All About Loans Weblog

Debt campaigners have accused Northern Rock of being too hard on customers who fall into loan arrears and called for the bank to soften its line on bad debt customers, as the bank was accused of being one of the most aggressive banks on the high-street for repossessing borrowers’ homes.

Despite the fact that Northern Rock now owes the tax payer almost £35bn the bank still refuses to negotiate with borrows who are unable to make their monthly repayments. The bank often moves very quickly to repossess properties rather than to allow arrears to build up.

Feedback from debt counsellors to the Consumer Credit Counselling Service has shown that the bank was one of the most aggressive lenders when it came to dealing with its customers who were finding it difficult to pay their bills.

Northern Rock has for often placed a heavy emphasis on the strength of its loan book as well as its low arrears figures. The industry average for arrears is 0.8% of customers, however in the case of Northern Rock that figure drops to 0.4%.

The CCS has claimed that Northern Rock as a rule refuses to accept debt management plans and routinely rejects individual voluntary arrangement (IVA) schemes, which are five year repayment plans.

Instead of offering these debt plans the bank instead offers customers further loans to repay the debts over a longer period, however the bank has denied that this is its policy.

The CCCS chairman, Malcolm Hurlston has called Northern Rock “one of the least charitable on the high street.” However, as a business and not a charity, perhaps at last Northern Rock is offering its shareholders a less risky future.

Many young people are leaving it later and later in life to start saving money. However the longer you leave it to start saving the more difficult it is to actually save anything.

For example imagine the following scenario; suppose you wanted to have savings of £10,000 by the age of 30. If you started saving for that at the age of 13 you would only have to put away 78p a day till your thirtieth birthday. If you left it till they age of 25 you would have to save £4.47 a day, however if you only started saving on your 29th birthday you would have to save £27 a day to make it to £10,000.

From this example it becomes quite apparent that for each day you put off saving, the more and more difficult it will actually become to start saving. Therefore you can never be too young to start saving.

However smart financial decisions are not all about saving money, as they are also very closely related to how well you can save your time, for example if you like to shop in a posh shop for some perfume, you could save up to £10 if you were to buy that same item in a supermarket. But it is not only about saving £10. If you earn £10 an hour than you have also just lost a whole hour/s work as well.

Additionally, people don’t understand the facts behind APRs and interest rates. When asked the difference between a 10% APR and 15% APR, most people would say “5%”. The truth is actually 50%, because you would be paying 50% more interest on your loan or credit card. This is why it is so important to shop around when seeking financial products such as personal loans, car finance and cards. Taking the high rate offered by your bank could cost you a fortune in interest over the years.

Following these easy steps could save you substantial amounts of time and money over the course of your life. It’s your money – use it wisely!

With the current situation in the financial markets it looks like there are going to be some pretty rough times ahead. There has been a serious loss of liquidity in the financial markets which means that banks are finding it more difficult to get access to the funds that they need in order to offer mortgages and cheap loans. What this means is that the price of credit will probably go up, and this is expected to show through on mortgage rates which will probably rise. Abbey has been the first high street bank to raise its main home loan products.

One of the suggestions that is being put forward by financial advisors is for those who are in a position to do so to overpay as much of their mortgage as possible. This will allow customers to reduce their exposure to increased interest rates. Studies show that a customer with an average mortgage of £100,000 who makes a £5,000 lump sum payment can reduce the amount of interest repaid over 25 years by £24,000. On the same mortgage, at a rate of 7.75%, a customer making overpayments of £200 a month would reduce the amount of interest paid by £66,047 over the life of the loan.

You should check the terms of your home loan with your lender but the vast majority of mortgages in the UK do allow a certain amount of over payments to be made without incurring any charges, so if you are in a position to do so, making overpayments pays off in the long run.

Don’t be fooled into thinking that the Bank of England’s rumoured rate drop plan will affect mortgage rates. Whilst there is talk that the Bank will drop the base rate from 5.25% to 5% in the near future, this is unlikely to affect the currently high inter-bank lending rate, which is responsible for the rate offered to you by your loan lender.

Very few of us can claim to have made no financial blunders in our lives. Sometimes the temptation to spend some of your savings on a needless treat can be too great, or we might fail to invest our money smartly, instead leaving it gathering dust in our current accounts with little prospects of gaining much interest. Below are highlighted some of the biggest and most common mistakes you can make with your money.

Many people set some money aside in case of a rainy day but even here you have to be smart in order to avoid losing out on possible financial gains. A good place to keep your savings is in a tax-free shelter such as Isa. In an Isa you can shelter £3,000 from the 20% savings tax that the government slaps on it.

