Best Loans News

Over the course of the past few years, many individuals in the UK have built up a significant level of personal debt through things such as credit cards, personal loans and other finance agreements.

This can be extremely expensive on the regular monthly repayments and difficult to manage all the separate payments throughout the month. As a result, many people in this situation have applied for a debt consolidation loan to combine all their other card and loan debts into one regular repayment, usually saving a significant amount of money on the regular monthly payments, particularly if they opt for a secured loan.

But over the last few months, many borrowers have found it increasingly difficult to be accepted for even a secured loan to solve their problems, possibly due to having a less than perfect credit history and the majority of lenders tightening their criteria for loan applicants. In this situation, many borrowers will not consider further action to remedy the problem, choosing instead to try and keep up with managing their existing debts, often getting themselves into a worse situation than they were in previously.

To attempt to solve this problem and help borrowers further, Loan Options, a secured loan packaging company who deal exclusively with loan brokers and intermediaries, has extended its service to customers who have been rejected for a traditional secured loan, by introducing a free debt referral service, through their partner company TCF Debt Solutions.

Andy Moody of Loan Options said “Consolidation of debt has been the standard weapon of choice for most intermediaries faced with clients wishing to reduce their outgoings on credit cards and other debt. However, the lack of appetite for this type of borrowing, allied to lower LTV’s and the fall in house values, means that we need to offer intermediaries and their clients realistic alternatives.

It is logical that intermediaries should have the option of referring at risk clients to a service designed to offer long term advice on managing debt effectively and avoiding bankruptcy. Treating customers fairly by ensuring that they have access to all the choices to meet their needs is what every intermediary will be offered at Loan Options.”

Despite the fact that the majority of the population in the UK are currently in the process of tightening their belts and cutting back on their spending, coupled with the fact that banks and building societies are restricting the amount of new loans they are prepared to offer, it seems that new lending to small businesses has continued to increase.

The latest figures, which have been released by the British Banking Association (BBA), have shown that the amount of lending on new loans to small businesses in the three months leading up to the end of September this year increased by just less than £1 billion.

This level of new business loans remains fairly consistent with the previous three months of the year and also for the same period twelve months ago, although the overall total loan amount has reduced slightly on these previous figures.

Over the course of the last twelve months, to the end of September, the total amount of lending through small business loans increased by around 10 per cent, to £44.8 billion. At the same time, business overdraft levels grew by around 4 per cent to stand at £9.3 billion. This clearly shows that the banking system still has confidence in small businesses, if they are prepared to offer them new loans, despite the current economic climate.

Although the number and amounts of new business loans and overdrafts has continued to increase over the last year, the total level of business savings only increased by 3 per cent over the same period, to stand at around £55 billion.

Whether these new business loans are to fund expansion, or just to keep the business running is not clear, but with the rate of growth of borrowing exceeding that of saving, it would seem that many businesses are taking out new loans to maintain cash flow.

We have been constantly hearing, over the course of the last twelve months, about the stagnating housing market and the declining number of home owner loans being approved by lenders, but at last there is a little more positive news.

According to the latest monthly figures from the Council of Mortgage Lenders (CML), there was actually an increase in the total amount of new lending on mortgages and secured loans throughout the month of October.

In total there was an increase of 7 per cent over the figures for September, with an additional £18.7 billion released as new home owner loans, although the CML admit that the previous month was particularly low, with only £17.5 billion worth of new loans.

Although these figures show a slight improvement on previous months, we are still along way from recovering to the situation we were in prior to the credit crunch and new lending for October this year was 44 per cent less than it was at the same time last year. Hopefully, the Governments intervention in the secured loan markets and the recent reduction in interest rates will allow banks and building societies to start introducing some more accessible home owner loan products, to help restore consumer confidence.

Michael Coogan, of the CML said “While lending in October ticked up from a low figure in the preceding month, the outlook is of continuing weakness for housing and mortgage markets in the coming months, despite the bank rate cuts in October and November. Consumer confidence is now being affected by the worsening economic outlook.

However, any recovery in lending is also being held back by the continuing shortage of mortgage funding. The Government should therefore publish the delayed Crosby review as part of the forth coming pre-budget report and announce concrete steps that will enable and encourage firms to increase mortgage loans.”

It has been a tough old year for anyone connected with the personal loan and secured loan industry over the course of the last twelve months, not only for those individuals who have applied for any type of loan, but also for those working within the industry.

Since the onset of the credit crunch last year, banks, building societies and other loan companies have been finding it increasingly difficult to obtain the funding in the wholesale money markets to be able to offer loans at any sort of reasonable rate and have been forced to tighten their lending criteria to the point where only those applicants with a perfect credit history are likely to be accepted for a personal loan.

