All About Loans Weblog

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 Many of the standard loans which have been withdrawn were intended for first time buyers.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.

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.

When it was announced that the Bank of England was keeping the base rate at 5.75 percent in August, many consumers were extremely relieved – especially those whose mortgage and loan repayments had already left them facing hardship. This was the last point when there was any anticipated rise on the horizon.

However, as much of a relief as this freeze on rates may seem for some, others are left wondering if this is really as high as the rate will go or will be more rate hikes in the near future?  Over the past year the Bank of England has increased the base rate five times, from 4.5 percent to the current 5.75 percent rate.  The latest rate hike took place in July along with many predictions that the rate will increase to six percent by the end of this year.  With the housing market slowing down, and home loan payments raising many believe that the rate rise has come to an end.  However, there are many who feel that the rate will increase to six percent; meaning that there will be more interest rate hikes before the end of 2007.  Others feel that the base rate increase has reached their peak and that interest rates will start to go down next year.

The interest rate is set by the Monetary Policy Committee, which decides to either raise or lower the base interest rate.  The reason they raise or lower the interest rates, is an attempt to keep the inflation as close to the government’s two percent target as possible.  Since May 2006 the inflation has been running above the governments target, which brought on the five interest rate increases over the past year.  Whether or not the Bank of England will raise the interest rates, no one will know for sure.

As interest rates continue to rise, and as more and more people are looking for ways to reduce the cost of their home loan, one method which has been proving popular with many customers is to opt for the offset mortgage. These mortgages work well for people with a lot of savings, or a lot of cash in their current account, as the bank will reduce the amount of your remaining loan that you have to pay interest on by the amount that you have sitting in your other accounts. So for example, if you have a mortgage rate of 6 per cent, and you have some savings. You would have to be earning a very good savings rate on these savings, especially after tax is taken into account, before you would be earning as much in interest as you could save if you simply off set this money against your mortgage.

Off set mortgages will not be for everyone however. You need to have a fairly high amount of money in your account for an off set mortgage to be worthwhile. This is because you usually pay higher fees for off set home loans, and you usually get slightly higher rates on your mortgage as well. Most advisers recommend that you have between seven and ten per cent of the value of your mortgage in savings before you consider taking out an off set loan as otherwise the fees and the higher interest rate on the mortgage will make the deal not worthwhile.

USwitch warns consumers that impulse auto-buying and making quick decisions can be costly.  They advise all potential auto buyers to take time for a ‘breather, to prevent a financial nightmare.

The biggest mistake is accepting an interest rate of 10.12 per cent offered by a car showroom deal. This is 4.22 per cent higher than personal loans available in today’s market, and double the Bank of England rate.

USwitch’s Nick White says: ‘Paying too much for car finance is really easy to avoid. People looking to buy a new car this year should first visit a price comparison website such as uSwitch.com to find the most competitive personal loan for their purchase – there are currently four available at less than 6 per cent APR.

“In fact, by organising the loan before visiting the car showroom, people will not feel pressurised to get the cash quickly to secure the car of their dreams.”

Auto buyers are being faced with misleading advertising. One common trick is to offer a teaser interest rate.  When the full interest rate kicks in, the payments increase substantially.

The number of people buying environmentally friendly cars has increased three-fold (from 6% to 20%) in the last year, whilst demand for sport models has hit rock bottom, according to research from AA Personal Loans.

Reports state that 25% of Brits plan to change their car in 2007 with the green agenda representing the most significant factor in the car-buying decisions. At least 20% will buy a green car in the next 12 months compared with just 6% in February 2006.

“Positive” loan habits are a growing trend among UK consumers. This is in part to concerted efforts by charity organisations and government to educate consumers and help them establish viable debt management programs.

Spokesperson for the Finance and Leasing Association (FLA) Helen Saxon said that some positive ways to utilise loans, including debt consolidation, have been highlighted.

Ms Saxon suggests that debt consolidation loans are useful tools to help consumers reduce their debt. They can help consumers by providing repayment plans that are management.

There are a “range of uses” for loans available from British financial service providers, which are being taken up by consumers for purposes of car buying and home improvements, Ms Saxon said.

Debt consolidation loans for the FLA spokesperson said: “They can be a positive move, because personal loans generally have lower interest rates than credit cards.

“But you do have to be careful if you are consolidating that you don’t run up the debt again and that you can pay off any loan that you take out.”

Research from MoneyExpert.com reveals that six million people consolidated their debts with a personal loan arrangement in the last three years.

Currently, the total money loaned rose to more than £4,000 million, according to the Building Societies Association’s (BSA) figures.

Official figures in February were £4,214 million, more than £1,000 million over the the same time in 2006, according to the BSA’s figures. The amounts approved but waiting for transfer are at a record high level of £4,917 million, compared with £3,646 million in 2006.

Director-general of the BSA Adrian Coles said: “Yet again building societies saw record lending in February, with gross lending the highest ever recorded for that month.”

Mr Coles replied: “These are strong figures, but we may be seeing the peak of the market. The recent rate rises are still to work through fully into the mortgage market.”

Moneysupermarket.com have calculated that by purchasing a new car online, UK shoppers can effectively wipe out one of their biggest new car costs: depreciation.

Typically a new car will lose around £2000 simply by being driven off the forecourt. Moneysupermarket’s research has shown that savings of around this amount and above can be made online when purchasing a new car.

