All About Loans Weblog

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.

Thousands of us are facing the risk of being unable to meet our mortgage repayments in the coming months as the recent increases in interest rates finally start to be felt.

There have been five rate rises over the past twelve months and although the base rate dropped in December, the prior rate rises have added roughly £135 a month to the average mortgage in the London and the South East, where mortgages are on average £180,000.

The problem for many of us is that we are not only trying to repay our mortgages but also meet loan repayments and credit card bills, which have also seen interest rate rises.

Last year saw the highest number of house repossessions by lenders since 1999 with 27,100 of us seeing our house being repossessed. That’s a 21% rise on the level of 2006, and could be a warning for what’s to be expected in the next few months.

Michael Coogan, CML director general, said: “The number of repossessions is likely to be higher in 2008 as a result of wider issues in the economy and the mortgage funding markets.”

The reason so many of us have been caught out is because interest rates are far higher than many of us expected when we took out the loans. Financial experts are advising anyone who finds that they are struggling to make monthly repayments to not wait and see what happens, but rather act now before it is too late to do anything.

The spring is expected to send many of us who borrowed low rate fixed loan deals between 2002 and 2005 into financial difficulty as many of the deals are expected to expire shortly.

Research shows that many young people underestimate the total amount of money that they will need for their retirement.  Most of those who were involved in the study were in their 20s and 30s with the majority of them underestimating a comfortable retirement by almost a quarter of a million pounds.

According to the research nearly half of those in the study have no idea how much they will need to save for a comfortable retirement.  Around 45% of those in their 20s and 30s estimated that they would need a lump sum of 262,000 pounds, when in fact a total of around 500,000 pounds would be a sufficient amount needed to have a comfortable retirement.  With 500,000 pounds you would receive an annual pension of 25,000 pounds, which is the current average annual income of British workers. 

The same survey also revealed that not only were the younger generations underestimating their retirement funding but a quarter of those who were involved in the survey and were in their 50s had no idea how much they would need to save for a comfortable retirement.  These findings can be worrisome, especially with the amount of debt that many Britons are falling into which is then causing them to dip into their savings which affects their financial future. Still others are taking on long term home loans with the expectation of still making loan repayments beyond the current retirement age.

If the retirement fund is below the necessary amount needed for a comfortable life then someone will easily find themselves working well beyond their retirement age and borrowing funds to make ends meet.  That is why it is important for people to realise that saving for a retirement is important and should be something that is started as soon as possible.

Many people are being forced out of the housing market by the bank’s tightening lending criteria. The banks are approving fewer mortgages. This means that many people who can afford a home, and are capable of handling the Bank of England’s interest rate hikes, will not be able to buy a home. Even if they find a home for £80,000, they will not be able to obtain a home loan.

This is causing many people to consider other options, like a buy-to-let mortgage with themselves as tenants. This will let them start building wealth, and step onto the housing market, even if they are forced to rent their own home for a while.  The privately owned home market is slowing, but the buy-to-let market is still strong.

Banks are struggling to increase the amount people are borrowing on personal loans. The trend has been seen in the past. When the lenders tighten their criteria at the beginning of the year, they must loosen their grip near the end of the year and earn a profit.

The board expects a certain level of profits in a year. When the banks tighten their grip to reduce losses, they must eventually find other ways to earn a profit.

The corporate world is full of stories where CEOs lost their jobs for a mere 2% drop in profits. This fear is always at the back of their minds, and can be used by smart homebuyers.

Waiting until the New Year when bank rates are anticipated to fall again could save a homebuyer hundreds of pounds a year on their home loan. The banks will not only be scrambling to find new customers, they will be competing against each other to bring out the best deals.

The Offset mortgage industry grew by 49% in 2006, according to official figures. Offset home loans were worth £29.3bn, with 170,000 offset mortgages taken out. The Council of Mortgage Lenders (CML) say this represents 7% of new lending.

Offset mortgages are a new product in the UK market.  The idea is to take advantage of the fact that there is less interest from the borrower’s savings than is removed for debts.

In an offset mortgage, the customer’s savings account is linked to their mortgage, with their savings used to reduce the balance of the loan.

A homeowners with a £100,000 mortgage and £10,000 invested in savings, will only pay mortgage interest on £90,000.

Using simple numbers, £10,000 in savings would earn 5% interest. Over ten years the average consumer will gain £4,802 - £3,439 depending on their consumer credit information.

Offset mortgages only work with consumers who have good savings and are able to leave their money in the bank. Of course, there is a bit of a catch.  Offset mortgages have higher interest rates than fixed rate loans. As time passes, the competition between different lending companies will bring this down.

Some are jumping on the band-wagon believing this will help them save money from their mortgage. Others point to the endowment scandal and say this is just another variation of the scheme.

Many homeowners are advised to seek help before trying new financial products, especially ones that put limitation on their savings account. This means that their money is locked in, and cannot be used in emergencies.