The combination of all these problems has taken its toll on a large number of lenders, both large and small, with many secured loan companies going out of business altogether, or at least withdrawing from new lending due to a lack of funds.

The latest casualty to be hit by the effects of the credit crunch is White Label Loans, a subsidiary of the West Bromwich Building Society, who specialise in secured loans and second charge mortgage loans. The company, which deals predominantly with loan brokers, made the announcement this week, informing its brokers that any new loan applications would need to be received by Friday this week and that all cases must complete by 12th December this year.

White Label loans is the latest in a long string of companies which have withdrawn from the secured loan market including Firstplus, Future Mortgages and Southern Pacific Personal Loans, to name but a few and this is likely to make things even more difficult going forward both for loan brokers and borrowers looking for a new secured loan.

It was only just over twelve months ago when if a borrower’s mortgage or home owner loan reached the end of the initial deal and reverted to the lenders standard variable rate (SVR), then they would be shopping around for a new deal and it wouldn’t take them long to find a new lender who was prepared to offer them a cheaper loan than their existing one.

The lenders standard variable rate was reserved for those individuals who were unable to get a better deal from an alternative lender, or the default option for someone applying for a new secured loan, who could not qualify for a better cheap loan deal.

How things change in the space of a year. Since the Bank of England reduced the base rate of interest over the last couple of months and the vast majority of banks and building societies have been forced by the Government to reduce their SVR’s accordingly, these have now become some of the most competitive deals on the market.

For existing borrowers, whose initial secured loan deal has now ended and the product has reverted to the SVR, there is little point looking around for a new deal, as their existing loan is likely to be cheaper than any remortgage product available elsewhere on the market, often with interest rates in the region of as low as 5 per cent.

However, for many people who are looking for a new home owner loan, these SVR products are no longer available, as a large number of lenders have made this rate unavailable for new loans, or are simply not advertising the product.

For those lenders who are still offering the SVR to new borrowers, in many cases they are charging large arrangement fees and also high redemption penalties, which increases the overall cost of the loan and cancels out the benefit if obtaining a cheaper interest rate. Approximately 40 per cent of lenders now charge an arrangement fee on their SVR home owner loans and 88 per cent charge redemption penalties.

Equity loans, or lifetime mortgages as they are also known, look as though they are about to see a dramatic increase in popularity, largely due to the effects of the credit crunch.

One of the biggest providers of equity release home owner loans, Norwich Union, has predicted that new sales of this type of product are likely to double over the course of the next five years, from £1.2 billion currently to £2.4 billion by December 2013.

Equity loans have been available for many years now and allow people either approaching, or already in retirement to release some of the value of their home as a cash lump sum, or regular income, to help to fund their retirement, in most cases the borrower does not need to make any repayments on the loan, as the interest is rolled up and eventually repaid when the home owner either sells the property, or dies.

Equity release loan products have increased in popularity over the past couple of years already, as many people have either not made sufficient financial retirement plans, or the value of their investments have not performed as well as expected, leaving them short of funds to maintain their lifestyle.

But now, both advisers and providers are starting to see people taking out equity release home owner loans to repay their existing mortgage, outstanding personal loans and other debts, rather than use them purely for additional income.

One Independent Financial Adviser said that his company had already seen a significant increase in this area of business and that around half of all cases were being used to repay other personal loans and credit card debts.

There has already been a large increase in the number of companies providing equity release loans and it is likely that this number will grow, as the popularity of the product increases over the coming years.

As the effects of the credit crunch began to properly take hold at the beginning of this year, the Council of Mortgage Lenders (CML) warned us of an increase in the number of repossessions of people’s houses.

The institution predicted that we would be likely to see around 45,000 properties repossessed by the end of this year, through individuals building up arrears and defaulting on their home owner loans and secured loans and so far the figures seem to backing up this estimate, despite the Government intervening in the secured loan market by injecting large amounts of cash into the banking system, in order to restore liquidity to lenders and help to avoid this very problem.

Now, the Home Owners Advice Centre has suggested that banks and building societies should adopt alternative strategies when a borrower gets into difficulty with their loan repayments and actually try and help them, rather than go down the route of repossession, which is clearly not in the best interests of either the borrower, or the lender, particularly in the current economic circumstances.

Al Elliott, of the Home Owners Advice Centre, has proposed that a better plan might be for lenders to allow borrowers facing financial difficulty to reduce their monthly loan repayments and in exchange for this they would take a charge over a larger share of the equity in the property, thereby increasing their level of security for the loan. This would help avoid the unpleasantness of repossession proceedings and once the market recovers, the borrower would have the option of either repaying the increased balance of the secured loan, or selling the property at a profit and repaying the debt from the proceeds of the sale.

This idea could certainly help avoid the repossession process in many cases and with the Government stating that lenders should only go down the possession route as a last resort, it could possibly make life quite a lot easier for all concerned.