Lenders Criticised in New Report

December 12th, 2007

A row is brewing between the Council of Mortgage Lenders and the Citizens Advice Bureau over tactics used to market secured loans to people on low incomes and the tactics used when, as is all too often the case, they default on those loans. On the one hand the CAB accused some lenders of deliberately giving loans to those they know cannot afford them and then behaving ‘aggressively’ when they default on the repayments. The CML on the other hand claims the report is ‘skewed and disproportionate.’

The in depth report from the CAB states that, ‘dubious advice from brokers, irresponsible lending decisions and aggressive arrears management by sub-prime lenders are driving the current increase in mortgage arrears, court action and repossessions.’ David Harker, the director of the CAB said, ‘our research suggests that many aspiring home owners have been mis-sold unsuitable and costly home loans that are doomed to fail from the start.’

The report looked at case studies from 1,200 people who had asked for advice at Citizens Advice bureaus in England, Wales and Northern Ireland, as well as surveying its clients who had arrears on their mortgages and other secured loans. In terms of scientific sample selection, therefore, the CML claim that the report was skewed is true, although this does not necessarily detract from its findings.

A spokesman for the CML said, ‘the vast majority of mortgage customers receive a high level of help and care from lenders of all kinds if they fall into difficulties, in accordance with the rules set out by the Financial Services Authority. The allegation that they [lenders] default too quickly to court action is an assertion that is not borne out by the typical practices and processes of specialist lenders.’

In cases where there has clearly been a breach of the law and customers abused the Financial Services Authority has shown a willingness to act. However, it is still the case that sub-prime lenders loaning to people with bad credit account for over 70% of repossession hearings in the UK.

Dispute about the methodology used by the Citizens Advice Bureau report and the wording it contains cannot change the facts of its findings. The Council of Mortgage Lenders has every right to protect lenders that act within the law but the reports’ claim that ‘some’ lenders deliberately give loans to those they know cannot afford them is incontestable. The CML should spend less time refuting criticisms from without and more time ensuring that all its members obey the rules, then the CAB and CML can work together to ensure that no customers are abused in the future.

Posted in Personal Loans | No Comments »

The Festive Season is Upon Us

December 10th, 2007

This blog has seemed very gloomy of late with negative stories compounding like interest on a high rate savings account. So it’s time for some good news instead of the foretelling of doom and hopefully the atmosphere on this page will be a bit more festive than frigid.

There can be no beating about the bush that the economy generally, and the personal finance market specifically, is not in the best of health. However, the extent of its problems can be exaggerated and the good points neglected. The first of these is that many people believe the turbulence in the housing market is a correction and not a crash.

‘A repeat of the negative equity blight is unlikely because, despite the concerns about reckless lenders, banks and building societies have been more conservative in managing loan-to-value ratios than they were in the late-1980s.’ Similarly, ‘the anxiety in the business world has not, yet, created a sense of job insecurity. The unemployment rate has held steady at 5.4 per cent. And while economic uncertainty crimps consumer spending, it has not caused the job losses that tend to turn a crisis of confidence into a collapse in house prices.’

The good news, therefore, is that house prices may not fall by as much as analysts had feared. Unfortunately the bad news is that they will still fall, probably by more than 10%. ‘The mortgage lenders and property analysts are these days a chorus of gloom, not of doom.’

‘When America catches a cold the world sneezes’ is an adage that still rings true, perhaps even more so in this era of entrenched globalisation. The diagnosis of the American economy has not yet been revealed, however, and its tendency to stabilise itself in election years could yet prove a panacea.

Unfortunately realism must enter into this Christmassy outlook here and suddenly the tinsel looks limp and stringy and the baubles cracked. Credit is being limited at a dramatic rate and will this will worsen for a long time to come, market sentiment has turned, foreclosures have risen. A correction in the housing market could, under the force of its own momentum, become a crash and looking to America for comfort is a triumph of optimism over intelligence.

Still, merry Christmas everyone.

Posted in Personal Loans | No Comments »

Debt Consolidation Loans

December 7th, 2007

If you have multiple debts that are piling up with repayments that are spiralling out of control the attraction of a debt consolidation loan is obvious. And don’t the companies that provide these loans know this, their adverts saturate daytime television and their adverts fill the tabloids, all with banner headlines extolling the virtues of their secured loan services. Behind the obvious and repulsive cynicism employed here is also poor financial sense.

In today’s world, with the plethora of loans available and flexible repayment packages, the old maxim of ‘never borrow your way out of debt’ can seem too rigid. A better phrase would perhaps be ‘never borrow more to get out of debt.’ It may seem like there is little difference between these two but that small difference is crucial.

Debt consolidation loans lend you the same amount as all your other debts combined, so it may seem like you are not borrowing more at all. However, with high rates of interest and reduced monthly repayments most debt consolidation loans are very long term. It may well be convenient to have only one monthly outgoing that is lower than the many you had before but if you are paying that every month for fifty years the total paid back is huge. And the loans are usually secured on your house so any defaults and you could lose your home. Strangely these points are not emphasised in the adverts that bombard us every day.

The reason ‘never borrow your way out of debt’ is no longer a truism is that it is quite possible to shop around on the high street for a personal loan that will cover your existing debts. This can reduce the cost of borrowing and means that although your monthly repayments have not decreased by as much as a consolidation loan you will not be still be repaying well into your twilight years.

As with anything else a decision about debt consolidation requires consumers to be well informed so that they make the best decision for them and their specific circumstances. Unfortunately many debt consolidation companies have deals with unsavoury profit making ‘debt counsellors’ that will steer unwary consumers into deals that are entirely inappropriate. It is important to ensure, therefore, that customers make decisions based on relevant independent information from trusted sources and do no find themselves bounced into inappropriate loans that could result in home repossession.

Posted in Personal Loans | No Comments »

« Older Entries

Newer Entries »