All About Loans Weblog

In the wake of the credit crunch it would appear that many credit card companies are increasing their interest rates on all customers. Customers who have borrowed large amounts and always meet their monthly repayments appear to be at most risk of seeing their interest rates go up by as much as double.

It would appear that the worst credit card firms for increasing their interest rates in recent months are the American owned ones. MBNA and Capital One are now charging some of their borrowers as much as three times more than the typical rate they advertise.

Capital One has stated that it is increasing the rates for many of its customers due to the changes in market conditions. However many critics are accusing the card companies of profiteering from customers’ misery.

Other MBNA customers have reported that after seeing their interest rates more than double they complained. However while MBNA did reduce rates they did not bring it down by the amount they had increased it.

Many people are now deciding to dump their cards if they are being treated unfairly and move to another lender.

If you have a large balance than you are best transferring to a card with a 0% offer or a card that promises a low rate for life. This stands for all customers. If you can switch to a card that promises a low rate for life than you should. This may not be possible for those customers holding large balances, in which case a cheap loan is the best option. It may not offer you the prospect of further borrowing, but a loan cleared even at the lowest rate will still be cleared sooner than a card paid off by minimal amounts each month.

Mint is currently offering a card with 0% balance transfer till January 2009 which then reverts to a rate of 14.9% along with a 2.5% fee.

The last big crash in the property market happened back in the early 1990s and there are definite similarities between now and then, such as the rapid house price increases that have stretched affordability issues to the limit. Back in the early 1990’s it was high interest rates which started the crash, compared to now where it is simply the massive size of the average UK mortgage.

However there are also crucial differences between now and then. We don’t have the same sort of economic crisis that was affecting the market back in the early 1990s when people had no choice but to sell their homes as house prices fell and unemployment skyrocketed leading to a massive rise in negative equity.

In the 2008 housing market, house prices have already seen some startling drops. In March, house prices fell 2.5% on average across the UK, a plummet not seen for sixteen years in the midst of the 90’s crash. However, these days most sellers have the option of sitting tight and waiting to see what happens rather than having to slash their prices by any substantial amount.

This means that any correction that will happen in the housing market is probably going to be slow and drawn out.

What remains the greatest concern for the health of the property market is debt. Currently the UK borrowers owe somewhere in the region of £1.3 trillion to lenders. This is double the figure of 5 years ago. Currently homeowners are borrowing £1bn per day, despite a slowdown in lending. This figure includes mortgages, which typically is counted as ‘good debt’, as it is secured against property. But there is talk that UK property market is overvalued. Much of this debt is also ‘bad debt’; unsecured borrowing on overdrafts, personal loans, credit cards and hire purchase.

Whilst it has become normal in the UK to take out cheap loans to finance everything from weddings to cars, borrowers are now finding that rising costs of living are making those loan repayments a burden too far.

There are now increasing signs that more and more borrowers are struggling to meet their monthly repayments. Increases in inflation levels could leave many borrowers in serious trouble, despite last week’s rate cut.

New research released by the Council for Mortgage Lenders shows that affordability still remains one of the key concerns of the property market with first time buyer expecting to borrow roughly 3.38 times their salary on the value of a mortgage.

However affordability is not only an issue for first time buyers with home movers also finding the current housing market very expensive. Typically the average home mover will have to borrow 3.03 times their salary in order to buy a new property. The average home owner is now paying 17.2% of their income on servicing their home loan. This is the highest level it has been in 15 years.

The director general of the CML, Michael Coogen has stated that while affordability still remains a problem for many borrowers their may be a some relief yet to come. It is widely expected that interest rates will be cut by the Bank of England in the coming months. This cut will help many borrowers who are finding their monthly mortgage repayments increasingly expensive.

The market has become very segmented in the wake of the financial crisis to hit the credit markets. Mainstream borrowers can expect fixed rate deals to become cheaper as interest rates are cut, however the bad credit sector of the market will see their loan options restricted as lenders’ tighten lending criteria as well as reduce the amount they are willing to lend.

