based on their needs via the website. Customers will be asked a number of questions on the site, and will then be able to view a choice of suitable policies so that they do not end up purchasing inappropriate PPI.

In addition to helping consumers to find the right PPI policies for their needs, the FSA has also promised that it will be taking far more stringent action and imposing far higher fines on companies that are found to be mis-selling Payment Protection Insurance in the future.

Tom Smith
4th November 2007

Borrowers reassured by mortgage advisers

Mortgage advisers in the UK are reassuring borrowers following major concerns over rising interest rates.

Many consumers are panicking over how they will be able to get a mortgage when interest rates are so high, particularly in the light of the recent credit crunch, which has resulted in a number of lenders hiking up interest rates even further, exceeding the Bank of England base rate by a considerable amount in some cases.

The worry over mortgage interest rates is being further fuelled by the fact that there are thousands of homeowners that are due to come out of fixed rate deals over the next couple of months, and they will be hit hard by the higher interest rates and rise in repayments, with many paying hundreds of pounds extra a month if they stick with their lender’s standard variable rate. Many will be looking to remortgage and go into another fixed rate deal in light of the current economic climate, but they are worried that they will not be able to find a competitive fixed rate mortgage deal to switch to.

Many mortgage advisers, however, have been reassuring consumers and have stated that there are still mortgages available at rates of 6% or under. Although this is much higher than the interest rate that many people that took out fixed rate deals in 2005 are currently on, it is still preferable compared to the standard variable rates of 8% and beyond that some lenders are charging.

The Britannia Building Society currently offers a fixed rate deal of 5.49% for a two year period, which one broker at John Charcol recommends. There are also other fixed rate deals that consumers can choosing from state mortgage advisers.

Tom Smith
26th October 2007

Debt advisers expecting flood of enquiries

According to a recent report debt advisers across the UK are gearing themselves up for a flood of debt related enquiries as thousands of fixed rate mortgage deals come to an end. Many consumers across the UK took out fixed rate deals in 2005 for a two year period, with a low fixed rate of under 4.5% in many cases.
However, since that time interest rates have rocketed, with a series of five interest rate hikes in the space of a year, taking the rate up to 5.75%.

The credit crunch that was sparked in the United States sub-prime sectors has also had global repercussions, and has resulted in some lenders hiking up their mortgage rates even further. This means that the thousands of people that will be coming out of their fixed rate deals will not only face a huge rise in their interest rates and mortgage repayments, but will also find it increasingly difficult to remortgage to a more competitive deal.

Even those that switch to another fixed rate will have to fix at a far higher rate than they did in 2005, which means a huge rise in their monthly repayments.

It is thought that in the coming months around twelve thousand homeowners will see their fixed rate periods come to an end, and will face repayment rises of 40%. This means that many will have to find hundreds of pounds extra each month in order to continue with repayments on their mortgages, and this could send many households into the red, tipping them over the financial edge and leaving them facing repossession.

All homeowners that are due to come out of their fixed rate deals will face these problems, with many lenders having hiked up their standard variable rates to 8% or more. However, sub-prime borrowers will face severe affordability problems, as many sub-prime lenders have increased their rates to beyond 10% according to some experts.

It is thought that both the level of debt enquiries and the level of repossession will increase over the coming months as a result of this situation. The Consumer Credit Counselling Service has announced that it is opening a specialist repossession advice centre to deal with the severity of the situation.

Tom Smith
25th October 2007

Don’t bail out friends and family with loans

A debt advice agency in the UK has warned that lending money to friends and family could have an adverse effect on both the lender and the borrower.

Officials from the Debt Advice Bureau claim that it is better to offer family and friends advice and support when they run into financial problems rather than throwing money at them by way of loans. In many cases these loans are not fully repaid and can put a strain on the relationship, and often this type of action results in people becoming reliant on loans from family and friends to bail them out if they get into financial difficulties.

Officials from the Debt Advice Bureau state that consumers should help family and friends to overcome debt and finance related problems rather than encouraging them to rely on others to help them out financially, as this can simply lead to a cycle of debt, and could even lead to the borrower getting themselves into debt in order to help out the family member of friend, which can make matters even worse.

