A new complaint service has been launched for those consumers who have been disappointed with the response they have received from banks and building societies when they have been forced to make a complaint regarding their loans.
LoanCheck foundation has said it is introducing the service due to the growing number of complaints from loan customers and the lack of interest and apathy they receive from lending organisations. LoanCheck has offered to take on legitimate complaints regarding people’s loans and deal with the complaint all the way through to completion. To provide this service they will charge the customer a fee of £199.
The Financial Ombudsman Service (FOS) has recently commented on attitudes from lenders when they receive complaints from borrowers, commenting that many firms handled loan complaints with “weary cynicism” and LoanCheck have taken the opportunity to offer the complaint handling service to those individuals who probably would not bother making a complaint, or seeing it through to the end if they didn’t get an immediate response from their lender.
Of course there is nothing to stop people with complaints regarding their loans from dealing with the issues themselves, although many customers may be intimidated by taking on a large financial institution, in which case the Financial Ombudsman Service (FOS) can offer help and advice to loan customers who have not received the response they wanted from their lender.
A spokesman for the FOS commented “Certainly if someone wants to use a company to represent them that is their choice. We have found no difference between the outcomes of those who have gone through a claims management company and those which have gone through the process themselves. I think the key message is if people are unhappy with the way a firm is responding to their complaint they can always bring it to the ombudsman at no cost to them.”
A new government scheme which is designed to offer help to homeowners who may be facing difficulties with their homeowner loan due to the effects of the current recession, came into force yesterday (Tuesday 21st April).
The scheme, known as the Homeowners Mortgage Support (HMS) scheme, will give borrowers the opportunity to defer the repayments, or part repayments on their homeowner loan if they suffer financial hardship through unemployment, thereby saving a large number of families from the daunting prospect of possible repossession of their home.
The scheme, which has been widely supported by banks, building societies and industry experts, will be funded by the tax payer and will give borrowers up to a two year break from their homeowner loan repayments, although these missed payments will merely be deferred to a later date and will have to be caught back up to date at some point in the future, once the economy recovers.
In order to qualify for the scheme, borrowers must fulfil certain criteria; they must have taken their loan out prior to December last year, have savings of less than £16,000, still have a regular income into the household and have a total outstanding loan balance of less than £400,000. They must also be able to continue to be able to pay a minimum of 30 per cent of the interest payments each month and their loan repayments must have been fully up to date for at least five months.
Although the scheme has widely been welcomed, some industry officials have claimed that it will not stop the problem of repossession, only defer it for another two years, by which time, homeowners who have been on the scheme will effectively face an additional two years worth of arrears on their loan. However, with unemployment increasing dramatically at the moment and 35 per cent of the population worried over losing their homes, the HMS scheme is likely to offer a lifeline to many borrowers who might otherwise lose their homes this year.
As the UK housing and homeowner loan markets continue to struggle on through the current recession, banks and building societies still remain extremely cautious on their lending policies and who they are prepared to offer loans to.
As a result of this reluctance to lend, the average loan to value ratio for first time buyers and those remortgaging their homes, has fallen to the lowest level for two years, with an average loan to value of just 70 per cent, according to the latest figures released by Moneyextra.com. As a comparison, the average loan to value at this time last year stood at 82 per cent.
Falling house prices and the threat of even more homeowners facing negative equity has caused banks and building societies to adopt a more cautious approach and of course, the fact that buyers are now having to find a deposit amount of around 30 per cent, shows a greater level of commitment on their part and increases the likelihood that they will be able to manage their loan repayments in the future.
The research has shown that there are hardly any homeowner loan deals offering 95 per cent loan to value and very few offering 90 per cent and even if a buyer finds such a deal, then they are likely to be required to pay an extremely high interest rate on their loan.
Richard Mason of moneyextra.com said “It’s a catch 22 for first time buyers, the depressed market means there are bargains to be had but it’s difficult to get on the ladder without a good deposit. Although there are loans available, on the whole lenders are being very prudent. We need to see some movement here in order to get the housing market moving again. Without plenty of competitive mortgages to choose from things will become even more stagnant.”
Over the course of the past six months or so, the Bank of England’s Monetary Policy Committee (MPC) have reduced the base rate of interest on an almost monthly basis, until it has reached an all time low rate of just 0.5 per cent.
Whilst this has benefitted many people with homeowner loans and mortgages, those individuals with personal loans, whether secured or unsecured, have seen rates remain static, or even increase, making a personal loan disproportionately expensive in the current financial climate. But hopefully, things may be about to change, with the possibility of some new cheap loan products starting to appear on the market.
Twelve months ago the average APR (Annual Percentage Rate) for the top five leading loans stood at 7.34 per cent. However, by March this year the average rate had increased to reach a peak of 8.88 per cent. The latest figures from Moneysupermarket.com have shown that this average rate has reduced slightly to 8.68 per cent, suggesting that interest rates on personal loans are starting to fall in line with the rest of the economy.
A number of lenders have also launched new cheap loan products, or reduced the rates on their existing loans.
Tim Moss of Moneysupermarket.com commented it was a positive step for the loan market. He said “Despite the Bank of England having slashed the base rate over the past six months, loan rates had continued to climb. Banks and building societies are more cautious about who they’ll lend to than in pre credit crunch days, which has made it much harder for consumers to get loans. And the clampdown on the sale of Payment Protection Insurance (PPI) has caused providers to hike up prices to recoup lost revenue.
As a result it has become increasingly difficult to get a competitively priced loan. Let’s hope that the rate reductions we’ve seen recently are just the beginning and that we see more providers looking to attract new customers in the months ahead.”
Since the beginning of the credit crunch and the continuing global economic slowdown, one of the areas which has been worst hit is the housing market, with the average value of a house dropping significantly over the course of the past two years.
For those individuals who bought their home more than five years ago, this should not be a huge problem, as they will previously have made sufficient gains in their property value to more than cover any recent losses, but for many people who have bought their home within the last two years, particularly those who took out a high loan to value mortgage or homeowner loan, an increasing number are now facing a negative equity situation.
Negative equity is the situation where the outstanding balance on an individual’s homeowner loan exceeds the total value of the property, so that they owe more than it is worth. According to the latest figures from the Council of Mortgage Lenders (CML), approximately 900,000 people with loans on their homes are now in the position of having negative equity, although for the majority of these borrowers, the shortfall is less than ten per cent of the overall property value.
The last time we saw serious negative equity was during the early Nineties, when somewhere in the region of 1.5 million borrowers owed more on their homeowner loan than their property was worth. The CML have said that the current situation is not anywhere near as bad as then and homeowners should sit tight and allow values to increase, or take advantage of the currently low interest rates to overpay on their loan and reduce the outstanding balance.
With many experts predicting that property prices should start to increase steadily from October this year, hopefully this current problem will only be short lived.