It was welcome news for those individuals with a homeowner loan when the Bank of England reduced interest rates to an all time low of 0.5 per cent earlier this year, although this was soon followed by speculation as to when interest rates on loans and mortgages would start to go back up again.
Many experts believe that rates are likely to start increasing again in the early part of 2010, thereby pushing up the cost of a loan, as the economy hopefully begins to recover at a faster pace than it currently is doing. However, this theory has now come under doubt as the Bank of England released the minutes from the most recent Monetary Policy Committee (MPC) meeting.
The minutes of the meeting showed that the Governor of the Bank, Mervyn King, wanted to extend the current policy of quantitative easing, by introducing a further £75 billion worth of cash into the UK economy in order to help economic recovery. Although he was outvoted by the other members of the committee, this course of action could still happen in future meetings and many experts now think that this suggests he intends to keep interest rates on loans and savings at the current low level for some time to come, possibly even until the end of his period as governor in 2013.
If this is true, then it could mean further respite for those borrowers who are on a tracker rate, or standard variable rate on their homeowner loan, as well as leaving those borrowers who have just switched to an expensive fixed rate loan kicking themselves. If interest rates are to remain low for some time, it could hopefully have the effect of lowering the cost of a fixed rate loan in the coming months, as lenders will not have to cover themselves for future rate increases.
With a distinct lack of attractive cheap loan deals available for those individuals looking to switch their homeowner loan away from their existing lender to a new provider, coupled with the fact that interest rates on bank and building society existing standard variable rate loans are particularly low at the moment, it seems little surprise that a new survey amongst homeowners with a loan secured on their property has found that a high proportion of borrowers who are currently on their lenders standard variable rate, have no immediate plans to start looking around for a new loan deal.
The research, which has been conducted by Unbiased.co.uk, has found that 27 per cent of borrowers are quite happy to keep their homeowner loan with their existing provider, on their standard variable rate, compared with just 23 per cent at the start of this year.
Although it seems likely that rates will increase at some point in the not too distant future, many borrowers are reluctant to switch to a fixed rate loan with a new provider, largely due to the excessive premium which banks and building societies have placed on fixed rate deals at the moment, in order to cover themselves for the time when the base rate of interest does go up.
Those borrowers who are currently paying the standard variable rate on their loan would be well advised to make overpayments on their loan whilst interest rates are low and therefore reduce the outstanding loan balance for when rates begin to increase once again.
Switching to a fixed rate now would be an expensive move for many borrowers, although once rates start to increase, fixed rate loan deals are likely to be even more expensive and without the aid of a crystal ball, it is difficult to know when, or if, the best time will be to switch to a fixed rate loan deal.
As the new university term starts to loom ahead for many new students, many are making their final preparations for the next stage of their education, sorting out their student loans and organising their accommodation for the academic year.
Many of the more financially aware students have been working hard over the course of the summer to try and raise as much money as they can, in order to reduce their reliance on a student loan to fund their education. Despite this, a new survey has revealed that the typical student starting university this year, could end up graduating with somewhere in the region of £23,000 worth of loan debts.
The survey has been conducted by the Independent Guide to UK Universities and has warned both new and existing students to be extremely careful with their loans and finances if they do not wish to potentially damage their credit rating for when they eventually start working. They claim that many students will face extra financial hardship this year, particularly due to the recent down turn in the economy, leading to a lack of jobs along with a lack of cheap loans to help see them through their education and beyond, into their working lives.
Neil Munroe of Equifax, advised students to look after their finances, he said “it’s vital that students keep an eye on their financial situation, especially as their parents may not be able to bail them out. With a little careful preparation and budgeting, students can avoid getting into financial difficulty, which could help them deal with the realities of graduate wages. Being careful now could secure the future of their finances, as well as their education and career prospects.”
The past couple of years have seen a dramatic increase in the level of arrears on personal loans and homeowner loans and mortgages, with a large number of individuals losing their homes through repossession, due to the effects of the credit crunch and general economic slow down.
But the latest figures from the Council of Mortgage Lenders (CML) has revealed that there has actually been a drop in the number of homes being repossessed over the course of the second three months of this year and the total number of arrears cases on homeowner loans has levelled out over the same period.
The total number of properties repossessed during the second quarter of the year through loan arrears is still much higher than it was at the same time last year, but there has still been a ten per cent improvement over the figures for the first three months of this year. There were actually 11,400 properties repossessed in the UK between April and June, which equates to around 0.1 per cent of all homeowner loan or mortgage cases, or one in every thousand loans.
The CML have said that the reason for this reduction is largely due to the current low level of interest rates, Government schemes to help borrowers in arrears and a more lenient and supportive approach from banks and building societies in dealing with loan arrears. However, the CML have also warned that the figure could still rise over the course of the second half of the year and the organisation has not altered its prediction for the year of a total of 65,000 repossession cases.
Jackie Bennett, of the CML said “With unemployment rising and the economy still weak, the outlook will remain challenging for the rest of the year and into 2010. But today’s data shows that lenders are committed to helping borrowers manage their way through temporary payment problems and get their mortgage back on track over time, avoiding repossession where possible.”
There is an old phrase, “an Englishman’s home is his castle” and a recent survey seems to confirm this philosophy is true amongst homeowners in the UK.
The research, which has been conducted by the price comparison site Moneyextra.com , has shown that more than half of the homeowners in the country with a homeowner loan secured on their property, are in the situation where their debts on personal loans and credit cards are increasing to the degree where in many cases they are becoming unmanageable, yet a large proportion of these individuals are not prepared to alter their lifestyle in any way to reduce their outstanding loan debts.
The survey has shown that somewhere in the region of 37 per cent of people are continuing to live on borrowed money through personal loans and credit cards, rather than simply tighten their belts a little to reduce their debts and live within their financial means.
Very few individuals are prepared to sell their homes and move into a smaller property, despite the fact that in many case this could drastically reduce their home owner loan repayments and also clear any other personal loan or credit card debts. The survey also found that those living in the South of England are most likely to refuse to sell their home, even if they have huge personal loan debts.
Richard Mason of Moneyextra.com said “It’s absurd that struggling homeowners aren’t prepared to downsize simply to save face, these people need a wake up call! While downsizing might be considered taboo, the reality is that taking a step back can actually save up to £550 per month in mortgage payments. The British “stiff upper lip” is costing thousands of people their homes and I urge those facing debt arrears to downsize while they can. Surely it’s better to downsize on you own terms than face repossession and risk losing everything.”