One official from the bureau said that by lending money to friends and family consumers could be making the problem worse for all concerned.

He stated: “You don’t want to be laying the groundwork that every time they have a slight cashflow problem, you come to the rescue.”

Official figures show that in many cases the money that is lent to friends and family members is not received back in full, and in some cases is not repaid at all.

According to the results of a recent survey, only around 58% of 70% of consumers that had loaned money to family member had been fully repaid. Of the 59% that had lent money to a friend only 27% had been fully repaid. 

Tom Smith
6th October 2007

Students need to be more careful over getting into debt

According to a recent report the level of student debt in the UK is on the up, with many students graduating from university having racked up huge levels of debt along the way.

One credit reference agency is now urging students to think very carefully before getting themselves into debt, and to ensure that when they do take out credit cards and loans that they use the money sensibly and for necessities, and they make the repayments sensibly and on time.

Melanie Mitchley, an industry expert from the firm Call Credit has stated that students need to be mindful of the effects of getting into debt, and need to be careful about building up debt. She stated that new students need to manage their finance more sensibly, and need to keep on eye on their finances.

According to Barclay’s figures former students have been graduating with debts that are in excess of £13,000 on average. Another survey into student debt indicates that students could soon be graduating with average debts of around £20,000.

Ms Mitchley stated: “We are urging all students whether freshers or in their final year to be aware of the potential pitfalls if they don’t take control of their financial affairs. Our experience has shown that taking on credit needn’t be a problem if you manage your finances well and ensure you keep up your repayment.”

Another survey carried out by the Halifax showed that credit cards, overdrafts, and loan were amongst the most common forms of debts for students, with 43% of students surveyed having borrowed on credit cards, 73% using an overdraft facility, and 83% having taken out a loan.

One Halifax spokesperson stated: “These are significant sums for anyone, let alone someone who is not yet working full-time.”

Tom Smith
5th September 2007

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

Inflation Report Signals Further Rate Rise

The Bank of England has given clear signals that interest rates may have to rise yet again to make sure that it keeps inflation under control. Homeowners will be dreading the possibility of yet another rate rise as they have seen five quarter point rises already ion the past 12 months.

Experts now believe that the rise will come sooner rather than later after the Governor of the Bank, Mervyn King, said that he believed the turmoil in credit markets – set off by the sub-prime crisis in the US – was far from being an international financial crisis. Given that comment, experts think that he will not be afraid of recommending a further rate rise in the UK in the near future. Indeed, there are some doom-mongers who suggest that an interest rate of 6.5% - or even higher – could be reached.

A quarter point rise on a mortgage of £110,000 would mean an increase in monthly repayments of over £16, and on a mortgage of £200,000 the increase would be £30 a month.

A further quarter point rise now looks likely in September. Mr King said: “[We] cannot be sure if what we’re seeing so far foreshadows a more disruptive move on the markets or whether there’s a more gradual easing of pressure that allows credit spreads to widen to more sensible levels. So it’s impossible at this stage to judge how large and how persistent the tightening of credit conditions is likely to be.”

Adding that he did not see the recent events, which have seen some US investment banks in trouble because of defaults on loans and some big takeovers postponed, as an international financial crisis, he went on: “We are seeing signs of bad loans arising clearly in the US, but I don’t think we are seeing signs of these bad loans in other markets. The developments in [the widening of] spreads is a more realistic pricing of risks which we welcome.”

Mr King said that it was not the duty of central banks to give protection to any financial institutions if they get in trouble for poor lending practices.

The Bank’s quarterly inflation report said that inflation would come back down to 2% if interest rates rose according to market expectations, and that would be one more quarter point rise before the end of the year. It is difficult to see the Monetary Policy Committee waiting too long before implementing the rise. The report said that risks to inflation remained on the upside but not as much as a few months ago. It now expects economic growth to dip to 2.5% in the next two years from about 3% now.

Mr King was concerned that official figures did not accurately measure the strength of the economy, and may be revised upwards. The near term outlook for inflation had the bad news of higher food prices from flooding influencing it.

Inflation was also under threat from rising oil prices and potentially increasing wages demands, but Mr King did note that consumer spending was cooling. However, there has been surprise at the resilience of consumer and housing markets despite the five rises since last August.

