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Wednesday 11th August
Interest rates may have fallen but households are finding the cost of borrowing is rising – and may remain high
The rising cost of borrowing has seen young people and first-time buyers bearing the brunt of the credit crunch. Photograph: Graham Turner
The three years since the onset of the credit crunch have seen the cost of borrowing for households soar despite interest rates falling to a record low and the banks returning to bumper profitability.
Young people and first-time buyers are bearing the brunt of the crunch with a much higher premium charged to those who lack large deposits for mortgages. Figures from Countrywide, Britain's largest estate agency, reveal that the most common mortgage taken out by its customers took last month had a starting interest rate of 6.49%.
That is almost six full percentage points above the Bank of England's historic low rate of 0.5%, but while rates have fallen over the past three years the cost of borrowing has headed in the opposite direction, fast.
Personal loans were selling at an interest rate of 6.8% in August 2007, according to Moneyfacts. Today the best rate is 8.8% – but only for those with an "excellent" credit record. If the borrower has a "fair" credit rating, then the best rate today is an extraordinary 53.9%.
The average credit card three years ago charged 16.5%, but that rate has not been seen since. Moneyfacts says that now the average credit card charges 18.6% – and applicants who have only a middling credit record are more likely to be offered rates of 30%-35%.
The best two-year fix in August 2007 was a 5.39% deal from Alliance & Leicester, available on a deposit of just 5%. But less than a year later Alliance & Leicester was taken over by Santander, and low-deposit mortgages went the same way. Of the few still around, the interest rate charged is 7% or more. Those mortgage customers of Countrywide are paying 6.49% because, perhaps not surprisingly, they can only find a 10% deposit.
According to Moneyfacts, the margin on five-year fixed rate mortgages at six leading lenders increased from 2.39 points to 3 points in 12 months, raising the cost of a £200,000 loan by £1,200 a year, the Sunday Times reported yesterday.
The ultra-low deals that appear at the top of best-buy tables are reserved for the small amount of new buyers who can stump up a 30% or even 40% deposit. Most average income earners struggle to raise a 10% deposit, and for them, talk of record low interest rates is a sham. And maybe they should perhaps consider themselves lucky even to be offered a loan at 6.49%. Ray Boulger, of mortgage brokers John Charcol, says he knows of one major bank which turns down 90% of people who apply for a 90% loan.
The decade of easy money came to an abrupt halt in August 2007 but what has emerged since is a divided Britain in which young adults are paying the price of the credit crunch while their parents have landed a get-out-of-jail-free card. Existing borrowers are enjoying the windfall of a lower Bank of England base rate, while new borrowers are either locked out of the market or face permanently higher loan costs.
The grim mathematics of new capital adequacy requirements for banks mean that cheap and plentiful loans of 90% or more for first time buyers will never return. Under the new international rules – what's known as "Basel II" – banks have to set aside a much higher amount of capital for higher-risk lending, such as a 90% loan-to-value mortgage.
Tuesday 3rd August
Government looks to curb rise in unregulated loans, with some lenders charging as much as 2,500% annual interest Lenders can charge any price for credit, which means some companies charge £82 for every £100 lent. Ministers are to consider capping interest rates as a campaign launches demanding action to stamp out legal loan sharking.
The government is already committed to curbing rates on store and credit cards, but not the high cost of credit for Britain's 3 million poorest borrowers.The campaign to end legal loan sharking, organised by the centre-left pressure group Compass, includes church groups and academics, debt advice groups and campaign groups such as Citizens UK.
"Lenders can charge any price for credit, which means some companies charge £82 for every £100 lent. Annual interest rate charges of over 2,500% are also now common. Borrowing at these rates repeatedly tips customers into inescapable cycles of debt and poverty," it said in a statement.
It is estimated that around 3 million people use expensive doorstep loans. Both David Cameron and Nick Clegg spoke enthusiastically at the Citizens UK assembly held three days before general election. The government's response will be an early test of how willing it is to confront the issue. The Office of Fair Trading found the sector was making profits of £16,000 an hour.
Neil Jameson, the director of Citizens UK, said: "Citizens UK have spent most of 2009 in conversation with thousands of members who confirmed the need for money to be controlled and for the reintroduction of anti-usury legislation as a reasonable response from civil society in light of the economic crisis. "He was glad the coalition had agreed to a cap for store cards and a review of credit and interest rates, but added there needed to be a cap on commercial lending.