“Not only will consumers save time and effort by not having to traipse around a number of car showrooms battling salesmen for a bargain, they will also benefit by literally thousands of pounds through shopping around at home on the internet” says John Sexton, head of cars at Moneysupermarket.

“Buying wisely can reduce your loss drastically if you decide to sell the vehicle at the end of the first year – a pretty good result, and a sound way to buy.”

Figures produced by Moneysupermarket and WhatCar.co.uk have found that a Fiat Punto Hatchback 1.2 (Grande) Active will typically suffer £2,637 in depreciation in its first year, whilst up to £2,590 could be shaved from the list price by shopping online.

However, buyers need to beware the high cost of typical car financing deals. These can attract interest rates of over 30% - more than three times the cost of a typical secured personal loan.

“There’s no point in doing your research online, bagging yourself a great car deal and then letting yourself down on the finance,” says Abbi Rouse of online loan brokers, Interfinancial Limited. “By arranging your credit in advance you are in a great cash-buyer situation. Some of our canny borrowers are also taking out an amount to cover a year’s insurance premiums too, saving themselves a fortune in direct debit penalties.”

~ Have you got your eye on a nice new motor? A secured personal loan can be the best way to finance your purchase. Fill out our easy online application form to find out what a personal loan could do for your street cred!

This month over a million new cars will be sold bearing the new ‘56 numberplate but drivers are in danger of paying a high penalty on their insurance premiums warns MoneyExpert.com.

MoneyExpert.com have calculated the costs of drivers choosing to pay their insurance premiums by direct debit and the results are not pretty!

“Motor insurance is expensive and opting to pay by direct debit is a popular way to spread the cost,” says Sean Gardner, chief executive of MoneyExpert.com. “However, this comes at a cost - insurers argue they are making a loan to customers if they let them pay in this way.”

It seems that insurance companies are loading direct debit premiums with charges amounting to 21.5% APR on average, effectively wiping out any benefit that car buyers have gained by bartering on the forecourt.

Insurers defend their premium-loading action by claiming that this covers them for essentially ‘loaning’ the full premium amount to car drivers, but the small print says otherwise. They assert that drivers are increasing insurance companies’ risk by not paying the full amount up front but any driver defaulting on their direct debits will soon find their policy cancelled and cover withdrawn.
“Insurers have a reputation for being moneygrabbing and slow to pay out,” says Abbi Rouse of Interfinancial, the online loan brokers. “This is just another way of milking consumers, particularly those who are unable to pay the full amount before cover commences.”

With direct debit costs typically adding hundreds of pounds to an annual policy, car drivers would be wise to shop around for cover. Only 17 fully comprehensive motor insurance policies charge under 15 per cent APR for their Direct Debit payment option, leaving many charging more than the average credit card.

For car drivers who are planning on taking out a secured personal loan to fund their car purchase, including lump-sum insurance in the amount borrowed can save hundreds of pounds a year in unwanted interest payments.

“A typical personal loan is currently about 9.9% through us,” says Rouse. “By arranging to buy your car with a secured loan you benefit in many ways. Firstly, you are effectively a cash buyer when you reach the forecourt, enabling you to haggle over the price. And secondly, you can pay your insurance up front, avoiding direct debit penalties.”

Interfinancial offer great-rate personal loans, both secured and unsecured. If you are interested in secured personal loans with bad credit or unsecured tenant loans with poor credit history we are also able to help.

New research from car insurance firm Churchill has highlighted a shocking fact: most parents don’t know the rules about children’s car seats.

Churchill questioned 1572 parents and found that two thirds were unaware of new rulings coming into force on 18 September 2006. Under new UK laws from that date all children up to the age of 12 (or those under 1m 35cm/4′5″) must use some form of safety seat.

The research also highlighted a high degree of ignorance when it comes to replacing car seats. Up to 85% of parents surveyed did not realise that a car seat should be replaced if involved in an accident. Most of those questioned said that if the seat did not have any visible damage they would not replace it whilst others said that the expense would put them off buying a new one.
Luckily insurers are starting to wake up to the necessity of replacing potentially damaged car seats. Churchill and Sainsbury’s Bank are two such insurers who offer replacement car seats for those involved in accidents.

“We strongly advise against purchasing second hand seats as it’s impossible to know their history,” says Richard Clark, car insurance manager at Sainsbury’s Bank.
“Child car seats involved in accidents may look fine but there is a chance that they could be harbouring hidden faults, even a small collision can put a seat under strain. That is why we offer a new for old replacement after an accident on all comprehensive policies, and advise against the purchase of second hand child car seats.”

Each year around 30 children aged 11 or under are killed while travelling in cars and around 450 are seriously injured, according to statistics from www.childcarseats.org.uk. Sainsbury’s research in May 2006 found that over one million drivers admitted to driving with a child under seven with no form of car seat or booster.

“We urge motorists to abide by the new law and always ensure that if they have small children in their cars, they are in the appropriate seating. If they are small children, this will mean a child car seat,” says Clark.

Parents who fail to comply with the new laws could face a fine of up to £500.

~ For competitive loan rates for buying a new car, why not visit www.allaboutloans.co.uk. By taking out a lump sump personal loan you can benefit from the best forecourt deals, and leave yourself enough cash to buy a new child car seat. For more advice visit our friendly Forum.