Before the recession bad credit secured loans and remortgages were very readily available.
In the past even people with bad credit profiles could obtain remortgages and secured loans at 75% LTV.
Firstly to explain what is meant by equity. Equity is the difference between the value of a property and the balance outstanding on the mortgage.
This means that if a property is valued at £300,000, and the mortgage secured on it is £100,000, the equity is £200,000.
Remortgages and secured loans at 75% loan to value based on the above example would mean that 25% of the property value must be deducted and what remains would leave the maximum remortgage or secured loan available.
The maximum remortgage available would therefore be £225,000 and the maximum secured loan would be £100,000 as that is the maximum secured loan that can be advanced.
Before the recession bad credit rating homeowners could arrange remortgages and secured loans.
Even those on the verge of repossession could have their property remortgaged at the last moment just as they were about to be rendered homeless.
The recession was precipitated in part by lax underwriting.
Now many people think that secured loans and remortgages are completely unavailable to those with a poor credit rating when this is indeed not the case.
Bad credit home loans are still out there although at much stricter criteria and equity margins than in the past.
Unsecured loans for people with a poor credit history are totally unavailable in these credit crisis hit days and for tenants who are in need of a loan the painful truth of the matter is that they are simply not going to be able to onbtain one at all.
For those who own their property there is help available in the form of bad credit rating loans and remortgages.
For homeowneres with a slighty impaired credit rating the maximum LTV is 60% and this is further restricted to 50% if the borrower has a very low credit history.
The highest loan value is only25,000 mark, but this can nevertheless still be of help to a homeowner struggluing to keep his head above water.
For poor credit rating applicants the interest rate is high at 25% approximately.
However if the homeowner keeps his nose clean, that is his financial nose, after obtaining the bad credit loan he can refinance at a better rate of interest a few years down the line when his credit file is clean.
Remortgages are still availble for bad credit file applicants, but the equity margin will be at 60% and the interest rate will be about 10% which is high but much lower than the high interest credit cards, personal loans, etc. that can be paid off with the remortgage.
Source
Thursday, January 28, 2010
Monday, December 28, 2009
Mortgage shakeup will put squeeze on buyers
BORROWERS should this weekend brace themselves for a radical shakeup in the mortgage market which could prevent thousands of consumers buying a home or moving to a cheaper deal.
A housing boom and delinquent mortgage market are blamed as serious triggers of our current financial crisis, which last week saw unemployment rise to 2.47 million.
Watchdogs at the Financial Services Authority are poised to announce, as early as ADVERTISEMENT
tomorrow, a radical shakeup of the mortgage market, which they hope will prevent such a catastrophe striking again. But loans will be much harder to come by, and potentially more expensive.
However, experts warn that precipitate action could choke off any fragile recovery in the housing market. Council of Mortgage Lenders director general Michael Coogan said: "Today's problem is the lack of available mortgage finance. Regulatory intervention is unlikely to reverse this trend and may accentuate the problem."
Self-certified mortgages, sometimes branded "liar loans", where a borrower's income is taken at their word, will effectively be banned, hitting hard the self-employed and those with fluctuating earnings, as well as those who were "imaginative" about their income in a desperate bid to join the house price party during the boom.
Sub-prime home loans which allowed those with a bad credit history to buy a home, and which have all but disappeared anyway, will remain a thing of the past, making any financial indiscretion a disaster from which you may never escape.
Ridiculously high income multiples, which saw borrowers easily qualify for loans of up to seven times their earnings, well in excess of the traditional three or four times ratio, will also disappear. The watchdog had considered imposing strict caps on income multiples. It opted instead for a prescribed affordability test, still based on an element of income multiples but looking closely at all forms of expenditure as well as earnings.
An industry insider said: "On this basis, it is unlikely borrowers could ever expect an advance of more than five times earnings, as an absolute maximum."
The watchdog will also discuss whether compulsory deposits of a predetermined size should be required to qualify for a mortgage, by placing a cap on loans to values, which would see 100 per cent deals banned. However, this appears to have fallen by the wayside in favour of greater reliance on a strict affordability regime.
