Loan News

Taking out a fixed rate deal on a mortgage two or three years ago may have seemed like a really good idea at the time and anyone who did so has probably saved quite a bit of money throughout the duration of the fixed rate period. Interest rates were low at the time and so there was a large selection of cheap loans to choose from. But now the problems with short term loan and mortgage deals are starting to become evident as the cheap fixed rate period is coming to an end for many borrowers.

There are 30 billion pounds worth of cheap fixed rate mortgage deals coming to an end through the month of July alone and according to a survey by Moneysupermarket.com more than half of these borrowers have not yet started to look for a new deal on their home loan, although most of them are likely to be facing huge increases in the level of their monthly repayments, due to increases in interest rates offered on loans by banks and building societies.

A large number of individuals will find themselves paying the lenders standard variable rate on their mortgage and with rates as they are, many will simply not be able to afford to keep up with the new monthly payment and face the prospect of severe financial difficulty unless they do something about the problem right now!

With banks and building societies tightening their lending criteria on mortgages and becoming far more selective about who they are prepared to take on as customers, it is much harder to find a new re-mortgage deal than it was two years ago and borrowers should not leave it to the last minute before they think about changing lender. Realistically, they should start to plan changing mortgage deals three months prior to the current deal expiring and it is also worth talking to an independent mortgage broker who is able to search the whole of the mortgage market place to find the best deal for a new loan.

It is apparent from the figures quoted above that many people simply don’t want to think about such matters and bury their heads in the sand. This course of action will only end in tears. Do something about your mortgage now, before it’s too late!

Young people who apply for personal loans on the fly without devoting careful thought and consideration to the possible financial detriments that their decision could bring, may live in regret for many years after.

According to a recent study undertaken by leading financial institution PFEG, more than 60% of borrowers aged between 18-26 will significantly increase their exposure to personal debt as a result of entering into long-term personal loan agreements which are budgeted for based on their “at the time” commitment free lifestyles.

The organisation has suggested that very few younger people consider how their long term loan repayment plan will affect their finances once they begin to take on more in the way of fixed commitments such as those associated to running their own home or possibly even raising a family.

In response to this, PFEG has suggested that more needed to be done with regard to educating younger people on how to manage their finances with a specific focus on understanding personal credit and how rash decisions may severely hinder them in their future lives.

A spokesperson for the outfit commented that it is extremely easy for younger people to make bad decisions with regards to credit and there is very little emphasis on how the affects of these decisions can roll out into later life. It is crucial for some form of teachings on these matters to be introduced into schools and colleges immediately.

Borrowers looking to acquire finance by way of a personal loan during the coming months may have cause to rethink their intentions, if findings from a recent study are anything to go by.

According to newly released statistics from financial trends institution Defaqto, the typical cost of personal loan has increased by close to 5% over the last 2 years in spite of the fact that the base rate of interest has been in gradual decline during the last 12 months.

The firm has also revealed that borrowers of comparatively low value loans are most likely to become caught up in this trend, suggesting that advances of around ten thousand or less appear to be where the majority of lenders are applying the most noticeable price increases to their products.

It has also been noted that the rate in which consumers are rejected for their loan has increased considerably during the last 12 months, with some lenders identified as refusing up to 70% of applicants at any given time.

As a result, issuers of credit cards are reported to have noticed an increase in demand for their products, as borrowers look for alternative ways to obtain the funding that they require.

In these uncertain times in which we live, many individuals with a mortgage or other type of homeowner loan are opting for a fixed rate deal on their loan. Many people would say that this is a sensible move and they may well be right, fixing your repayments for a set period, usually two or three years, brings peace of mind with the knowledge that, whatever happens in the turbulent mortgage market, your monthly repayments will never alter.

But for those thinking of applying for a new loan, or considering a re-mortgage on a fixed rate, there is a word of warning.

According to MoneyExpert.com, an independent price comparison site, arrangement fees on new fixed rate products have soared over the past few months. Eighteen months ago there were only 22 fixed rate deals which charged a fee of over £750 for setting up the loan. That figure has now increased to a total of 323 out of the 939 fixed rate mortgage products currently available on the market, or to put it another way, 34% of fixed rate loan deals now have fees of over £750.

As an example, in September 2006 the highest fee was £1499, from the Halifax, on their 2 year fixed rate at 75% loan to value. For existing customers they now charge £3999 for a 3 year deal on homes worth more than £500,000. As an average figure across the fixed rate market, fees have increased by a total of 66% since September 2006.

Many individuals may not be concerned about such fees, as they can usually be added to the loan on completion. But what borrowers often don’t consider is that interest will then be charged on the added fee amount for the term of the mortgage, possibly up to 25 years. This could have the effect of more than doubling the total amount of fee payable, making a significant difference to the total cost and must be taken into account when applying for a new loan. Banks and building societies can no longer afford to take any risks on their lending criteria and high fees and interest rates are likely to remain for some time, allowing lenders another way of covering their costs.

British borrowers are adding to the countries debt mountain at a rate of almost 1/4 of a billion within every 24-hour period that passes.

New studies reveal that borrowers of loans, credit cards and mortgages are paying a phenomenal 250 million in interest alone to their creditors per day, on a typical per person debt of around £9000.

The study also suggests that each household within the UK, whose residents are identified as being “credit dependant” will pay close to £4000 per year in interest, representing a rise of around 4% faired against the same time last year.

In addition, borrowers who have loans secured against the equity within their homes are having their properties repossessed by lenders at a rate of more than 100 homes per day, and there are approximately 15 people per hour, per day declaring themselves bankrupt or insolvent.

