More and more people across the country are finding it harder to make ends meet financially at the moment, due to the extra burden of paying off personal loan and credit card debt, coupled with the ever increasing cost of living and reducing wages.
For many home owners in the UK, the situation has got that bad, that they are only able to afford to pay the interest charges on their homeowner loan or mortgage each month and are not making any repayment of the original loan amount at all.
The news comes from a new survey conducted by the financial advice website Unbiased.co.uk, which has shown that somewhere in the region of 1.5 million households across the country are only paying interest on their home owner loan.
These are cases where borrowers have been forced onto an interest only loan out of necessity, not by choice and most of these individuals are unlikely to have any means of repaying the loan at the intended maturity date, unless they change their current payments and overpay on the loan in the future to compensate for the current underpayments.
This equates to around one in seven home owner loan cases in the UK and with the current restrictions on interest only loans at the moment, it is highly likely that many of these borrowers will not be able to switch to a cheap loan deal on their mortgage, due to the particularly low loan to value ratios being offered at the moment.
Karen Barrett of Unbiased said “With incomes squeezed, it’s not surprising that many people are trying to save money by sticking to interest only loans, but this is a potential ticking time bomb.”
“What is really worrying is that almost a third of this group are either in or coming up to retirement age while more than half are between the ages of 35 and 55.”
Over the past couple of years or so, there has been a huge growth in the number of people complaining and claiming compensation form their insurance company or bank, with regard to the mis selling of Payment Protection Insurance (PPI) in connection with a personal loan, or other form of credit.
Although the selling of PPI at the same time as a personal loan, credit card or home owner loan has now been banned, may people are still claiming for policies in recent years and this has been encouraged by massive media coverage and claims management firms approaching loan customers to make a complaint.
Whilst there have been a large number of valid complaints from customers who were mis sold PPI at the same time as a personal loan, it seems that many people and claims management firms are jumping on the band wagon and looking for compensation, even though their loan protection policy was sold correctly.
As a result of this, the Ministry of Justice has launched an investigation into claims management companies who have been offering loan PPI compensation claims services to customers, without checking to see if their claim is valid or not.
The investigation comes after a number of high street banks complained to the Ministry of Justice about the high number of invalid PPI claims it was receiving from claims management companies on behalf of their personal loan customers.
It has been estimated that somewhere in the region of 80 per cent of all loan PPI claims are now made through claims management companies, with around 40 to 50 per cent of these now being rejected. HSBC even said that around a third of the clams it received had no connection with the bank, or no PPI policy was ever sold alongside a loan.
The cost of buying a house and taking out a new home owner loan has increased once again for first time buyers looking to enter the housing and home owner loan market, as the recent holiday on stamp duty has come to an end.
The government introduced the holiday back in 2010, in an attempt to encourage first time buyers into the housing market, by reducing their overall costs of a large deposit and home owner loan or mortgage fees and charges, in the form of a temporary exemption to pay stamp duty on properties valued between £125,000 and 250,000.
Many experts within the housing and home owner loan industries have called on the government to extend the stamp duty holiday period in order to maintain the current levels of interest from first time buyers, but the tax break was ended on 23rd March this year.
This means that a new first time buyer will now have to pay stamp duty tax on all property purchases between £125,000 and £250,000 at a rate of 1 per cent of the purchase price. This could equate to an additional bill of £2,500 on top of the deposit and home owner loan costs and other fees, on a property valued at £250,000.
Figures from the Council of Mortgage Lenders (CML) have shown that the number of new loans to first time buyers increased by almost quarter throughout the month of January this year, compared with the same time twelve months before, as buyers rushed to complete their loans and purchases before the holiday expired.
However, the government are confident that the introduction of the New Buy scheme and a god choice of cheap loan deals on home owner loans and mortgages will keep the enthusiasm going for first time buyers to enter the housing and home owner loan markets.
The Financial Services Authority (FSA) has publicly censured two credit unions based in Glasgow for breaches of FSA regulation over the terms of loans offered by the organisations to Directors and individuals who were not members of the union.
Pollok Credit Union set up a trust and made a number of loans to the trust which managed a local post office and day care centre. However, the trust was not a member of the credit union and due to the size of the loans, 88 per cent of the credit union’s funds were tied up with one borrower, in breach of FSA regulations.
FSA regulations state that a credit union can not make a large loan to a borrower for more than 25 per cent of its total capital, as this exposes other members to high levels of risk in case of the loan defaulting.
Shettleston and Tollcross Credit Union were also in breach of regulations due to making loans to a number of Directors, with rates better than those which were available to normal union members.
The preferential rates were removed once the credit union realised it was in breach of the regulations and the Directors repaid the difference in full, even though the benefit received was minimal.
Tom Spender of the FSA said “Both these credit unions were established to help address financial exclusion in Glasgow, so their continued roles within the communities are vital. In these two cases a public censure was imposed, however in different and more serious circumstances the FSA may have considered imposing a financial penalty as credit unions do not have immunity from our rules.”
“Credit unions are there to protect their members and we will not hesitate to take action where their interests are put at risk.”
Tough financial times and an uncertain economic future for the UK, has meant that many consumers across the country are taking a more cautious approach towards their finances and in particular, their personal debts on things like unsecured loans, credit cards and overdraft facilities.
As a result of this caution, more and more people are making extra efforts to repay their outstanding personal loan debts and credit cards as soon as they possibly can, in order to reduce their debt burden and free up some more disposable income to help cover the cost of their other household bills.
February saw consumers across the UK significantly reduce their existing unsecured loan debts as well as overdrafts and credit card balances, as many are probably still recovering from overspending and taking out loans at Christmas and trying to restore their financial balance.
The latest figures from the British Bankers Association (BBA) have shown that individuals across the UK reduced their outstanding unsecured loan and other personal debts by around £305 million over the course of February alone.
The figures show that borrowers are not only more reluctant to take out new personal unsecured loans and credit cards at the moment, but they are also overpaying on their existing loan debts, to give a net repayment of the £305 million throughout February.
According to the figures from the BBA, February was the first month in around three years where borrowing on personal loans and overdrafts actually fell, although borrowing on credit cards remained static at around £7 billion.
David Dooks of the BBA said “Businesses and households continue to be cautious about their finances in the face of difficult economic times and this shows up in a reluctance to take on new loans and credit, or where possible, seeking to pay back bank borrowing.”