In the coming months lenders will increasingly price mortgages according to risk, this means that borrowers with poor credit histories will find it increasingly difficult to secure a cheap loan or even one at a higher rate.

The number of people being refused a mortgage has gone up by 60% in the past six months. Figures which were recently released show that almost 75,000 applications for new home loans were turn down by banks.

This could be seen as proof that lenders have started to listen to the Chancellor’s calls for more responsible lending. Recently banks and building societies have come under very heavy criticism from the Government for throwing money at borrowers who were than struggling to repay the loans. However, it is more likely down to the high inter-bank lending rate and poor availability of funds in the banking market.

Calls had come from the Financial Services Authority and the Bank of England as well as the Chancellor Alistair Darling for banks to stop lending money to people who couldn’t make the repayments.

Many borrowers are now coming into serious financial difficulty following last year’s rate rises and the global credit crunch which has seen banks seriously tighten up on their lending criteria.

Speculation is now growing that we may actually be heading for a property crash on a scale that has not been seen since the last crash in the early 1990s. Yesterday figures were released showing that March housing prices had dropped to their lowest rate in 16 years.

While the government has been busy blaming banks for the crisis, the shadow Chief Secretary of the Treasury is blaming the crisis on Labour Government policy which allowed a decade of easy lending which is now leading to major problems. However, American policy followed a similar trend, so Labour was not alone in thinking that consumer borrowing was healthy for the economy.

The Governments policies have also lead to a decade of record growth for the British economy and the Chancellor has claimed that the UK is in a much better position to deal with a housing crisis than it was back in the early 1990’s when the crisis was also followed by very high unemployment as a result of conservative government policy. Recent figures have shown that unemployment has recently dropped in the UK.

Speculation that the housing markets might be running out of steam was given another boost by new figures showing that the number of new home loans approved at the start of the year fell to their lowest level for sixteen years.

The figures which were published by the Council of Mortgage Lenders show that new loan approvals came to a total of only 49,000 in February. That figure is down by 3.5% from January and down 33% from February 2007. This is the lowest reading since early 1992, during the last recession.

CML’s director general, Michael Coogan, warns that the situation is likely to get much worse over the coming year.

Most experts are expecting plenty more downsides in the coming months which will eventually bring about a sharp fall in house price inflation. The housing market has a history of snowballing in times of recession, so a house price crash in the coming months cannot be ruled out.

The Bank of England data has show that while the credit crunch has impacted on the housing sector it has failed to deter consumers from taking on more debt with borrowers rushing to try and consolidate debts before they turn bad.

As the global credit crunch continues to bite, banks and building societies are tightening up further on their lending criteria making it increasingly difficult for borrowers to be approved for mortgages, loans and credit cards. The last remaining 100% home loan on the market is Abbey’s deal, which ends tomorrow and the Halifax are dropping their highest LTV rate to 95%.

With more and more financial institutions reporting profit results that show just how damaging the collapse in the US sub-prime sector and the resultant credit crunch really was, we are only now fully coming to terms with how damaging the credit crunch has really been and the squeeze is expected to continue.

The effects of the crisis are now fully apparent on high street lending with mortgage lenders withdrawing 40% of their sub-prime mortgages from the market as well as 16% of standard loans. Many of the standard loans which have been withdrawn were intended for first time buyers.

Over the past few weeks lenders have all but dismantled the 100% mortgage market, rates have gone up and good deals have disappeared.

Homebuyers are now at more risk than ever at losing the properties they are buying as mortgage lenders introduce barriers to lending at the last-minute. Convex Conveyancing, a legal firm, has found that problems between the time of exchange and completion have gone up by 10% in the past month. That type of problem was very rare in the past.

People who are having the most difficulty are mainly bad credit loan borrowers. Lenders have started to claim that not all the necessary paperwork has been provided after already approving the loan.

These days everyone buys on credit. Britain’s love affair with credit cards and cheap loans has driven so many of us into deep debt over the past decade. So if you are thinking of getting a new credit card it is important to choose the right one for you since there are so many options available. You have to think about the type of person you are before you take out a card.

OK, I know I sound crazy, but seriously there are so many options out there you really need to get one that suits your needs otherwise you might find yourself building up debt.