Put into more simple terms, Britain’s general hunger for loans and credit has created an environment where borrowers are repaying almost 100 billion pounds (and rising) in interest alone every single year. It would appear that the doomsday warnings which have surrounded the much publicised credit crunch over recent months, have done little to discourage borrowers from simply doing without. However, financial stresses and strains still remain at the top of the worry list for the vast majority of UK households.

The desire to own a new car has been identified as one of the most common ways for British consumers to rack up unmanageable debts.

According to one of the countries leading credit reference agencies more than 25% of British males as well as 10% of British females will accumulate personal debt by way of acquiring loans for the purpose of buying a new car in 2008.

It has also been discovered that more than 30% of car loan applicants are motivated into making their decision on the premise that their personal image will be enhanced considerably through ownership of a new vehicle. A separate poll revealed that cars are ranked at the top of the list for image conscious Brits, closely followed by clothing and fashion accessories such as watches and jewellery.

A spokesperson for the agency remarked that it is was quite surprising to see so many people accumulating high end debts through car loans, when as a whole, Britain has become more aware of frivolous spend and the detriments of debt.

In addition, the average car loan shopper will request £9’000 from their lender, repaying an average of £160 per month. Consumers are advised to think long and hard before jumping behind the wheel of a new car (especially if it is purchased through credit), and to always consider the potential effects of the purchase on their budget first and before their image.

More than 65% of UK residents are now required to bring home at least £1000 per month in order to keep the cogs of their household intact.

According to a recent study conducted by British banking institution Egg, the accumulative total of household bills coupled with loan and other typical credit commitments will cost the average family around £1100 per month.

The bank has identified a national over indulgence on loans as being the most burdensome factor for the majority of households and reveals that credit appetites have not been anywhere near proportionate to net earnings for quite some time. This has essentially put a large number of families under immense pressure as levels of disposable income shrink even further and the potential leeway between leaving one job (should the worst happen) and finding another becomes almost non-existent.

A spokesperson for the bank commented that it has become essential for families to save as much of their hard earned cash as possible, in order to protect themselves against any unforeseen occurrences. As a general guideline, consumers should budget and save at least enough for their household to function for ¼ of a year, any less than this amount is risky and likely to leave the occupiers in a vulnerable position.

The ailing bank and UK loan lender, Northern Rock, announced this week that it was making “solid progress” on its business plan with the Bank of England and was on track to repay the loan from the Government, which was made last year in order to bail out the Newcastle based lender.

Ron Sandler, who was appointed to the position of executive chairman at Northern Rock by the Government on 18th February this year, has been given the unenviable task of reversing the fortunes of the bank.

He said that part of the recovery plan was to shrink the current mortgage book by encouraging existing borrowers with the Rock to re-mortgage to other providers, once their deals come to an end and a panel of advisers has been appointed, covering all sectors of the mortgage and loan markets, to assist customers in obtaining the best deal for themselves.

He warned, however, that many of their borrowers would probably have problems finding a new lender which will be prepared to take them on, due to the high loan to value ratios on a large number of borrower’s mortgages. The most notable example of this is Northern Rock’s Together mortgage range, which offered loans of up to 125% loan to value. Mr Sandler said “there may be no alternative to certain borrowers, but we will work with them to find the best possible solution to their particular circumstances”.

At the same time, Northern Rock has launched a completely new range of mortgage products, aimed at the prime market, with greatly reduced loan to value ratios and large arrangement fees. They also now have a reasonably attractive range of deposit based savings accounts which seem to be bringing in good business, as the bank is now a public company, with all its products backed by Government guarantees. It seems quite ironic that only a few months ago, customers were queuing down the street outside the bank demanding to get their money out!

Budding Entrepreneurs and proprietors of established business enterprises are being forced to seek alternate means of raising finance, as access to traditional business loans become scarce.

According to one source, the negative effects of the credit crunch on the lending market are not just exclusive to the domestic arena and a large number of business loan providers have severely limited access to wide range of their commercial products.

As a result, many asset rich business institutions are turning to Bridging loans in order to quench their need for additional finance, which is reflected through reports of more than a 50% increase of this type of business over the last 6 months, by commercial finance brokers.

One commercial broker commented that the business finance sector was in the midst of a very interesting transitional period, whereby many businesses (regardless of status) would struggle to source a traditional business loan. As such, the less attractive option of Bridging finance is for many the only remaining alternative.

There has also been a noticeable increase in the number of businesses seeking relatively small sums of capital through the bridging loan medium. This trend goes very much against the grain of a typical bridging loan request and is in our opinion, further evidence of a vastly changing market place.

Payday loans are rapidly gaining popularity amongst borrowers within the UK suggests a recent study.

According to financial comparison site Money Supermarket, demand for payday loans and the companies providing such services has more than doubled in the last six months.

For those who are unfamiliar with this method of borrowing, payday loans are essentially a short term financing solution, which are sourced by individuals who require small sums of money at relatively short notice. They are also identified as being one of the most expensive ways to borrow, especially if the consumer is looking to stretch the term of the agreement over a long period of time.

Analysts feel that the extraordinarily high level of consumer debt which is weighted upon the shoulders of the nation, coupled with a lack of availability in the mainstream loan and credit markets are the central reasons for this increasing trend.

A representative for Money Supermarket commented that in certain situations, payday loans are viable route to short term borrowing for some people, however, it is not practical to commit to this type of agreement if the borrowers intention is to repay the balance over a long term and should really only be considered after all other alternatives have been exhausted.