Following the aftermath of the credit crunch and the current economic slow down in the UK, the number of new loans being offered by banks and building societies has reached an all time low level and despite various initiatives by the government and the Bank of England to encourage new lending, it doesn’t look like there will be any significant changes from the banking sector with regard to loans any time soon.
This reluctance by the banks to offer new loans, whether they are unsecured loans or larger homeowner loans or mortgages, is now causing increasing frustration amongst a number of industry officials, many of whom are now calling on the government to take much stronger action against the banking sector as a whole and force them to start lending money once again. It is claimed that the current lack of available loan funding is having a detrimental effect on both individuals and businesses alike and is only exacerbating the situation, adding to and prolonging the current economic conditions.
The Council of Mortgage Lenders (CML) commented that, although there had been a slight increase in new homeowner loans over the course of February, there had been a drop of 8 per cent between December last year and January this year, equating to around £12 billion of new loans.
One CML spokesman said “Mortgage lending activity continues to be very weak and while people are searching eagerly for some signs of recovery, it would be unrealistic to expect a meaningful revival in lending in coming months.” Although the number of new loans across all sectors has increased slightly over the course of the past couple of months, the general consensus of opinion from experts is that there is still a lot more work to be done in order to provide the required boost to the loan industry.
All those borrowers out there who currently have a tracker or variable rate on their mortgage or homeowner loan will be paying the same next month as they are at the moment, following last week’s (Thursday 9th April) meeting of the Bank of England’s Monetary Policy Committee (MPC).
Since October last year, the MPC has voted to reduce the base rate of interest on six occasions, bringing it down from 5 per cent in October to just 0.5 per cent at last months meeting, which has made a huge difference to the repayments made on a typical homeowner loan which has benefitted from the full amount of the rate cuts.
The decision to leave interest rates as they were was widely anticipated by financial experts, most of whom do not believe that further cuts will have any positive effect for anybody. The decision also helps to strengthen the probability that the next change in the base rate of interest is likely to be upwards, although this is not expected to be for some considerable time yet, until the economy starts to recover fully. At the same time, the MPC voted to continue with the policy of quantitative easing, which was announced last month, continuing with its £75 billion worth of asset purchases.
Adrian Coles of the Building Societies Association said “The MPC’s decision shouldn’t worsen mortgage availability. Leaving bank rates on hold allows the impact on the wider economy of the recent rate cuts and the decision to start quantitative easing to be assessed. It will take some time before the effectiveness of these policies becomes clear.”
One financial adviser commented “There is no real room for any further downward movement, which would have little impact on either borrowers or savers. Given that most UK lenders passed on little or nothing of this years rate cuts, further cuts were unlikely to have any real useful impact on lending costs.”
We are all well aware of just how financially tough times are at the moment and as the current recession continues to bite harder into the UK economy, many individuals are having to make severe cut backs in their lifestyles in order to make ends meet and keep a roof above their heads.
This is particularly the case for those people with debts on homeowner loans, personal loans and credit cards. But a recent survey has revealed that a large number of consumers are not making adequate provision to protect themselves and their loan repayments in the event of them losing their income and with unemployment set to rise dramatically over the next twelve months or so, this seems to be an extremely blinkered approach to looking after their financial wellbeing.
The survey, which was conducted by National Savings and Investments (NS&I), revealed that the average person would require an immediate emergency fund of around £5,400 to cover themselves for short term income loss through accident, sickness or unemployment, yet it would appear that almost a third of those interviewed have not made any provision for such a fund and as many again have not even given the matter any thought.
At the same time, fewer people are taking out suitable protection policies such as income protection or Payment Protection Insurance (PPI) when they take out a new personal loan, or worse still, cancelling their existing plans in order to save a little money each month, presumably adopting an “it won’t happen to me” approach.
Dax Harkins of NS&I warned against not making adequate plans to protect against loss of income, he said “We all face the possibility of situations that we simply have no control over, so it’s essential that we are all prepared for any emergency that will require immediate access to money.”
No, it’s OK, this isn’t as bad as it sounds. The title of this article may imply that if you should fall behind with your loan repayments, a couple of bouncers will come round your house to break your legs, but in fact, just the opposite is the case (depending on who you took a loan out with!).
Borrowers who are struggling to keep up with their loan repayments and end up being referred to a debt collection service are now being given more opportunity to make arrangements with their creditors before they have their property repossessed.
New guidelines, which have been issued by the Credit Service Association, the body representing debt collectors, have allowed borrowers in default on their personal loans an additional 30 days in which they have the opportunity to try and sort out their financial problems with their creditors, once a collection agency has been appointed.
For many people who fall into arrears on their loans, the problem only really hits them once they get the knock on the front door from the Bailiffs and this extra 30 day period is intended to allow these individuals to contact their loan provider and avoid the unpleasant consequences of having their property repossessed.
The Credit Service Association currently has around 300 members who will be given the new code of practice which includes the 30 days of grace. It also includes a requirement for debt collectors to advise borrowers of accredited advisory services which are able to help them and negotiate with their loan providers and other creditors.
Kurt Obermaier of the Credit Service Association said “We have an agreement to allow a 30 day breathing space in the hope and expectation that this will ease the pressure on the debtor and more likely result in a positive outcome for all.”
Once again it is the beginning of the month and tomorrow (Thursday 9th April) the Bank of England’s Monetary Policy Committee (MPC )will get together for its usual monthly meeting to discuss, amongst other things , the base rate of interest for loans and savings.
For the past few months, the MPC has cut interest rates drastically in order to try and help the economy, but now that the rate has reached 0.5 per cent, it seems unlikely that we sill see a further cut tomorrow, particularly in view of the fact that recent rate cuts have not helped to stimulate the struggling housing and homeowner loan markets to any great extent.
But one financial expert has said that the MPC should leave rates as they are for at least three months, in order to allow some stability in the loan markets. Geoff Tresman of Punter Southall Financial Management also said that the real problem is that banks and building societies are still not lending and the government should apply more pressure on lenders to offer realistically priced loans to those who need them.
He said “Any interest movement would be utter madness at the present time. I do not see any further rate cuts being announced and indeed, the next move I see is upwards but not for some months. It is an absolute outrage that the government has used tax payers money to bail the banks out, but have not retained any significant influence with regard to lending policies.
Put simply, we are sick and tired of hearing sound bites from the government saying the banks must do more. I have concluded that the government have made available to the banks unimaginable amounts of money without retaining any real authority or influence over how that money is used. Until the government begins to show its teeth, more and more smaller companies will go to the wall.”