By knowing how to handle your personal finances you will be able to properly manage your money, increase your chances of obtaining credit, and open up possibilities to other financial successes.  One way to start is by checking your credit report.  By reviewing your credit report you will be able to view your personal credit history and see what loans, mortgages and cards you have taken out as well as the amount of your current outstanding debts.  Your credit report is important as it is what lenders look at before they decide to offer you a card or a cheap loan, so it is important that you ensure all the information on your credit report is accurate and that no fraud or suspicious activity is taking place.

You will want to look at the amount of your total outstanding debt.  If you find that you have several cards, one or two personal loans as well as a mortgage, not only will it be hard for you to keep track of the payments, but also lenders will see this on your report and may think that you have overstretched yourself and will turn you down for credit.  One way to resolve this is by consolidating your debt into one lump sum and making large monthly payments to pay off it off.  You will then want to cancel most of your credit cards to restrict your spending as well as reduce your debt, because although the outstanding balance on the credit card may be zero, lenders still see it as a way for you to get into debt.

Budgeting is one important factor when it comes to organising your personal finances.  By planning a budget you will be able to pay off your debts quicker and build on your assets.

It does not take a large wedding to cost £50,000 in today’s bridal industry. A properly fitted designer dress can cost ten thousand alone. It doesn’t take long for the bride and groom to find a myriad of expenses to increase the cost of their wedding. The honeymoon, moving expenses, and establishing a home can increase the cost of a wedding far beyond the bride and groom’s original budget, leaving them heavily in debt if they didn’t have the foresight to arrange a cheap loan early enough.

There are methods of lowering costs. Buying online can be a blessing, or a curse. The number of people who are defrauded by unscrupulous online dealers is growing as fast as the number of legitimate businesses.

One of the last things a couple need is to lose their hard earned money to a fraudster. That is why it is so important to protect your consumer credit information at this time of your life. The excitement of a wedding, and the enchantment of seeing all your plans come together can make a bride reckless.

The desire to own a particular dress can force her to ignore the warning signs, or to be careless with her credit card spending. Equally, unsecured loans are expensive, and can add a heavy burden to a young couple’s lives.

The problem is not limited to the bride. After the couple are married, they must pay the credit card bills of both. All those little purchases, gratuities, and extras spent on the wedding and the honeymoon can put a couple so far in debt that it will take them two or three years to surface.

Economic data suggests that  the  base rate will increase again soon. But some indicators, including manufacturing output and mortgage lending, fell back.  This will mean that the economic committee votes will continue to be as close as the one experienced on July 6.

Many consumers, especially people who are holding non-fixed rate mortgages are anxiously watching the interest rate increases.

Trevor Williams, chief economist at Lloyds TSB said: “The closeness of the balance of economic data this month suggests that any rise above 5.75% will have to be driven by worsening inflation and faster growth,” he added in a recent note to clients.

For many, this may mean the difference between paying bills and defaulting.

Bear Stearns chief European economist David Brown, expects an increase to 6% before the end of 2007.

“U.K. growth is probably running too strong, domestic demand is overheating, credit demand is overcooked, the housing market is booming and the economy is bumping up against capacity constraints,” Brown said.

“The Bank of England looks set to stamp it out. The only doubt in the market’s mind is whether the bank is going to stop at 6%,” he added.

the British Retail Consortium warns that the latest interest rate increase “could be a rise too far,” saying policymakers were “wrong to regard the consumer slowdown as tentative. Recent reports from several major retailers make it clear that the slowdown is real and likely to intensify.”

Consumers are not the only ones who are watching the interest rate increases.  The mortgage lenders are running out of options to attract first-time homebuyers, and increase their profits, whilst secured loans and other lending is seeing a downturn, as people cut down on borrowing.

The most recent sets of price figures for the UK housing market have been less than clear. While many indexes have been showing a slow down in the rapid growth of house prices in the UK, there have been some mixed signals as some institutions have been reporting an increase in the rate of growth recently. What does this mean for people who are thinking of taking out secured loans? Well basically, the more uncertainty that is out there, the harder it will be to get approval for loans, and the more risky it is to borrow further against your home.

There is still a large degree of consensus among analysts however, that house price growth should definitely slow down during 2007. This would mean that it would be unwise to further extend loans against your home if you are already stretched. If you have bought your first home recently, or have recently started paying back a mortgage with a value of 90 or 95 percent value of your home, then there are a lot of reasons why you may wish to reconsider any further borrowing plans that you have.

For the past couple of years, house prices have been rising rapidly and this has meant that there was little danger in borrowing up to almost 100 per cent of the value of your home. However, with most of the major institutions expecting house prices to start levelling out, this has become far more risky. If you owe close to 100 per cent of the value of your home and the house price does not rise, or even falls, you will be in danger of getting into negative equity, even if you do not secure further loans against your home. With interest rates rising, this is just another reason why it may be safer not to borrow against your home at the moment.