Let The Borrower Beware
HAVE the British taken on too much debt or are we slacking in this respect? The Financial Services Authority (FSA) sees signs of “growing distress among consumers”, but some City analysts are more relaxed. In 1990, when interest rates were in double digits, the servicing of loan repayments took an average of 14 per cent of our incomes. Today’s figure is 7.5 per cent, but 8.5 per cent would be OK, apparently.
The banks seem not to share the FSA’s fears.
Indeed, there is evidence of an even greater eagerness to sell loans, with inducements of varying degrees of attractiveness. The free umbrella being offered in the window of Abbey’s Notting Hill branch to anyone taking out a new credit card may not be a great draw. But the deals for “credit-impaired” mortgage borrowers, those with county court judgments (CCJs) or similar, are more attractive.
A homebuyer with a clean record can get a 4.3 per cent two-year fixed-rate loan. As we report on page 4, this rises to 6.39 per cent for someone with CCJs — a far lower rate than previously. A discharged bankrupt can expect to pay 8.74 per cent. The annual repayments on a £200,000 loan for these individuals are £13,068, £16,032 and £19,707 respectively. No wonder mortgage banks like credit-impaired customers — the profit margins are fatter.
If you are worried that yesterday’s imprudent borrowers may not have learnt their lesson, you should know that lenders say that these customers are all too aware of the horror of arrears. But while a surge in home repossessions may not result from the credit-impaired craze, we should all be concerned about another trend, illustrated by this week’s Money MoT on pages 4-5.
Lloyds TSB gave Sue Dixon, a multiple sclerosis sufferer, a consolidation loan after she had run up £17,500 on credit cards. It then sent her a Platinum card with a credit limit of nearly £10,000. Mrs Dixon is reliant on state benefits, but these loans still seem too generous even when her husband’s salary is taken into account. The Dixons are facing their problems together, but it is questionable whether the bank’s conduct fits with the expected standards of responsible lending
Personal Finance Editor
The Times
The banks seem not to share the FSA’s fears.
Indeed, there is evidence of an even greater eagerness to sell loans, with inducements of varying degrees of attractiveness. The free umbrella being offered in the window of Abbey’s Notting Hill branch to anyone taking out a new credit card may not be a great draw. But the deals for “credit-impaired” mortgage borrowers, those with county court judgments (CCJs) or similar, are more attractive.
A homebuyer with a clean record can get a 4.3 per cent two-year fixed-rate loan. As we report on page 4, this rises to 6.39 per cent for someone with CCJs — a far lower rate than previously. A discharged bankrupt can expect to pay 8.74 per cent. The annual repayments on a £200,000 loan for these individuals are £13,068, £16,032 and £19,707 respectively. No wonder mortgage banks like credit-impaired customers — the profit margins are fatter.
If you are worried that yesterday’s imprudent borrowers may not have learnt their lesson, you should know that lenders say that these customers are all too aware of the horror of arrears. But while a surge in home repossessions may not result from the credit-impaired craze, we should all be concerned about another trend, illustrated by this week’s Money MoT on pages 4-5.
Lloyds TSB gave Sue Dixon, a multiple sclerosis sufferer, a consolidation loan after she had run up £17,500 on credit cards. It then sent her a Platinum card with a credit limit of nearly £10,000. Mrs Dixon is reliant on state benefits, but these loans still seem too generous even when her husband’s salary is taken into account. The Dixons are facing their problems together, but it is questionable whether the bank’s conduct fits with the expected standards of responsible lending
Personal Finance Editor
The Times
posted by Your Friends @ Myvesta.org.uk at
1/28/2006 05:23:00 pm
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