The campaign is calling for "a lending rate cap to cover all forms of consumer credit, to reduce prices in areas of the market that are not price-competitive". It also wants new sources of credit, including a People's Bank using the Post Office network, and credit unions.
The Department for Business, Innovation and Skills said a lot of concern had been expressed about interest rates on credit and store cards during a public consultation in May. "The cost of borrowing on credit and store cards has risen markedly in recent years, despite falls in the base rate of interest," the department said. "We believe more can be done to make this form of borrowing more affordable. That's why we have proposed to give regulators powers to ban excessive interest rates on credit and store cards." It would be exploring interest rate caps in the context of a review into consumer credit and personal insolvency.
The review, announced by the consumer affairs minister last month, is to be conducted jointly with the Treasury financial secretary Mark Hoban along with the separate review on banking. Last month, the Office of Fair Trading published a major review into high risk consumer credit.
Thursday 29th July
FSA proposals to always check borrowers' income will slow mortgage applications – but aim to reduce repayment problems
Estate agent boards piled up in a yard in Hull. Mortgages are likely to take longer to process under FSA proposals.
Mortgage borrowers will find it takes longer to process their application and the self-employed could struggle to get a loan if proposals announced today by the Financial Services Authority are implemented.
The regulator has published a consultation paper which proposes requiring verification of borrower's income in every case to prevent over-inflation of income and mortgage fraud.
If implemented, this will prevent the "fast tracking" of mortgage applications – the granting of loans without requiring proof of income – a wide-spread practice among mortgage lenders.
David Hollingworth of mortgage broker London & Country says it could mean that rather than a mortgage being granted instantly – as often happens now providing the lender can find enough information about the borrower's credit history electronically – it could take up to three weeks for the borrower to find out if he or she qualifies for a desired loan.
The proposed move also means that those who have recently become self-employed have no hope of applying for a "self-certified mortgage".
These loans were initially designed to enable self-employed borrowers who had less that three years' of accounts to borrow loans without providing bank statements or tax returns to support their claimed level of earnings.
But over the past few years, as people have begun to struggle with the amounts of borrowing they have taken on, it has become apparent that the loans have been used by many borrowers who wanted to take out bigger loans than a lender would normally allow them.
The FSA has also acted against several mortgage brokers who have fraudulently increased the amount of money applied for in mortgage applications.
The consultation proposes imposing affordability tests for all mortgages, making lenders ultimately responsible for assessing a consumer's ability to pay, and preventing the use of interest-only loans to enable borrowers to cope with a mortgage they could not otherwise afford.
Although the self-certification mortgage has disappeared from the market during the credit crunch, the proposals will prevent lenders from reintroducing it once confidence returns.
Hollingworth says the proposals are sensible: "The proposals are quite measured, but they will set a framework so when the market goes into recovery, we have something that contains the lenders a little bit. The lay man will hopefully regard this as common sense."
However the Building Societies Association said there was a risk the proposals could create "mortgage prisoners". Paul Broadhead, head of mortgage policy at the BSA, said: "To ensure borrowers are not adversely affected, it will be important that when the rules are implemented they provide clarity for lenders and are enforced consistently across the market.
"Interest-only mortgages are not inherently bad or high risk. However, it is important that borrowers with interest-only mortgages understand the importance of having a plan in place to repay their mortgage at the end of its term. The FSA needs to proceed with caution so as not to restrict the use of interest-only as a way of helping borrowers overcome repayment difficulties."
The proposals were drawn up following detailed analysis of past lending decisions, looking at the causes of arrears and repossession since 2005.
Wednesday 28th July
New figures from Nationwide show that UK house prices increased by 1.9% quarter on quarter in Q2 of 2010. The figures also show that annual house price growth in the South West has reached double figures, whilst Northern Ireland was the only region to see house prices fall in this quarter (Q2).
Commenting on the figures Martin Gahbauer, Nationwide’s Chief Economist, said:
“The second quarter of 2010 saw continued house price growth across nearly all UK regions. For the UK as a whole, prices rose by 1.9% in the quarter, leading to a slight increase in the annual growth rate from 8.8% in the first quarter to 9.5%.
