As more and more people end up in large amounts of debt on personal loans and credit cards, there has also been a growth in the number of companies offering to handle customer complaints with regard to loans and cards, with several companies claiming that they are able to have an individual’s debts written off altogether.

The British Bankers Association (BBA) has issued a warning to consumers who may be tempted to use such a service, claiming that many of these organisations will charge consumers a large up front fee, promising to clear their loan debts without any sort of guarantee or evidence to support their claims.

The report comes from GfK NOP who carried out a Mystery Shopper exercise on claims management companies (CMC’s). 

The survey found that many companies are offering compensation to vulnerable customers without advising them on the potential damage it could do to their credit rating through missed loan repayments and county court judgements, for example. Many companies issue misleading advertisements to lure in potential customers (e.g. no win no fee) and there is no regulation for this sector, or required qualifications for claims handlers. In a large number of cases, customers are not advised of the alternatives to using a claims management service, such as the Financial Ombudsman Service (FOS).

Eric Leenders of the BBA said “Consumers should be free to take professional advice to help them, but what was once a legal service is now becoming a mass market industry and that brings with it some significant and fundamental quality control problems.

If customers feel they need help progressing a complaint, they can find real help from reputable and reliable sources. As a first step, they could consult the Banking Code, which provides a list of free debt advice services which can offer real help. The best advice is, as always, that if something sounds too good to be true, it probably is. Nobody can make debt disappear, but there are many people who are committed to providing quality advice and support.”

Over recent years self certification mortgages and secured loans have played a vitally important part in the home owner loan and housing markets in the UK, with a significant proportion or loans being taken out on this basis.

Self certification loans allow the borrower to take out a home owner loan without providing any evidence of their earnings or income, they simply sign a declaration of their earnings for the lender.

Whilst this type of loan has been extremely useful for people such as the self employed who may not have adequate accounts, or those individuals who may have complicated earnings from a number of sources or receive commission payments, the self cert system has been open to abuse from both borrowers and some loan brokers who have been known to unrealistically inflate a person’s earnings in order for them to obtain the loan they require.

Following the credit crunch, the Financial Services Authority (FSA) has been conducting a review into the mortgage and home owner loan markets and the results of the review are due to be published next week.

Industry experts expect that one of the outcomes of the review will be to place a complete ban on self certification loans and mortgages, due to the bad press they have received and how these loans have been abused over the years. Two years ago, 23 per cent of the prime home owner loan market was made up of self certification loan products. This figure has now fallen to just two individual loan products, both offered by Platform home loans and these are expected to be withdrawn later this week.

Although it is easy to see the negative side of self certification loans, many industry experts still believe they have an important role to play in the home owner loan market. However, it looks as though self cert loans are likely to go the way of the Dodo next week!

This week (commencing 12th October) sees the Citizens Advice Bureau (CAB) join forces with a number of other advisory charities to launch Advice Week 2009, which is designed to help raise awareness amongst consumers for the need for suitable advice and how the right help and advice can be vitally important in a wide range of personal matters.

Due to the effects of the credit crunch and economic recession, one area which is of great concern to both individuals and CAB is that of personal loan and credit card debt and the problems being faced by many people who are struggling to keep up with their monthly personal loan and other debt repayments.

Over the course of the past couple of years, CAB have seen a dramatic increase in the number of people seeking advice with regard to their loan and debt problems and debt problems are now the largest area of enquiries the agency receives and the number is continuing to grow as more and more individuals see their personal loan and credit cards falling into arrears and their debts spiralling out of control.

One of the most important messages to come out of advice week is that consumers who are struggling with their loan repayments should seek the advice they require at the earliest opportunity, as the situation is much more likely to be resolved before the problem becomes too large to deal with.

David Harker of CAB said “Many people are often surprised at the level of help they can get for free from our impartial agencies and the earlier on an issue is identified, the easier it is to resolve. Even people at crisis point, for example people facing a court hearing for repossession of their home, can find their situation swiftly improved if they seek advice.”

Over the course of the past couple of years or so, many would be first time buyers have rented a property rather than committing to taking out a large home owner loan and buying their own home, largely for the reason that it is cheaper to rent a property than it is to buy one.

However, according to new research from Abbey Mortgages, many of these individuals would now actually be financially better off if they took out a home owner loan and bought a house, rather than continuing to pay rent every month. The only exception to this across the UK is in London, where property prices remain much higher than elsewhere in the country.

The average cost of a home owner loan for a first time buyer with a loan to value of 75 per cent, currently stands at £382 per month, whilst the average amount of rent payable works out at £434 per month, making a monthly saving of £52 for those buying.

With 1.61 million people looking to buy their first house at the moment, this equates to a total average saving of £1 billion over the course of the next year. The main reason for this is that whilst rents have remained high, the cost of both a house and a home owner loan or mortgage has dropped significantly over the past year.

Of course the biggest hurdle for many first time buyers is finding sufficient funds to cover the large deposits required to meet lenders’ loan to value criteria, although with loan to value levels slowly increasing, even this is now becoming less of a problem.

Nici Audhlam-Gardiner of Abbey Mortgages said “Our latest research shows there is hope for first time buyers trying to buy their first home. It’s now cheaper in all bar one of the regions to buy rather than rent and shows that saving for that all important deposit is so worthwhile too.”

Many individuals, both borrowers and those working in the home owner loan and finance sectors, have complained recently about the particularly low loan to value ratios being offered by banks and building societies at the moment and how this is stifling the housing market.

However, there has now been an equal amount of concern from industry experts as the Clydesdale and Yorkshire bank has announced that it is now offering 100 per cent loan to value mortgages and home owner loans. Initially, the lender was reluctant to admit that it was offering the loans, but has since confirmed that this is the case.

The bank has said that it is currently offering a pilot scheme which offers 100 per cent loans to certain borrowers through relationships it has developed with a number of construction firms, in an attempt to provide a boost to the housing industry and first time buyers.

Although the Clydesdale have said the 100 per cent loan scheme is only available to a very select number of individuals, the bank has come under severe criticism from industry experts who have accused them of returning to irresponsible lending practices and that the economy and housing market is not yet stable enough to be able to offer such high loan to value loans.

Ian Burge of the Clydesdale and Yorkshire Bank said “Clydesdale and Yorkshire bank have a strong track record of supporting customers during these difficult economic conditions and are continually looking for new ways to assist homebuyers in today’s market. In partnership with a small number of local developers, we are currently piloting several initiatives including shared equity schemes, fee free mortgages and, in certain cases, higher loan to value lending. Al applicants are reviewed on a case by case underwriting basis and depend on the individual circumstances and property involved.”