Mr King insisted that 6% was not yet a done deal.

Tom Smith
1st October 2007

Mortgage Fees Go Through The Roof

Homebuyers are being neatly trapped into taking out what are on the face of it good value deals only to be knocked with sky-high fees. These have soared so much that some lenders have hiked arrangement fees by over 600% in the last two years.

By seeming to have low interest rates mortgage lenders can push themselves further up best-buy tables, but in fact they are making money by charging ever-higher arrangement fees.

Intelligent Finance, a subsidiary of biggest mortgage lender Halifax, now charges an arrangement fee of £2,999 in some cases – up by an incredible 601% on its maximum charge two years ago. The actual cost of arranging a mortgage can’t have gone up by £2,500 in the last two years! In fact, costs are likely to have gone down thanks to computerisation. The huge increase finds its way straight into the provider’s coffers.

Finance experts say that the practice tricks borrowers, in a period when interest rates have hit their highest level since March 2001. Lenders use the headline interest rate to attract customers, and then use arrangement fees to make their money.

Scottish Widows, part of Lloyds TSB, now has a maximum fee of £1,999, up from £295 two years ago and Abbey, Nationwide, Northern Rock and Woolwich, part of Barclays, have all increased their fees dramatically too.

Some lenders charge an arrangement fee as a percentage of the loan, so someone borrowing £300,000 would have to pay an arrangement fee three times higher than someone taking out a £100,000 loan. This is scarcely justifiable as the work involved is just the same.

Homebuyers are advised not be lured by the appealing low headline rates, but to verify all fees and include them in calculations to get the true cost of a loan. For first-time buyers houses are more unaffordable than the last housing market crash 16 years ago, and. Stamp duty is capturing more people than ever before, and it is obvious why so many people are having financial problems with the increasing cost of moving, or simply owning a home.

In May 60% of first-time buyers had to pay stamp duty, as the average price of a home reached £155,000, and the zero stamp duty threshold is well below that at £125,000. An average first-time buyer now has to spend four years eleven months saving for stamp duty, legal fees and a 5% deposit to come up with the £9,844 needed. In 2005 the time needed was eleven months less.

An interesting statistic in the current environment is that the number of mortgage approvals has risen again, according to the Bank of England’s data, with 114,000 loans approved in May compared with 109,000 in April. That will only make a further rise in interest rates highly likely.

On the other hand, house price growth did cool in May. The average home in the UK cost £211,056 in the year to the end of May, up 10.9%. This is down from a rate of increase of 11.3% for the same period to April.

Tom Smith
25th Septmeber 2007

Could bankruptcy be the best option for you?

Most people are only too aware of the concerns over the UK’s growing debt mountain, and over recent years an increasing number of consumers have found themselves with growing levels of debt in the form of credit cards, loans, store cards, and more.

As a result of this many have struggled to keep up with repayments, a matter which has been made worse by rising interest rates and repayments for those with variable rate loans and mortgages. The UK has seen levels of bad debt and insolvencies rocket over recent years, with an increasing number of people teetering on the financial brink because of their debts.

One debt charity, Credit Action, has stated that despite the stigma and the potential problems that are linked with bankruptcy many consumers that are having real debt problems could actually benefit from wiping the financial slate clean and declaring themselves bankrupt. The charity has pointed out that bankruptcy is not an easy route, nor is it the right route for everyone. However, as a last resort for those in severe debt that can never be repaid it can be effective and can give them the fresh start that they need.

Credit Action officials do point out that the consequences of bankruptcy can be far reaching, and getting future credit could prove impossible for many. However, one official from the charity stated that although it is not a step that should be taken lightly it is a course of action that could prove the most effective for some people.

He stated: “Bankruptcy is really the option of last resort, but for some people it is the right thing to do if they’re never going to be able to pay their debts back.”

There are other alternatives available for those with a high level of debt who are experiencing difficulties making repayments. This includes Individual Voluntary Arrangements, which are considered to be a softer alternative to bankruptcy, informal arrangements with creditors, and debt management plans. 