“The South West of England saw the strongest growth in the quarter, with prices up by a seasonally adjusted 3.0%. This resulted in a pick up in annual growth from 8.9% to 12.5%. Greater London continued to be the best performing region on an annual basis with prices up 13.2% on Q2 2009.
“Similar to the first quarter, the northern and midland regions generally saw weaker growth than the southern regions. The East Midlands saw the weakest growth out of the English regions, with quarterly price growth of 1.2%. Despite a better performance this quarter, the North remained the weakest region on an annual basis, with prices up 6.0% year-on-year. The Outer Metropolitan region retained second place behind London, with annual growth of 12.9%, following a 2.3% increase over the quarter.
“Annual house price growth in Scotland picked up from 5.6% in the first quarter to 7.2%, but remained below the UK average. Quarterly price growth in Wales was similar to the rest of the UK, with a 1.8% rise in the quarter. However, on an annual basis, Wales was the second weakest region with prices up only 4.7% year-on-year.
“Northern Ireland experienced another weak quarter, with the quarterly rate of change falling from -1.0% to -5.7%. On an annual basis, house prices were down 5.2% – a slight deterioration from the 3.0% year-on-year fall in the first quarter. Northern Ireland remained the worst performing UK region.”
Tuesday 27th July
There has been a large increase in the number of reported case of identity fraud this year, up by 14% from 2009, according to CIFAS, the UK’s Fraud Prevention Service.
The number of victims of impersonation, in which a criminal assumes the identity of someone else to gain access to personal details or fraudulently buy goods and services, has also risen by 22% this year.
Recent media attention to identity theft has increased consumer awareness of these crimes and shown people how they can reduce the risks of becoming a victim, however the numbers of reported crimes continues to rise.
The CIFAS figures show that there are more than 275 instances of an innocent victim’s identity being abused every day.
With identity fraud becoming so prevalent, you can buy identity fraud protection insurance, to help, should your personal information find its way into criminal hands.
The recession may be to blame to some degree, as Peter Hurst, CIFAS Chief Executive, says:
“The past few years have seen the UK enter a period of recession and begin a slow climb out of it. Over this same period, there have been changes in the overall patterns of the fraudulent activity taking place: from a peak in the levels of application fraud (telling lies on applications for products or services), followed by a phenomenal surge in facility takeover (or account takeover) fraud and the re-emergence of identity fraud.”
“With the first real signs of economic recovery beginning to be reported, there is every reason to assume that fraudsters will be taking notice and redoubling their efforts to take advanta
Monday 26th July
The figures make for grim reading. Average household debt (including credit cards and overdrafts, but excluding mortgages) now stands at £8,716. This rises to £18,159 if the average is based on households with some form of unsecured loan. In 2008, 136,026 divorces were granted. Add to this the average cost of a funeral in the UK hitting £2,800 (and predicted to be £4,100 by 2015) and you have three reasons why families can find themselves in financial trouble.
Prevention is key. Budgeting is the tried and tested way of keeping on top of your outgoings, but be realistic about how much you need for essential items, and cut down on non-essential expenses. Think about how you might earn extra money, and don't forget to claim benefits or tax credits. Plan ahead for times when your finances will face an extra burden, such as Christmas, birthdays or holidays. Avoid credit, particularly in shops. And steer clear of loan companies that want to secure debts on your home.
If you get into trouble, don't borrow to make repayments without thinking carefully. Categorise your debts as priority or non-priority to best protect your home and family. The most urgent are mortgage or rent arrears, and utilities bills: if you don't pay these you could lose your home or your fuel could be cut off. Less urgent debts include overdrafts, loans, credit card accounts and student loans – you can't be sent to prison for non-payment of these, though you could lose your belongings.
Bankruptcy might be an option. It will take the pressure off from creditors, you will be allowed to keep certain things (such as household goods and a reasonable amount to live on). When the bankruptcy order is over you can make a fresh start and the money you owe is usually written off. However, you will lose your home if you own one and may be denied access to a basic bank account.
Thursday, 22nd July 2010
Student debts have now reached £22 billion, up £4 billion in just a year, according to new reports. This figure is £1billion more than the Government’s entire transport budget!
