The pros and cons of a secured loan
April 28, 2011
Whilst some homeowners have seen their equity levels fall over the past few years due to the drop in property prices there are still some homeowners who have a considerable level of equity in their homes, having purchased their properties at a time when they were just a fraction of the price that they are at now.
For these people there is a possibility of being able to borrow money against the equity in their homes, which they can use for one of a number of reasons and purposes. Whilst lending has become more restricted over the past couple of years due to the financial crisis there are some good deals still available for those that are looking for secured loans. There are, however, pros and cons that need to be considered when it comes to these loans, which will determine whether they are suited to your needs.
Pros
- You may find that these loans are more accessible to you because they pose less of a risk to the lender due to the secured nature of the loan
- You can get some very competitive rates of interest with the low base rate
- The borrowing power is greater than with unsecured loans based on your equity levels
- You can choose longer repayment periods than with a secured loan, so you can keep your monthly repayments down
Cons
- The loan is secured against your home, which means that failure to keep up with repayments could result in you losing your home
- If the base rate shoots up you could find the repayments on your loan rising significantly too
- There is no guarantee that you would get a secured loan in the current financial climate
- These loans are only available to homeowners that have some level of equity in your home
It is important to give very important consideration to a secured loan before making any commitment, as it is a very big commitment to make. You need to ensure that you can afford the repayments comfortably, as you will need to be able to cope with any increases in repayments should the interest rate go up. You also need to make sure that you are able to meet the repayments every month so go through your finances with a fine tooth comb before you make your application to ensure that you can afford the loan and will not be risking your home.
Mortgage repayments cheaper than paying rent
April 26, 2011
It has been revealed recently that for the first time in many years it has become cheaper to buy a home and make mortgage repayments than to rent a home and pay monthly rent. For many years it has worked out cheaper for people on a monthly basis to pay rent than pay a mortgage, even though they will not own anything at the end of it all. However, after a very turbulent period in the property market this trend has now changed.
According to recent reports it is now, on average, around £100 per month cheaper to make mortgage repayments on a purchased home than the pay rent on a similar property. The average amount paid out on a mortgage for a three bedroom property these days in said to be £608 whereas the monthly rent on the same property would be £709. Just two years ago the mortgage on the same property would have been £1060 a month whereas the rent would have been £761 a month.
A number of factors are thought to be responsible for the change in costs between renting and buying. This includes the fact that soaring demand for rental properties has resulted in rental costs being driven up and also the fact that for over two years the base interest rate has been at a record low of just 0.5 percent, keeping mortgage repayments down.
One industry official said: “Such a marked decline in mortgage costs has improved affordability for those able to enter the market as well as helping to ease the pressure on existing home owners’ disposable income. Although the current trade-off between buying and renting is expected to narrow when interest rates start to rise again, the long-term benefits associated with investing in bricks and mortar are likely to ensure that buying will continue to be viewed favourably by many.”
High Court rules against the banking industry
April 20, 2011
For a number of years the topic of Payment Protection Insurance, or PPI, has been a hugely controversial one, following claims that millions of people had been mis-sold the cover over the years. Consumer groups have been campaigning to ensure that those that were mis-sold the cover are compensated but the banking industry has said that it would be too costly to do this.
However, this week the High Court ruled against the banking industry, which means that the industry could be set to face costs in excess of £4.5 billion because of the number of claims that they are likely to be faced with. Millions have already sent in claims previously, which were dealt with by the Financial Ombudsman Service and were usually ruled in favour of the consumer.
After this week’s decision many more people will be likely to send in a claim over mis-sold cover because of their increased chances of making a successful claim. Consumer campaign groups have been delighted with the decision that was reached today, as they say that millions of people were sold the cover when they could not even claim on it, others were sold the cover without even knowing about it, and some were pressured into taking out the cover even though they didn’t want to. The banking industry, on the other hand, has been very disappointed with the ruling.
A spokesperson from the BBA said: ‘We are disappointed with today’s judgment and now need to consider the details of it very carefully as well as next steps, including whether it would be appropriate to apply for permission to appeal. Any complaints that are directly affected by the judicial review and therefore cannot be decided will continue to be placed on hold until the next steps have been decided.’
Lending appeals process launched by banks
April 14, 2011
It has been announced that banks in the UK have launched a new process whereby small businesses that are turned down for a loan when they make an application can appeal against the decision to refuse them the loan. Officials from the British Bankers’ Association said that this was one of a number of new initiatives that were being launched by the banking industry.
Under the new process any small business that has its application for a loan turned down by regular loan assessors will have the automatic right to escalate this issue and have a reassessment by a more senior member of staff at the bank with a view to getting the original decision overturned. However, despite these efforts small business groups are said to be sceptical about the scheme.