Tom Smith
20th September 2007

Further controversy over banks’ failure to apply interest rate rise to savers

Once again many banks in the UK are coming under fire as a result of leaving savers hanging on to find out if and how they will benefit from the latest interest rate rise, which was applied four weeks ago by the Bank of England.

Banks have already been under fire since the spate of interest rate rises over the past year, and this is because they have been very quick to apply interest rate rises to borrowing in order to increase profit, but have been notoriously slow to apply the rate rises to savings accounts. In some cases the interest rate rises have not been passed on in full or at all.

The interest rate was hiked up to 5.75% after a fifth 0.25% rise in the space of a year in July. Many savers are still awaiting news from their banks with regards to how they will benefit from the latest interest rate rise. Even worse, many banks will make savers wait longer still before applying any rate rise even after informing them of what they intend to do. Amongst those that are under fire are the Yorkshire Building Society, Lloyds TSB, NatWest, and Co-op.

Some banks, such as Barclays, have passed on only a fraction of the 0.25% interest rate rise to savers, with this leading UK bank raising the interest rate on it Flexible Savings Account by just 0.05%. ING Direct customers have been disappointed by the failure of ING to pass on rate rises, and the company has been slated for this over recent weeks.

However, some savings accounts will benefit from the full rate rise being passed on, and consumers are being urged to shop around and look for a savings account that offered a decent interest rate.

Tom Smith
19th September 2007

Government wants longer term fixed rate mortgages to be available

The government, under new prime minister Gordon Brown, has announced that it wants more longer term fixed rate mortgages to be made available in light of the five recent interest rate hikes that have left homeowners struggling to keep up with rising repayments and have made the prospect of purchasing a home even more difficult for first time buyers on a limited budget.

Alistair Darling, the new Chancellor of the Exchequer, has stated that longer term fixed rate mortgages are more important than ever in light of the current state of the economy, as these will enable property purchasers and homeowners to benefit from stable repayments that will make financial management easier and reduced the risk of crippling repayments stemming from further interest rate rises.

Earlier in the week Alistair Darling stated: ‘When you look around the rest of Europe, it is more common to have longer-term fixed rates. We need to look at that. We need to reduce the volatility.’ He also spoke of the profits that some brokers and lenders are making by offering shorter time fixed rates that have to be renewed every few years, netting them thousands of pounds in profit: ‘Brokers want you to come back every two years, rather than every ten or 20. The Financial Services Authority has identified this as a problem.’

In light of the announcement made by government officials the Nationwide Building Society has just announced the launch of a 25 year fixed rate mortgage. However, there are concerns over how many people will want to take on a fixed rate over such a long period in case interest rates start to fall.

Tom Smith
31st July 2007

Are UK bank services the best?

According to a report from on economic consultancy, consumers in the UK receive far better and cheaper banking services than practically any other developed country.

The report comes from Oxera, and claims that when it comes to current accounts, overdrafts, and personal loans consumers in the UK have got a food thing going, and fare far better than consumers in other developed countries around the world.

The report also claims that savers in the UK are able to get far better rates that savers in other developed countries. The report comes at a time when banks have come under fire for a variety of things, from lack of security and dishonesty to applying illegal charges and messing up customers’ accounts.

The report goes on to state that UK banks are amongst the best when it comes to being clear about any charges that are applied to the account, as these are always made clear at the time that the account is opened.

Along with Finland and the Netherlands the UK was found to offer the cheapest banking and most competitive services. This included easy access to banking and related facilities, low cost banking, clearly laid out charges and fees, and longer interest free periods on borrowing such a credit cards. With current accounts the fees and total costs were almost the cheapest in the UK, second only to the Netherlands.

Other than for students personal loans in the UK were found to be the lowest rates across the study, and accessibility to savings accounts was also found to be far higher than in other countries such as Italy and the United States.

Tom Smith
24th July 2007

Mortgage bills set to soar for former fixed rate customers

Recent reports indicate that a million mortgage payers in the UK could soon see their mortgage repayments shoot up by over thirty percent in some cases, as their fixed rate deal comes to its end.

It is thought that consumers that took out a fixed rate deal several years ago for two or three years are going to have a shock, as their mortgage repayments soar to hundreds of pounds more per month as a result of the four interest rate rises enforced by the Bank of England over the past year.