Another mistake people make is in taking the first loan offered to them either on the forecourt or by their bank. Rarely are the big banks the place to find a cheap loan and forecourt finance frequently involves APR figures usually reserved for high cost store cards. The answer here is to shop around. Plenty of websites offer advice on current market rates on loans. Choosing wisely could save you hundreds of pounds.

Thousands of people still fail to plan effectively and efficiently enough to minimise the effects of inheritance tax. The best way to make sure your money goes where you want it to after you die is to make a will. If you fail to make a will, than the first £125,000 will go directly to your spouse along with all your possessions. The rest of what you own will be shared equally between your children.

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.

It is predicted by some experts that many of the poorest homeowners could be facing the prospect of their monthly repayments going up by as much as 60%. This is as the credit crunch which has wreaked havoc on financial institutions and was responsible for the downfall of Northern Rock is starting to feed through into the high street.

Many British home loan holders are expected to be coming off their fixed rate mortgages in the very near future and this, according to Standard & Poor, could mean that many households could still be in for a massive payment shock.

The reason for this is that many borrowers took out two year fixed rate mortgages back in 1996 and these are all set to expire in the coming months. It is now almost impossible for many of us to refinance in time in order to minimise the impact of coming off the fixed rate mortgage.

Bad credit loan borrowers are expected to be hit the very hardest as a result of most mortgage lenders that specialise in sub-prime lending are also the institutions that have been hit the hardest as a result of the financial crisis.

The poorest could be forced to pay more and more as lenders find that they can no longer offer similar deals to what were on offer two years ago. It is expected that few will be able to escape rate rises as even those with perfect credit histories are facing mortgage repayment increases.

Consumers have gone in search of banks with relatively few amounts of loans on their books since they are generally viewed as being a safer place to save at.

Bradford & Bingley is one such bank that is reaping the benefit of savers trying to find a bank that offers higher interest rates and fewer charges and fees.

B&B’s instant access account has come to be viewed as one of the best deals currently available on the market since it has no penalty charges and offers a very competitive rate of 6.25%.

In the past few months there has been a considerable amount of money moving around the market as a result of savers looking for safer options. B&B had been tipped as one of several banks that could follow Northern Rock’s path into decline. However this has failed to materialise and the bank is now riding a wave of consumer confidence.

Experts have seen how customers are becoming more and more nervous as the crisis deepens and are now looking for alternative accounts that offer better deals than the ones they had before.

HSBC is still considered the most stable and safest bank however since its level of loans the bank has borrowed is low when compared to the amount of money it has in its coffers.

However while savers are moving their money to safer banks many borrowers are left wondering what is going to happen to their mortgages as the crisis continues and may take more banks down.

If you had taken out a mortgage with Northern Rock or had just been approved for a home loan from the bank then you might be wondering what is going to happen to your mortgage.

If you are currently a Northern Rock mortgage customer and on a fixed rate deal than you shouldn’t expect any change in the terms or conditions of your offer. The same goes for set variable mortgages.

However if your mortgage is based on Northern Rock’s standard variable rate than you might expect to see the cost of your mortgage rise depending on whether or not the bank decides to raise its standard variable rate. So far there has been no indication as to what the bank will do with its SVR.

If you had just agreed a mortgage with Northern Rock and have had a firm offer from the bank than you will see those offers honoured, on the other hand if you had been enquiring about rates or fees with the bank than these might have changed since the crisis occurred. Most banks have repriced their variable rate mortgages in recent days and the probability of Northern Rock doing the same is highly likely. However this will only affect new customers to the bank.

Now that Northern Rock has been nationalised, anyone with a mortgage or a loan from the bank will still have to continue to pay back their borrowings, however there may be some changes as to who you are paying back to and if any changes do occur you will be notified.

There has been a lot of talk in the media in the last six months about the credit crisis that is being experienced in international financial markets. However, it appears as if this financial crisis in starting to have a real impact on mortgage rates in the UK.

The rate that banks can borrow from each other, known as the interbank LIBOR rate, has increased dramatically over recent months and this is starting to follow through on the prices that mortgage lenders are able to offer to customers.

The first high street bank to have increased its mortgage rates was Abbey, which increased the rates on a number of its popular home loan products. This was soon followed by the rest of the banks. Many experts are predicting that the days of the cheap loans are over and that the cost of borrowing is going to be significantly higher for the foreseeable future.

So what does this mean for house buyers? Well, if you already have a mortgage then a lot will depend on whether or not you have a fixed or variable rate. If your rate is fixed then you should not have to worry about too much but for those on variable rates it is likely that they are going to see some higher costs as rates increase. For people planning on buying a home it may be more difficult to get reasonable rates.