All About Loans Weblog

News in from the British Retail Consortium (BRC) suggests that customers are shunning plastic and turning back to good old cash.

A survey conducted last year showed that 60% of purchases were made by cash, compared with 54% in 2006. The figures released did not offer a break down by month or quarter, so we can only speculate that most of the upturn in cash spending occurred in the latter part of the year, once the credit crunch had started to hit.

However, even before the prospect of recession was spoken of, most financial experts agreed that consumers were slowing turning away from credit cards and personal loans to fund their spending.  When the sub-prime lending crisis hit America, consumers were already getting twitchy about the ‘culture of lending’ headlines popular in the news and starting to review their desire for easy credit.

Many customers are still very happy to take out a loan for a holiday, new car or even just a spending spree, but lenders agree that most of the clients approaching them at the moment are looking to consolidate debt or lessen their debt burden.

With the cost of living rising, most sensible borrowers are now looking at ways of cutting their monthly expenditure - hoping to swap their high interest credit cards for a cheap loan.

It is no wonder that the BRC find that people currently prefer to spend the money in their pockets, rather than use plastic. With a credit crunch reality, fast rising living costs and wages static, people no longer want to borrow today and worry tomorrow, because they are already worrying.

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.

A new show entitled Affordable Britain has been launched in the capital and is aimed at giving key workers a chance to buy a house at a price they can afford. The ironic thing about the show is that all but one property has a price tag above £250,000.

The show has homes which are specifically reserved for key sector worker however the problem that some of the homes reserved for these workers cost as much as 15 times the average income of a nurse or fire-fighter.

This is all part of the government’s New Build Home Buy scheme. Most are only one-bed apartments and most buyers will only be purchasing a quarter share since the required minimum income levels make most public sector workers ineligible to purchase the whole property.

The government hopes that this scheme will allow those who are priced out of the property market to still be able to buy a share of a property, somewhere in the region of between 25% and 75%. Key workers are given priority, with first time buyers coming in second. While the scheme has been rolled out across the UK it is predominately focused on London since there has been a massive exodus of key workers from the capital in search of cheaper housing.

The show is mostly filled with apartments and very little houses. A typical offer at the show is to by a 30% share in a property estimated cost between £275,000 and £375,000. However you need a minimum income of £26,000 even to be considered as a contender, so key workers who have already been turned down for a home loan for a standard property may not find that they have enough income to take out a loan on one of these specialist homes.

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.

According to a recent survey there are over two million people who are permanently overdrawn and fall into the red twenty-seven days after payday.  The survey went on to show that almost half of Britons who work have slipped into the red at least once in the past twelve months, which means that more than ten million people have fallen into the red at least once with a further 2.1 million who are continually overdrawn.

It is estimated that for the first twenty days of the month many people are able to stay in the black, however on average most people end up falling into the red 27 days after payday, with the typical payday being the 24th of each month.  These findings come as no surprise, especially with the current rate rises from the Bank of England.  Because of the five interests rate hikes over the past eleven months many consumers are starting to feel the pinch and are struggling to make ends meet.  Although the Bank of England recently dropped the base rate by a quarter point, many lenders are slow to pass this on to their customers and it is only a tiny amount compared with the sharp rises experienced in the past year.

As more people struggle to pay all their bills, mortgages experts advise consumers to beware of overdraft interest rates.  Because a large number of working people are constantly living in the red it is advised that they be aware of the interest rate that is being charged on their overdraft, as well as the fees that banks may charge if you go over the authorised limit.  By going over the authorised limit you are then risking having your account charged a sharp penalty for breaching your agreement.  These fees can then add to your debt meaning that more people end up dipping into their savings.

For many, the high rate of overdraft interest (which is stealthily applied and rarely advertised on bank statements), can be the equivalent of borrowing double on a cheap loan. This means that taking out a debt consolidation loan to clear high rate credit cards plus a constant overdraft can be far cheaper for debt-ridden consumers.

£50m has been paid out by us in missed payment fines in the first half of this year. This is despite the fact that many card companies have dramatically cut their penalty charges.

It is estimated that roughly 4.1m monthly card payments were missed since the beginning of the year, coming to a combined total value of £694,509 per month.

Currently the average cost for missing a payment stands at around £12, which is just over half the average £20 which used to be charged. The reason for a decrease in the charge is because of an Office of Fair Trading investigation which ruled that the charges were too high.

The combined total of the payment fines highlights the fact that many of us are struggling to repay our loans and the high interest rates are only going to make matters worse.

A £12 fine on top of your debt as well as the growing pile of interest will combine to make it more and more difficult to repay the loan and as time goes by the pressure will only continue to grow.

The effect of missing a payment can have serious repercussions on your credit rating and may last as long as 3 years on your credit report. Sometimes a poor credit rating will mean that you charged more interest and get turned down when you apply for personal loans or mortgages.

Those of us who are most likely to miss a payment are the 25 to 34 year olds. Roughly 13% in that age group have missed a payment in the past 6 months.