Many consumers took out low rate fixed rate mortgages a few years ago, but these are now set to come to the end of their term, which means that those mortgage holders now have to face the financial pinch of all four interest rate rises in one fell swoop.

Although consumers could switch to another fixed rate deal once their previous one expires, it will be at a much higher rate than their previous one, which means that they will still have to pay out a small fortune each month in additional repayments.

Some industry professionals feel that the million or so people that are set to see their repayments soar over the next year may find it a real struggle to cope because of the amount by which their repayments will rise. It is likely that these customer took out a fixed rate at around 4.5 percent a couple of years ago, and the most favourable rates on fixed rate mortgages now are around 5.5 percent. And with interest rates set to rise again in the coming months this could rise yet again.

One banking analyst stated: ‘For some customers we see a 25-30% increase in interest payments.’

He also stated that those people that had to struggle with repayments in order to get onto the property ladder may now find that repayments are totally unmanageable because of the number of interest rate rises that have been applied since they took out their initial loan.

Tom Smith
19th June 2007

Debt considered acceptable because of student loans

According to a recent report the popularity of student loans has made debt in the UK seem even more acceptable.

According to the financial education charity Credit Action student loans have become such a norm that being in debt has become something of a fact of life. And according to officials from Credit Action these student loans have nothing to do with a need for money, but more to do with the easy access to student loans.

One official from Credit Action described student loans as ‘government endorsed debt on a massive scale’. Of course, students can find themselves in need of financial aid at some point during their education, but the easy access to student loans has resulted in many students just taking out loans for the sake of it rather than through real need, placing them on a downward debt spiral that could lead to problems later in life.

According to Chris Tapp from Credit Action there is not enough caution exercised with student loans, and the easy access to this type of finance has made debt appear to be acceptable even for the younger generation. With consumers levels in the UK at sky high levels this has raised concern amongst some charities and campaign groups, as those in their late teens and early twenties begin a debt ridden life before they have even completed their education.

According to Mr Tapp student loans enable students to live lifestyles that are beyond their means – something that they then become used to, and something that many have to continue funding through further finance, as their initial jobs after leaving college or university is unlikely to be a high paying one.

Tom Smith
17th June 2007

Knowing Your Loan Penalties

Knowledge is power…

It’s quite easy to find a loan these days. Whatever you want it for, you will undoubtedly find a company willing to lend you the money, even if you have CCJ’s or bad a credit rating. When you’re shopping for a loan you will of course be looking at the interest rates and comparing them to get the cheapest rather than settling for the first one you see. Read more

The Pros And Cons Of Payment Protection Insurance

Lenders are always eager to convince borrowers to protect their repayments for loans, credit cards, store cards, mortgages and other financial products. And they have a point. People in the UK are saving less and borrowing more, with a high rate of debt. Read more

Finance management skills being taught to your students

With many adults and households now struggling to keep up with debt repayments, a high number of people struggling to manage their finances effectively, and a record number of bankruptcy and IVA applications being filed, schools in the UK are trying to address the issue of consumers debt at its roots by educating youngsters in how to manage finances. At present, children aged just eleven and upwards are being taught about effective financing, which should give them valuable skills and knowledge for the future and could help them to avoid the levels of debt that many of today’s adults are having to deal with.

One school in Pickering, Yorkshire is already enjoying the benefits of this addition to the curriculum, and students seem to find it very useful. The school is working with the Personal Finance Education Group, which aims to bring a better grasp of personal finance into the national curriculum, aided by fifteen million pounds in funding from the Financial Services Authority.

The Regional Director of the Personal Finance Education Group stated: “It’s helping them understand what financial information they need and then how to apply it. If you look what the financial situation looks like for the under-40s it is very different to the way it was some twenty or thirty years ago. A young person aged 18 can clock up credit cards at an alarming rate without much reference to their financial situation and
the important thing is to let people know how to manage their financial situation.”

The children at the school have had some very positive things to say about the new aspect of education that they are receiving, and many are already aware of how this type of additional education could help them in the future.