An official from the Federation of Small Businesses said that banks still had ultimate control over whether small businesses were granted vital loans or not and that this new process would not make much of a difference. He said that the process did not trigger any independent appeal and would simply mean that it was looked at by another member of the same bank.
Angela Knight, head of the BBA, said: “We are trying to set out very clearly what is the commitment of the industry in how it is going to deal with small businesses. If the answer is no [to a loan application], and most of the time it is yes, businesses want to have a more senior person look at [their application] and they want to have a better discussion about why it’s a no.”
However, the FSB said: “The banks still hold all the cards. Businesses still have to go through each individual bank’s appeal process, and can still be turned down without triggering an independent appeal.”
Many cannot sleep because of their debts
April 2, 2011
According to a leading debt charity there are many people that are unable to sleep as a result of their debts, which are causing them huge amounts of stress and worry. Many people are now in huge levels of debt and are over-committed when it comes to their budget. This is causing them a lot of stress and impacting on their sleep as well as on other areas of their lives, such as their health, work, and relationships.
The charity also said that there was a good chance that these problems could continue to get worse as a result of possible rising interest rate increases, pay freezes or wage cuts, government cutbacks, and continued rising living costs, all of which have impacted on the budgets and finances of many people. More and more people are now turning to debt charities because of the problems that they are facing according to reports.
The debt charity, the Consumer Credit Counselling Service, said that in one night alone they had received 50,000 calls between the hours of midnight and seven in the morning. Out of these calls around fifteen thousand of them had been received between midnight and one in the morning.
One official stated: “Consumers have seen their pay frozen for the last few years while the cost of running a home and getting to work has soared. This means that we have less pounds in our pockets. But with inflation now hitting 4.4 per cent and almost six in ten of the workforce is seeing a pay freeze, households are facing an uphill struggle that may only get tougher next year. By this time next year, the squeeze on our spending power could look a lot worse.”
Seek help over your mortgage repayments
April 1, 2011
It has been revealed recently that the level of defaults on mortgages has increased again in the first quarter of this year, even though the base rate still stands at just 0.5 percent, which is the lowest level in the history of the Bank of England, which spans over three centuries. Lenders said that the default level was unexpected given the low base rate and warned that if the base rate increases - which many expect it to - there could be a further increase in the level of defaults amongst homeowners that are no longer able to keep on top of their mortgage repayments.
Many people that have variable rate mortgages have become used to having the extra disposable income that has come from the base rate being so low for the past two years, which has resulted in their monthly repayments falling. However, many have started to rely on this spare income in other areas with some even taking on further debt and using this money to make repayments on their additional debts. This is why many have now fallen into difficulties with their budgets despite the fact that they are paying less than they were two years ago.
The level of inflation has soared to more than double the government’s target of 2 percent and many now believe that a rate increase is inevitable over the next few months in order to bring inflation back down. However, this will have a severe impact on homeowners who are already struggling, as it could result in their repayments soaring by hundreds of pounds a month in some cases, which some will not be able to manage given the soaring cost of living.
It is important for those that believe that a rate rise could tip them over the financial edge to seek help as early as possible by speaking to debt experts and charities. There are a number of steps that people could look at to prepare their finances for a possible interest rate increase. This includes:
- - Consolidating their unsecured debts with one lower rate loan so that their monthly debt repayments come down, leaving them more money to cope with a rate increase
- - Switching to a fixed rate mortgage now so that they are not affected when the rates increase
- - Looking at options such as debt management plans if unsecured debts have got out of hand already
Loan defaults could increase
April 1, 2011
The Bank of England has warned that the level of loan defaults in the UK could go up over the next few months as a rising number of people start to experience financial difficulties for a range of reasons. It is thought that many people will continue to struggle because of the rising cost of living, which is set to continue over the coming few months. In addition to this rising interest rates, which are expected to increase over the next few months, will further impact on the ability of households to keep on top of their loan repayments.
The figures from the central bank show that there has been an unexpected increase in numbers since the start of this year, and with pay freezes, government cutbacks, soaring petrol costs, rising food prices, higher rents, and potentially increased mortgage repayments if interest rates increase, the figures could continue to rise.
One High Street lender, Halifax, has already clamped down on interest only mortgages in order to try and protect against people defaulting on their loans. It has done this by demanding a 25 percent deposit for interest only mortgages rather than a 15 percent deposit. In its Credit Conditions Survey the Bank of England said that lenders were concerned about “the potential impact of increases in interest rates on default rates.”
With regards to the Halifax move one official said: “By switching from repayment to interest-only, homeowners can significantly reduce their monthly costs which may make the difference between keeping the roof over their heads or falling into arrears and possibly losing their home to repossession. By severely restricting the availability of interest-only deals, lenders may be denying desperate homeowners a vital lifeline.”