Five consecutive interest rate rises over the past 12 months meant that households are now facing a record debt burden. Even now that the base rate has dropped by a quarter point, it will be a while before financial relief is felt by most UK households.

Recent research suggests that 19p out of every £1 earned by households goes towards repaying accumulated debt and the interest on that debt. Although this sounds grim, much of that debt is secured against property, rather than in unsecured loans and high interest credit.

The previous debt record was back in 1990 when debt accounted for 18p in every £1.  The burden of debt has been on the rise since 1997 when the figure was just 12p in a £1.

Even with the recent drop in base rate, the debt strain could get even worse by the end of the year. More and more of us could start to find it increasingly difficult to pay off our debt and more and more of our income goes towards servicing our debt. This is always true around Christmas and New Year when people spend beyond their income.

The reason we are feeling a real squeeze on our finances is not only because of increased borrowing but also because of modest earnings rises since 1997, rising utility bills, higher petrol prices and the increase in interest rates. All these things leave us with less real disposable income, but a sense of entitlement towards the ‘good things’ in life means that many families take out loans to finance holidays, cars and luxuries.

Despite the rising burden of debt (or maybe because of!) our spending has been rising also at an average rate of 5.5% per year since 1995. However growth in income has not been rising by as much and has only increased by 4.9%. The difference is made up be households borrowing more money.

If you are having trouble paying back your debt then there is always the option of discussing this with your creditors and coming to some sort of agreement. Early detection of financial difficulties is the best way of dealing with the situation. Debt consolidation loans offer a good way of re-financing at a lower rate over a different term and one monthly payment is easier to manage than several.

It has become evident that there has been a rise in the interest rates charged by HM Revenue & Customs on late taxes or those that do not reach the minimum requirement.

There are few adults in the UK unaware of the Bank of England’s interest rate rises this year and now HMRC are beginning to follow in its footsteps. The HMRC generally does not have a policy of following what the Bank of England do, but generally make changes when they themselves believe them to be needed. They hadn’t made a general change since last September, but at the moment the main rate is at the highest it’s been for nearly nine years.

If you have a large outstanding tax bill that goes back several years, this will likely affect you the most. This is because the piling up of interest can have a huge effect on the money, in the manner of overdraft charges. Unfortunately there is little chance of anyone deciding that these charges are unfair and demanding a rebate, so anyone owing money would be wise to pay up asap.

Interest rates are rising from 7.5% to 8.5% on all income tax, stamp duty, tax credit over payments and many more. The rate of interest on late payment increased from 4% to 5%. For corporation tax late payments the rates have increased from 5.75% to 6.5%.

These increases can be avoided if you make sure that you bring your debts up to date and don’t make any late payments. It may end up costing you more than if you were to take out another loan in order to do so. If you make sure that you do this as soon as possible it will save you a lot of money in the long run. Now that the UK base rate has fallen again, cheap loans are easily available again for those who need them at rates below those charged by HMRC.

More and more young people are struggling to understand the basic of personal finance, according to new government research. This leaves them at risk of ruining their credit rating early on and jeopardising their ability to secure loans in the future.

A recent government poll recently suggested that a culture of secrecy seems to have developed among 16 to 21 year-olds who admitted that they would not tell their parents they were overdrawn and with 1 in 5 saying they wouldn’t even let their parents know that they had a credit card.

This lack of knowledge on young people’s side could be down to parents making money matters a taboo. Most parents admit that they do not feel comfortable discussing money matters with their children and 22% thought that their children did not consider money matters to be of any importance.

However it is not only young people with the knowledge gaps and if you don’t know how to manage your finances efficiently than you risk not making the best decisions with your money and getting into financial difficulties. If you have some extra money sitting in your current account why not put it in a saving account for instance? Also a lot of us don’t know when getting another credit card is not to solution to our financial woes and when taking out a debt consolidation loan is better than repaying the minimum on high-interest cards.

The DfES has a campaign called Talking Money which is aimed at encouraging families to be more open about their financial matters as the family is your best financial safety net.

There is no escaping the fact that house price growth over the past ten years has been phenomenal and up until recently there was very little sign of it slowing down. So it may not come to you as much of a shock to hear that the average cost of a home by a first time buyer is expected to cost more than one million pounds in less than 20 years from now.

This news comes despite recent suggestions that there has been a slowdown in house price growth. This slowdown is a result of the five consecutive house price rises over the past twelve months as well as other factors such as the bad summer weather we had and the introduction of home information packs. Also there is currently a shift away from sub-prime lending by banks as they try to calm the financial markets which also went in for a bit of a roller coaster this summer.

According to Stroud & Swindon, by the year 2024 first time buyers will by typically spending one million pounds on their first home if property prices continue to follow there long run pattern of growth. However those of us who live in areas where house prices are higher than average could be facing a seven figure sum for our first home much sooner. London for example is expected to surpass the one million mark by 2018. The south east and south west are generally expected to follow shortly afterwards.

Whilst this news may not seem so bad for those already on property ladder, for anyone struggling to find a house affordable even on a huge five-times salary home loan it is disastrous. Equally, people already facing loan arrears may never own their own home again once repossession has taken place.