Homeowners cautioned over the true cost of unsecured personal loans for home improvements

The latest figures released by the British Bankers’ Association (BBA) show that 198,242 mortgages, totaling £21.8 billion were approved in the UK in October, a six percent increase on September’s figures and an eight percent increase on the figures year-on-year.  At £144,200, the average UK residential property mortgage also saw a slight increase during the month.

Nonetheless, while, “the secured lending market undoubtedly remains robust,” according to David Dooks, director of statistics at the BBA, “after discount price growth, lending volumes are not dissimilar to the same time last year” – indicating that the recent base rates increases by the Bank of England mat be having some effect on the demand for UK property borrowing.  A factor echoed by Milan Khatri, chief economist at the Royal Institution of Chartered Surveyors, who foresees a slowdown in the UK property borrowing during the course of the next year once the full impact of those Bank of England rate increases filters through and the true higher cost of borrowing starts to be felt.

In the meantime,  a recent report by Money Expert is warning that an increasing number of UK homeowners are now opting to take-out unsecured personal loans to finance their home improvement projects over more cost effective ways of this type of borrowing. 

While this may, itself, not be too alarming, Money Expert’s findings also indicate that UK homeowners are not fully aware of how much their unsecured personal loan borrowing is costing them in extra interest payments.  In some cases, interest repayments on a four year £10,000 unsecured personal loan taken-out for home improvement projects can vary by as much as £2,500 – or 25%.

Sean Garden, chief executive of Money Expert, therefore warns, “Personal loans can vary in price dramatically – you could end up paying back as much as a quarter of the amount you borrowed in extra repayments unless you research the market carefully.”

As such, if you are one of the many new homeowners who have recently been approved a UK home mortgage loan and are now looking to undertaken some DIY home improvements on your new home, make sure you look around and research the many different types of UK unsecured personal loans available in the market to make sure that you get an unsecured loan that meets your needs without breaking the bank in extra interest payments.

Switching Finances Can Save You Thousands

Financial experts have concluded that on average Brits could enjoy saving a whopping four thousand pounds a year simply by switching financial products such as loans, savings accounts, credit cards, and mortgages to better value products than their existing ones. The figures are based upon those currently putting up with poor deals on such financial products, and the financial difference it would make if they were to switch to some of the best deals around for the same type of products.

According to figures released by Moneyextra, the average saving that people in the UK can make each year by making this switch equates to £3976.02. According to the data, three months ago making the same type of switch would have saved Brits £167.24 less than it would now, so in the space of three short months consumers in the UK can save even more each year simply by ensuring that they have the best value financial products.

Robin Amlot of Moneyextra stated: “At this time of year, when consumers’ minds are turning to spending perhaps not wisely but all too well for Christmas, it’s more important than ever to make sure we’re getting value for money for our money. Shopping around for just the right present for the person you love is second nature. Shopping around for just the right financial product or service for yourself should be too.”

According to Moneyextra, the bulk of the savings each year can be made through finding a good value mortgage, and shopping around for the best deals. Finding great deals on credit cards and laons can also net substantial savings each year. And looking out for higher interest savings accounts could help you to clock up more in the way of savings. A combination of all of these changes therefore adds up to a considerable annual saving.

HSBC Becomes First UK Bank To End ‘Free’ Banking

20 years after HSBC and Barclays introduced the concept of free banking to the UK, HSBC have announced that it is now time to pull the plug on this popular product and re-introduce a charge for using its banking services.

At present, HSBC has announced that it will limit charging the fee to its online banking arm, First Direct.  Moreover, the fee charge of £10 per month will not be applied to all customers of First Direct.  The “lucky” First Direct customers who will find themselves subject to the £10 monthly fee will be those who fail to make deposits of at least £1,500 per month or those who do not maintain an average balance of £1,500 on their current accounts.

While it is true to say that the UK has remained one of a very few select countries to maintain free current account banking for those bank customers who do not go overdrawn, over time this has probably been one of the most popular products that major UK banks have offered.  Nevertheless, it seems, in this case, that the success of free current account banking in the UK has also been its eventual down-fall, with many leading UK banks having made grumbling noises over the past year or so that the because the UK has free current account banking, this no longer makes the banks competitive with their European and American competition, the majority of whom already charge for current account services.

