20 July 2012

Payday Loans and Mortgages = Limited options

We get many enquiries where the customer has had historic financial issues, missed a payment or two or occasionally, not made a payment at all.  Even so, in the current climates, some specialist lenders will still look to assist, albeit at a premium cost.

However, more recently you can’t pick up a newspaper, or put on daytime TV, without seeing the ever increasing number of ‘payday’ type loans available.   They are everywhere and pretty self explanatory as to why they are being used, normally more month than money…   

But, I want to explore the consequences for those who have taken out a payday type loan (short term loan, high interest rate) and then apply for a mortgage.

Payday loans are being treated, more recently, as an ‘adverse’ entity by some lenders in the market.  Even the lenders that accept customers who have had CCJs, defaults, missed mortgage payments registered against them, MAY NOT accept someone who has taken out a payday loan.
One such lender publicised their views this week - ‘Payday loan data is one of many items included in our review and if a mortgage applicant has a current or had a recent payday loan, it is unlikely that we will consider their mortgage application.’

The credit reference agencies have also buckled under the pressure from lenders to show such information on customer credit checks.  Companies like Experian now show Payday loans as a separate entry and therefore, make it easier for any prospective lender to see any history with regards to these types of loans, before making their decision whether to lend or not.
There are always two sides to every argument - “if they can’t afford to get to the end of the month, should they be looking for a mortgage?” and “the new loan will be cheaper allowing the customer to be in a better position”.     
I’m not against payday loans, they will be right for some people in certain circumstances.  But I will strongly point out that if you do take out such a loan, you will most definitely limit the number of lenders available to you when you come to apply for any type of mortgage finance.

13 July 2012

Changing from Interest Only is not a job for 'tomorrow'.

Most weeks, I try to bring a bit of humour, sarcasm and light heartiness to a relatively uninteresting, but extremely important part of most of our lives.  How else could I entice you to read a column about mortgages!?   However, I need to be serious this week and discuss the huge issues surrounding mortgages on an ‘Interest Only’ basis.   

Many have taken out mortgages on an Interest Only basis.  To clarify Interest Only - if you take out a £100k mortgage loan over 25 years on Interest Only, at the end of the 25 years you will still owe the lender £100k!  As the term says, you are only paying the interest on the loan borrowed.  Historically, many also contributed to an endowment policy that acted as a savings plan which would hopefully match the outstanding loan at the end of the term.  Enough said!   Today, ISA’s are normally the preferred savings vehicle but many have not carried on with the savings plan as other distractions have, for whatever reason, taken priority.

Lately, we’ve seen many who have just a matter of years left on their Interest Only mortgage with no repayment vehicle in place.  The stark reality is that unless they can afford to repay the mortgage over a short term on a Capital & Interest basis, they risk losing their house when the lender demands repayment of their debt at the end of the contractual period. 
Where the big problem lies is that many consumers suggested that their repayment vehicle would be ‘sale of property’, i.e. they would downsize at the end of their mortgage, normally coincided with a retirement date.  The issues, more recently, may well include house price decline and there may no longer be enough equity in the property to downsize and still purchase a suitable property to live in. 

Arranging a repayment vehicle for an Interest Only loan is not a job for ‘tomorrow’.  As we all know, tomorrow never comes.  So, do it now!  Sort out a plan of action and put it into motion.  Speak to your current lender or mortgage broker and see if you can change to a repayment option.  There may be other options available to help you achieve repaying the loan over a specific time period.  But don’t delay…the clock is ticking!

06 July 2012

A serious lack of consumer confidence...

Where do I start this week!?  So much negative news surrounding the world of financial services.  As I write this column, the Breaking News is that Bob Diamond has resigned as Chief Executive of Barclays, following his Chairmans departure some hours earlier.   Both following Libor (London Inter Bank Offered Rate) and Euribor, the interest rates at which banks lend to each other, fixing and interest rate swap miss-selling scandals.  Also, in relation to last week’s fine of £290m by the FSA and US authorities after it admitted that their traders manipulated Libor.  This now leaves a rather large ship with no captains to steer them.  No doubt the board will act quickly and more light will have been shed on the matter by the time this is printed.  However, the bottom line is that, allegedly, a number of other banks are also under investigation and thus, this could be just the first of many, and in addition, it‘s a further act of mistrust and will bring an increased lack of confidence to an already fragile market.

This comes in the wake of the technical issues at Natwest/RBS, which affected many customers across the country.  Despite the bank confirming all issues had been sorted last week, the bank still has issues and some customers, allegedly, were hit with incorrect duplicate payments on their mortgages this week.   Does make you wonder how we ever functioned without technology and, more worryingly, how totally dependent we have become on it…
And finally…the Bank of England’s latest figures suggest that gross lending secured on dwellings hit £12.2bn in May up from £11.6bn in April.  Repayments also rose from £11.4bn in April to £11.7bn in May.   House purchases fell to 51,098 in May from the 51,627 figure recorded in April and remortgage approvals also dipped from 30,799 in April to 29,244 in May.  All signs of a reduced availability of mortgage credit and with the Eurozone crisis still in the mix, and a serious dent in consumer confidence, we might not see these figures change dramatically any time soon.