The NUS (National Union of Students) have warned that students will graduate from university with debts of up to £40,000, and the worries are that these debt levels could limit the life options for many graduates, meaning that many graduates could be seeking additional debt advice as they try to secure their future.
Universities spokesman for the Liberal Democrats, Stephen Williams, said: “Students are facing unprecedented levels of debt, which will have a dramatic long-term effect on their ability to buy homes, start families and save for old age.”
Wednesday 21st July 2010
More than eight out of 10 people with debt problems say their financial difficulties are having a negative effect on their lives, jeopardising their personal relationships, health and ability to carry out their jobs, according to a debt counselling charity.
Debt problems have adversely affected the relationships that 37% of the 372 clients surveyed have with their partners, and 22% with their children.
The charity said this might explain why many people chose to keep their problems hidden from those who were close to them: when asked who they had told about their difficulties only 34% named their partners, 20% their friends and 16% their parents. A further 10% said they had told no one, citing shame, embarrassment and a difficulty to "acknowledge that you are an adult and unable to manage your finances" as reasons for their silence.
Nearly half of those questioned said their problems had a very negative impact on their health, with some suffering a nervous breakdown, loss of hair, palpatations and cessation of menstruation. Only 6% said it had no effect.
Two-thirds said debt affected their ability to do their jobs, "work has become difficult due to the constant worry about debt", and that they "found it difficult to concentrate some days" as they were "continually worrying about money".
Only 15% of people had a debt problem because of overspending, almost half had a debt problem because of redundancy, a pay freeze or reduced working hours, while others were left overindebted because of a relationship breakdown, illness or having children.
This busts the myth that recklessness with credit is the main cause of debt problems. Rather it is life itself over which we often have no control. Such people need sympathetic and practical support to guide them through this crisis so it won't scar them and their families for life.
Monday 19th July 2010
The era of debt-fuelled consumer spending is over, a financial expert has claimed, pointing out Britain’s consumer debts of nearly £1.5 trillion.
Tim Moss, head of loans at moneysupermarket.com, seemed to be talking himself out of a job by claiming consumers can no longer afford to fund purchases on borrowed money.
Consumers must face up to their financial situation and not “bury their heads in the sand”, Moss said. “Many people are being pushed to breaking point by the spiraling cost of living and the ongoing effects of the credit crunch but people do need to be aware of their own financial circumstances,” he added.
“The era of debt-financed consumer spending is over, so people will need to take extra time to manage their finances and consider lowering their monthly outgoings. “Consumers should ask themselves if they really need a new car, the latest Sky package or those new shoes.”
Moss made the comments after research by moneysupermarket.com found three in five consumers wouldn’t worry about their debts even if they lost their jobs.
Monday, 13th July 2010
People going through bankruptcy are facing financial exclusion from banks, according to an advice service. Only two out of 17 banks allowed the recently bankrupt to open a basic bank account, a Citizens Advice report found. These accounts allow people to have income or benefits paid in, and for bills to be paid from it by direct debit.
However, such accounts offer no access to credit and no cheque book.
Citizens Advice said there was no legal reason for people going through a bankruptcy not to have access to such an account.
The charity said that, as a result, people were forced to carry cash, were unable to get direct debit discounts on their bills, and faced job losses because there was no account for an employer to pay wages into.
Basic bank accounts
• No cheque book
• No overdraft facility
• Access to cash machines
• Can pay bills with direct debit
"Great progress has been made in improving access to bank accounts for many groups who were previously financially excluded, said Gillian Guy, chief executive of Citizens Advice.
But she added there are still groups, such as undischarged bankrupts - people facing the onerous restrictions of bankruptcy - who struggled to open even a basic bank account.
"Most people take having a bank account for granted, but without access to one, basic tasks such as receiving wages or benefits and paying bills can become huge and costly obstacles to overcome, particularly for people who are often at a vulnerable point in their lives. Just because someone is made bankrupt it does not mean their life stops."
Credit unions and the Post Office do offer services for people going through bankruptcy. A spokesman for the British Bankers' Association (BBA) said that it was a commercial decision for each individual bank as to whether they offered these accounts.
However, there were some risk issues for banks, he added as well as potential issues regarding undischarged bankrupts' access to lump sums that could come into the account.
The BBA said it would happily work with voluntary organisations and advice groups to find common ground on the subject.