To many of the 1.3 million customers of First Direct, however, this is going to be a bitter pill to swallow.  UK banks made record profits in 2005, so to now be told that the bank is no longer competitive with its overseas rivals merely because it has not been arbitrarily applying a monthly fee  £10 on certain financially disadvantaged customers may just sound a little like sour grapes.

Thankfully, other leading UK banks, such as Royal Bank of Scotland, Barclays, HBOS and Lloyds TSB, have decided not to follow the lead of HSBC at this time.  However, with most UK bank’s looking to recoup the estimated £1 billion in lost revenue following the Office of Fair Trading’s forced cut to penalties applied on late credit card payments, it would need optimism of the highest order to believe they won’t follow suit soon, a view clearly echoed by a spokeswomen for Royal Bank of Scotland, owners of Nat West, who, when asked RBS’s stance on the issue, was quoted as saying that: “There are no current plans, but you can never completely rule options out in the long term”.

In the meantime, the estimated 200,000 customers of First Direct who are likely to be directly affected by this latest move now have until February 2007, when the new charges will come into effect, to either get their accounts in order so that they do not fall foul of the new charges or to look for alternative free banking arrangements. 

Kindly, however, First Direct have given the 200,000 or so estimated customers it says will likely be effected by this move a ‘get out of jail’ free card: the bank will agree to waive the fee if the customer agrees to take out another First Direct product – such as a loan or insurance. 

Extended Mortgage Terms Means Huge Amounts of Interest For Consumers

The rising property prices in the UK over the years have resulted in many people losing out on the chance to get their foot on the property ladder.

And because of this, over recent years, many banks and building societies have started to offer longer mortgage repayment terms over and above the traditional twenty-five year mortgage, as well as offering higher salary multiples, in a bid to attract consumers that are desperate to get onto the property ladder. Over recent years many lenders have been offering thirty and thirty-five year mortgage repayment terms.

However, experts are now concerned because some lenders have started offering even longer repayment terms, with up to fifty-seven years now being offered as a mortgage repayment term option with some mortgage providers. These mortgages have been labelled as ‘madness’ by experts, who state that although the monthly repayments will be lower for consumers because of the extended term, rising interest rates and the amount of time for which the borrower will be in debt could prove a real problem.

One director of a mortgage broker stated: “Life-long mortgages are a false economy. You end up paying literally tens of thousands of pounds in extra interest. It really is not a sensible thing to do. The idea of paying off a mortgage for 40, 50 or even 57 years is madness.”

With average house prices in the UK rising to well over two hundred thousand pounds, and with interest rates rising to five percent, a number of lenders have made changes to the mortgages that they offer in terms of the length of the mortgages available and the amount that can be borrowed. This is to attract more custom from those that would otherwise be unable to purchase a property.

Student & Graduate Loans

Student and graduate loans are designed to help pay for people to get through University now that the grant system has disappeared. These days it’s estimated that a third of all eighteen year olds enter further education. When the full maintenance grant system was in place only a tenth did so. Clearly this has created a huge demand for loans. Read more

What is a Guaranteed Bad Credit Loan?

Today, there are many different loans to choose from. The types of loan and the terms and conditions that come attached to them are as wide and varied as the purposes people borrow them. However, there is one type of loan that seems to be increasing constantly in popularity, and this is the bad credit loan. Read more

Bad Credit Loans

Getting it bad…

A lot of things have change over the years: none more so than the English language. Today’s teenagers are prone to use all sorts of words that have been invented either as a result of texting or simply to as a result of them wanting to adopt a form of language as their own. Read more

Wedding Loans

To Have and to Hold

Potentially, your wedding day is the best day of your life. Whether you are going for an elaborate set up with all the relatives and friends you can muster or a quiet, simple ceremony, getting married can be very expensive. And that’s not counting the honeymoon! The average wedding in the UK today costs £15,000. Read more

An Introduction To Personal Loans

It seems there are a million different ways to borrow money out there. You’ve only got to walk down the high street or browse the internet and you will be inundated with companies offering you money. Read more

Secured Loans - What You Need To Know

It’s not always easy to manage your finances in the face of unforeseen or large expenses. People might have to deal with costly occasions and events such as: Read more