Is it wise to borrow against your equity?
March 26, 2011
Over the past decade many people have taken out secured loans, which are loans that were secured against the equity in their homes. Over the latter part of the 1990s for the next decade property prices in the UK soared, which saw the equity levels of homeowners go through the roof. For those that needed to borrow money this provided the perfect platform, as lenders were willing to offer very competitive loans that were secured against the equity. The more equity homeowners had the more they were able to borrow, and many people took full advantage of this.
However, in 2007 this all changed with the onset of the global financial crisis, which resulted in chaos in the financial and property markets and brought property prices crashing down. This sent many homeowners into negative equity and resulted in many losing their homes because they were unable to keep up with repayments on their mortgages and secured loans.
Whilst the value of property has not recovered to the point where it was before the global financial crisis there has been some level of recovery and some people may have seen some equity return to their homes. However, for those that do have equity in their homes is it advisable to think very carefully before taking the plunge and going for a secured loan.
The most important thing to remember is that if you are unable to keep up with repayments on your secured loan you could end up losing your home. The property market is still very turbulent with property prices going up and down, and this is not the most stable environment in which to borrow money that is secured against what is probably your most important and valuable asset.
You need to bear in mind that getting a secured loan is far more difficult now than it was in the past, as lenders are very cautious about offering loans that are secured against an asset in such an unstable environment. It is also important to remember that the government cutbacks and potential job losses are affecting the environment - and the ability of people to make repayments on their borrowing, which is another reason why you need to give careful consideration to taking out this type of high risk loan. You may find that the restrictions that lenders have in place are far more stringent, and whilst the base rate is at rock bottom at the moment lenders may charge higher rates due to the risk of defaults.
Increase in loans taken out by Brits
March 26, 2011
Over the past couple of years consumer appetite for debt has been dampened as a result of the difficult financial climate and the recession. Many people have been concerned about the security of their jobs, as well as already struggling with their finances due to existing debts and the soaring cost of living. As a result of this many have been steering clear of loans and other new debt because they might struggle to make repayments.
Another reason behind the reduction in personal loan use over the past couple of years is the drop in the number of loans being granted by lenders. Since the onset of the global financial crisis lenders have been far more careful about offering finance to consumers due to the risk of defaults, which has naturally had an impact on lending levels.
However, according to recent figures January saw the amount of consumer credit that was taken out by Brits increasing for the first time since August. This was fuelled by a jump in new unsecured loans, which soared by 27 percent year on year, with a total of £209 million in borrowing. Car finance also increased by 16 percent to £812 million and credit card lending went up by 3 percent to a whopping £2.36 billion. The figures were released by the Finance and Leasing Association.
However, data showed that consumer confidence levels remained low, and borrowing associated with High Street lending, such as store cards, remained low with a drop of 18 percent in store card borrowing.
An official from the FLA said: “In the last 12 months our members provided over £50 billion of consumer credit, but consumer confidence remains low. A sustained economic recovery is dependent on a competitive market that creates more choice for consumers.”
First time buyers could get help with deposits
March 25, 2011
As part of the 2011 Budget the Chancellor of the Exchequer, George Osborne, announced a range of new measures that were designed to help different groups, and this included measures that the government has decided to put into place to help first time buyers to get their foot onto the first rung of the property ladder.
Osborne announced the launch of a new equity loan scheme called Firstbuy, and it is thought that around ten thousand first time buyers or more could benefit from the scheme in order to help get them onto the property ladder. Over recent years first time buyers have stood little chance of being able to own their own home because of the lack of 100 percent mortgage and the demand for higher deposits from lenders.
Under the Firstbuy scheme the buyer will only have to save 5 percent of the property value themselves by way of a deposit. The government will then put up 10 percent and house builders will put up the other 10 percent as part of an equity loan, which is deferred with regards to repayment for five years and then charged at very low rates of interest. For first time buyers this could mean the ability to get onto the property ladder far quicker than they would otherwise have been able to.
However, one official was concerned that there could be repercussions, stating: “This seems to encourage first-time buyers to purchase property with very high loan-to-value ratios. This is a bold strategy given that the credit crunch was largely caused by people borrowing more than they can afford to repay. We must hope that there are sufficient safeguards in place to protect against repeating the mistakes of the past.”
Consumers more interested in credit card limits than rates
March 1, 2011
According to one recent report many consumers in the UK who are looking for a credit card are more interested in the credit limit that they will get on the card rather than on the rate of interest that they will pay on their borrowing. Experts have said that people should use credit cards very carefully in the ongoing difficult financial climate. It is recommended that consumers use credit cards to help with cash flow and then repay the balance as quickly as possible to avoid spiralling debt and interest charges.
However, worryingly there are many people that are more concerned about how much they can get on a credit card rather than how much interest they will pay on their borrowing. Many of these people are also using the credit on their cards to splurge out and buy luxuries that they do not need just because they have the means to do so because of their credit card limit.
There are concerns that with the rising level of personal debt in the UK this sort of mentality could lead to increasing debt levels amongst consumers who could actually avoid large levels of debt by not spending unnecessarily on high interest credit cards. Those looking for a credit card should focus on only borrowing what they need to and getting the best rate possible on their borrowing.
An official has also warned on the use of price comparison sites to get the best deal on a credit card, warning that whilst these sites could sometimes be effective many focused on trying to get consumers to take out cards with providers that paid them the highest levels of commission, which could lead to more expensive borrowing for consumers.