Think of it like this; if you are the type of person who always pays your bills on time but needs a card to buy things online then it doesn’t really matter what the interest rate is since you will be expecting to always pay your bill off before the end of the month. Look for a card that has no annual fee or one that offers some sort of bonus for using it. This way you will really only gain from having a card, however make sure you always pay your bill on time since your interest rate might be high.

On the other hand if you are the type of person who doesn’t always pay on time then look for cards with enticing offers. The best offers out there include zero percent interest on balance transfers and purchases as well as giving you up to 59 days between buying something and having to make a payment.   These sort of deals can be good for people wanting to move loan debts currently earning high interest. A loan can be cleared this way and paid quicker as more money is going on the capital and none on interest.

There has been a massive reduction in the number of mortgages available to homebuyers and re-mortgagors since last summer.

Figures recently published by financial information provider Moneyfacts has shown a fall by 40% in the number of loans now on the market. This is a result of problems in the US mortgage market which have now moved over here to the UK leading banks to cut the choice of mortgages the offer across the board.

There was a 22% increase in the number of mortgages available to consumers in the first six months of last year as a result of new lenders entering the market as well as older lenders widening their mortgage portfolio. However that increase has been more than cancelled in the past six months.

While both high and low risk borrowers have seen their options cut it has been borrowers with poor credit histories who have suffered the most. These borrowers are referred to in the banking industry as sub-prime borrowers.

So far over 4000 bad credit loans have been dropped by lenders for borrowers looking for owner-occupier deals while the number of sub-prime buy-to-let deals has gone down by 1000.

Less risky borrowers have also seen an reduction in the amount of options available to them as banks reduced the number of buy-to-let loans by 438 while the number of residential mortgages went down by 611 or 16% of the total available.

Interest rates on some personal loans have increased by as much as 4% as the credit crisis feeds through the banking industry and hits consumers.

Charges on new loans have gone up for nine major lenders in the past month. One lender, Bradford and Bingley has put up charges by 4% for loans between £2000 and £2,950. Rates for this type of loan now stand at a whopping 17.9%. This rate is currently more than 3 times the Bank of England base rate which is currently at 5.5%.

The reason for such large rises in loan interest rates is that the cost of borrowing between banks has gone up by so much recently.

The high cost of inter-bank lending is not the only reason for rate rises however. Many banks are also trying to increase profit margins in the wake of the increasing loan default rates. This reflects a more cautious approach banks are taking to lending as they try and decrease risk as well as increase profit margins.

This increase in interest rates for personal loans is also being seen in the mortgage market, with home loans rates rising in recent weeks as well as banks increasing tighter restrictions on the amount that they are willing to lend as well as who they are will to lend to.

B&B has also increased their rates on loans between £5,000 and £7,450 by up to 3.2% bring the total interest rate to 9.9%.

However, the news is not all bad for borrowers; cheap loans are still to be found on the market. Borrowers are advised to shop around and not just accept the high rate offered by their bank.

The global credit crunch could have the effect of forcing up interest rates on more loans and mortgages. This is because banks are being forced to pay more in order to borrow money. Because of the nature of the financial markets and how banking debt is packaged and sold on, many banks have ended up losing a lot of money because it is becoming increasingly difficult to sell on the debt as a result of increased default rates in the sub-prime market.

Financial institutions have had to endure massive losses as a result of the credit crunch and the effects are starting to ripple through into high street lending.

Investors have seen massive losses in recent months as well and as a result many investors have pulled out all together. Not everyone has lost out however with those who were willing to take a high risk strategy making massive profits.

Savers have also benefited from the rises in interest rates. Savers with fixed rate deals will see there returns increasing as providers have increased their rates.

With higher Libor rates (the rate at which banks lend to each other), banks have been forced to look for other sources of finance in order to fund their home loan lending. One way in which banks have done this is by increasing their savings rates. This will increase the amount of deposits that banks have thus easing the impact of the credit crunch.

With conditions as they are savers are in a very good financial position, where as borrowers are going to find it increasingly difficult.