Yesterday (Thursday 5th November) saw the usual monthly meeting of the Bank of England’s Monetary Policy Committee (MPC) and there were no surprises at all when it was announced that the base rate of interest for loans and savings would remain constant at 0.5 per cent for yet another month.
This is now the eighth month in a row where the base rate has not changed and experts believe that the rate is likely to stay at this same level for some time to come yet. It was hoped that the UK would exit recession by the end of the third quarter of this year, but since this has not happened, the MPC has warned that we are likely to be in for a long and slow recovery.
The MPC also extended its programme of quantitative easing yesterday, by introducing an additional £25 billion into the UK economy in an attempt to get banks to start offering loans once again, both on a personal loan basis, but in particular new business loans. The quantitative easing programme, which was started earlier this year with £50 billion, has now been extended to reach a total amount of £200 billion, although many experts believe that the MPC should have gone further and extended the scheme by £50 billion instead of just £25 billion.
Azad Zangana, an economist at Schroders, commented on the extension of the quantitative easing programme. He said “The market was expecting an additional £50 billion in purchases and so the surprise has lifted sterling and promoted a small sell off in gilts. The UK’s failure to exit recession in the third quarter will have swayed the monetary policy committee’s decision to extend quantitative easing, despite recent strong signs of activity from private business surveys and a pick up in house prices.”
We reported recently on how the Financial Services Authority (FSA) has published the first draft of its Mortgage Market Review (MMR), which contains a number of proposed changes to the regulation of the mortgage and home owner loan industry.
One major change to the rules is a proposed ban on self certification loans and mortgages, where a borrower declares his or her own income without any evidence or proof of earnings. Practically all home owner loan providers have already withdrawn from the self cert market and the last remaining provider of this type of loan will be withdrawing its products by the end of this week.
Platform home loans, the last remaining self cert loan provider has now announced that it will no longer be offering these products, although the company has said that there is still a demand for a similar product from self employed borrowers who will have difficulty verifying their income in a traditional manner and therefore it intends to develop a new loan product, which works in a similar way to a self cert loan, but which will be fully compliant with the new FSA regulations.
David Tweedy of Platform home loans said “We understand the FSA’s concerns around income verification and fully support its aims to improve transparency in the industry. However, we continue to believe that the industry must recognise that self employed people can have different circumstances and may not always be able to provide the normal proof of income documentation required. As a lender which prides itself on financial inclusion Platform remains committed to supporting self employed people and will now work with the sector with a view to developing a new product that meets the FSA’s guidelines.”
It is fairly commonplace these days for a bank or building society to charge an arrangement or booking fee when someone applies for a new home owner loan or mortgage and in many cases, this fee is charged at the outset of the loan application process.
As the situation remains difficult for lenders with regard to offering new loans at the moment, one way for them to make a profit is to charge these fees and therefore in many cases these can be rather expensive, making a substantial difference to the overall cost of the loan.
But a new issue has become apparent when it comes to loan arrangement fees. With lenders tightening their lending criteria recently, there has been a much higher percentage of potential borrowers being rejected for the loan they applied for, but in a large number of cases they have already paid a substantial arrangement fee which is non refundable, whether or not the loan is accepted. According to research by Evaluate Technologies, somewhere in the region of 20 per cent of all lenders charge non refundable arrangement fees on their loans, which can range from just £100 up to £999.
Julie Speed of Evaluate Technologies said “The picture on fees is becoming more and more confused and the issue of non refundable fees is not helping. Lenders will argue that they face costs in processing applications and if they reserve a product for a customer and that is fine as far as it goes. But if customers are turned down for a mortgage or are forced to pull out of a deal it will be an extremely unpleasant surprise to find that not getting the mortgage you wanted is going to cost you a lot of money.
Clearly customers need to be certain that they want a mortgage when they start this process, otherwise they could end up incurring unnecessary costs.”
The modern world of financial services has become an extremely complicated place. Whether someone is looking for suitable family or loan protection, a pension plan, investments, or a personal loan or home owner loan, the range of products and choice of provider is quite staggering and for someone who maybe is not an expert in this particular field, it could be all too easy to get things wrong and make some costly mistakes if they try and sort out the best deal for their particular needs, without taking some form of professional advice.
But despite this obvious need for financial advice, around 37 per cent of the UK population has never sought advice from a professional adviser. The report comes from a survey conducted by HSBC and although the survey is focused on retirement planning, it also highlights the fact that more than a third of consumers have never sought advice on other financial matters such as home owner loans or mortgages, the best type of personal loan to meet their needs, or suitable protection products to cover their family and loan commitments.
The report from HSBC shows that a large majority of the population is not making sufficient financial plans for the future, with only 21 per cent of individuals attempting to cut the amount they owe on their personal loans and other debts and a further 14 per cent not making any savings or retirement plans for their future needs.
For anyone who has not taken advice, a personal financial review is essential and this could help someone to reduce the amount they pay out each month on their loans and other debts, or to plan for their future requirements. The Financial Services Authority (FSA) website has a list of registered Independent Financial Advisers in your local area.
Although personal debts on unsecured loans and credit cards are at an all time high in the UK at the moment, since the beginning of the recent recession there has been a major effort on the past of many borrowers to reduce the level of their personal debt and clear their credit cards and personal loans, according to new research.
The report from the Association of British Insurers (ABI) has shown that around a third of people with unsecured loans and credit cards had made a definite effort to increase the amount they repay on their debts over the course of the past three months, compared with just a quarter taking similar action over the previous three months.
The report also showed that levels of confidence in the potential for economic recovery and the housing market were also increasing, with just over half of those interviewed believing that the situation is likely to improve in the near future. However, whilst many people a re focusing their attention on repaying their personal loans and other debts, they appear to be failing when it comes to building up their level of savings and retirement planning.
Dr Rebecca Driver of the ABI said “For the long term health of the economy it is encouraging that people are reducing their debts and increasing confidence in the value of property is also good news for the housing market.” With regard to the low level of personal savings she said “This is very worrying. The ABI’s recently published savings manifesto outlines proposals such as early access to pension savings and bringing forward automatic enrolment into workplace pensions, designed to give savings a much needed boost.”
