Loan News

We are all aware of the liquidity problems being faced by the major high street banks and other lenders at the moment and many of us may wonder as to why these financially strong institutions are suddenly short of cash. Most of us would expect to find that these respectable lenders would take a responsible attitude towards lending to their customers, ensuring that the potential borrower could reasonably afford the monthly repayments.

However, it has been revealed in a recent report that loans and mortgages to the level of billions of pounds have been granted to individuals without any adequate checks being made on their incomes to ensure that they could manage to keep up with the repayments. It is estimated that over twenty billion pounds worth of loans and mortgages have been offered to a total of over half a million people without any income checks being carried out.

Many of these loans will be secured on the borrower’s home or other property with a loan to value ratio of less than 75%. The lenders attitude in these situations is that there is an adequate level of security remaining in the property to recover their losses, should the borrower default on the loan. However, just because a client is asset rich doesn’t mean that they have the necessary monthly income to meet the repayments. The report also states that up to three million pounds worth of loans have been granted without any security being taken at all and still no income check on the borrower.

With the full effect of the credit crunch now being felt by lenders who are experiencing record levels of missed payments and defaults on customers loans and mortgages, it seems that lending criteria is now being restricted under new amendments to the Banking Code in order to try and promote more responsible lending. This may be viewed by a more cynical person as closing the stable door once the horse has bolted!