The Insolvency Service said that there were 74,605 new bankruptcy cases in England and Wales in 2009, with the highest rate in the South West of England.
Monday, 5th July 2010
Personal debt in the UK has increased by 0.9 per cent in the last 12 moths and now stands at £1,460 billion, according to a new report.
The figures show that the average amount owed by Britons, not including mortgages, now stands at £8,716.
However, when mortgages are included, this figure rises to £30,000, 126 per cent of the UK’s average earnings, according to Credit Action.
As personal debt increases, so does the risk of over commitment and many people will need solutions to reduce their monthly Debt payments.
Friday, 2nd July 2010
The nervy mood on global financial markets of recent days bears an uncanny resemblance to that at the start of the credit crunch three years ago.
The jitters have sent stockmarkets plunging and they reflect well-founded fears that the much-vaunted transition from recession to recovery is far from established.
The truth is that Britain and the global economy face a long period of great uncertainty and slow growth - even if we are unlikely to face the true horror of the double dip recession predicted by pessimists.
This week's leak of a Treasury document predicting that as many as 1.3 million jobs in the public sector could be lost will dent consumer confidence
The dramatic reshaping of the domestic economy as outlined by George Osborne in his Budget just ten days ago will be far from smooth.
This week's leak of a Treasury document predicting that as many as 1.3 million jobs in the public sector could be lost as a result of the large-scale cuts in spending - with some departments having to slash budgets by one-third - will almost certainly dent consumer confidence.
Worryingly, there is already evidence that the recent upturn in the housing market is starting to falter.
The Bank of England reports mortgage lending to be at the lowest level in a decade, with just 50,000 loans made each month, compared to 135,000 at its peak in 2003. And this is despite the introduction of lending targets set for the banks and low interest rates.
Thursday, 1st July 2010
The banks won a long-running dispute about overdraft charges
Authorised overdraft rates have reached their highest level for a decade, according to financial information service Moneyfacts.
The average interest rate on agreed overdrafts has reached 14.22%, the highest since May 2000.
The high comes despite the Bank rate remaining at a record low of 0.5%, although some banks have changed overdraft pricing policy.
The Bank rate stood at 6% when overdraft costs were last above 14%.
Funding
Over the last 10 years, authorised overdraft rates dropped to 11.81% at their lowest point in May 2004, the Moneyfacts research shows.
To point out one factor as the main influence on pricing makes no sense
Spokesman British Bankers' Association.
However, during debate and court cases regarding unauthorised overdraft fees, some banks changed the structure of the way they charge people who go overdrawn.
This has reduced the income some receive from people who go into the red without permission.
"Changes made to reduced unauthorised borrowing charges meant banks lost a significant revenue stream, something they can ill afford in the current climate," said Michelle Slade of Moneyfacts.
"As one revenue stream closed, inevitably they have moved to find another.
"The loss of income gained from a minority of customers is now being recouped from all customers who use an agreed overdraft.
"Banks are likely to be making more now from these increases than they ever were from penalty charges."
Thursday, 24th June 2010
According to new research by uSwitch.com, new mothers are being forced back to work by debt and financial concerns.
Over half of new mums returning to the workplace do so because of debt and financial considerations (52%) compared with just 22% who want to continue their career. And such is the financial impact of going on maternity leave that one in ten (9%) feel forced to return to work earlier than they would like to make ends meet.
The average family sees a 34% drop in their net monthly household income during the maternity leave period with income dropping from £3,431 a month to £2,266 a month while on statutory maternity pay. At the same time costs rocket with the average mum spending £2,152 on baby items prior to giving birth. However, the expense doesn’t stop there. While on maternity leave mums spend an additional £2,521 on baby items – accounting for 90% of the average net monthly household income during the statutory maternity pay period.
Providing local Debt Management advice, help and solutions covering Cornwall, Plymouth, Torquay, Exeter, Taunton, Bristol and surrounding areas. Mydebtssolved.com offer personalised solutions to help you overcome problems with credit & debt. With considerable expertise, we offer a completely confidential service that will get you back on track and help you regain control of your finances. Mydebtssolved.com is a trading style of Assured Direct Homeloans Ltd company registration number 5940124. Licensed under the consumer credit act 1974. Authorised and regulated by the Financial Services Authority (FSA).
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