And buyers can expect to be locked in a room with a branch manager and read the riot act before the loan is agreed, with banks acquiring new responsibilities for ensuring that borrowers understand the risks they are taking on.
Buy-to-let borrowers, or those looking for finance to purchase a second home, will for the first time be subject to the same rules, making such acquisitions far more difficult and expensive.
If it all looks a touch too draconian, it is worth remembering that the EU is in the middle of drawing up a new mortgage directive which could be even more punitive, given the conservative nature of most European mortgage markets.
Nevertheless, the FSA's proposals will bring major headaches for potentially millions who took out self-cert or sub-prime mortgages in the boom years, and who will now find it impossible to remortgage.
The regulator is expected to demand high levels of evidence from all borrowers of their income before an advance is agreed. This will mean salary checks at firms for those who have a job, and at least three years of audited accounts for the self-employed.
Many currently on self-cert arrangements will not be able to provide sufficient evidence to support their current loans, particularly given the impact the recession has had on salaries and the income of small businesses. If their current mortgage becomes hideously uncompetitive and expensive, they will not be able to move to a cheaper lender.
Source
A housing boom and delinquent mortgage market are blamed as serious triggers of our current financial crisis, which last week saw unemployment rise to 2.47 million.
Watchdogs at the Financial Services Authority are poised to announce, as early as ADVERTISEMENT
tomorrow, a radical shakeup of the mortgage market, which they hope will prevent such a catastrophe striking again. But loans will be much harder to come by, and potentially more expensive.
However, experts warn that precipitate action could choke off any fragile recovery in the housing market. Council of Mortgage Lenders director general Michael Coogan said: "Today's problem is the lack of available mortgage finance. Regulatory intervention is unlikely to reverse this trend and may accentuate the problem."
Self-certified mortgages, sometimes branded "liar loans", where a borrower's income is taken at their word, will effectively be banned, hitting hard the self-employed and those with fluctuating earnings, as well as those who were "imaginative" about their income in a desperate bid to join the house price party during the boom.
Sub-prime home loans which allowed those with a bad credit history to buy a home, and which have all but disappeared anyway, will remain a thing of the past, making any financial indiscretion a disaster from which you may never escape.
Ridiculously high income multiples, which saw borrowers easily qualify for loans of up to seven times their earnings, well in excess of the traditional three or four times ratio, will also disappear. The watchdog had considered imposing strict caps on income multiples. It opted instead for a prescribed affordability test, still based on an element of income multiples but looking closely at all forms of expenditure as well as earnings.
An industry insider said: "On this basis, it is unlikely borrowers could ever expect an advance of more than five times earnings, as an absolute maximum."
The watchdog will also discuss whether compulsory deposits of a predetermined size should be required to qualify for a mortgage, by placing a cap on loans to values, which would see 100 per cent deals banned. However, this appears to have fallen by the wayside in favour of greater reliance on a strict affordability regime.
And buyers can expect to be locked in a room with a branch manager and read the riot act before the loan is agreed, with banks acquiring new responsibilities for ensuring that borrowers understand the risks they are taking on.
Buy-to-let borrowers, or those looking for finance to purchase a second home, will for the first time be subject to the same rules, making such acquisitions far more difficult and expensive.
If it all looks a touch too draconian, it is worth remembering that the EU is in the middle of drawing up a new mortgage directive which could be even more punitive, given the conservative nature of most European mortgage markets.
Nevertheless, the FSA's proposals will bring major headaches for potentially millions who took out self-cert or sub-prime mortgages in the boom years, and who will now find it impossible to remortgage.
The regulator is expected to demand high levels of evidence from all borrowers of their income before an advance is agreed. This will mean salary checks at firms for those who have a job, and at least three years of audited accounts for the self-employed.
Many currently on self-cert arrangements will not be able to provide sufficient evidence to support their current loans, particularly given the impact the recession has had on salaries and the income of small businesses. If their current mortgage becomes hideously uncompetitive and expensive, they will not be able to move to a cheaper lender.
Source
Tuesday, December 15, 2009
Credit where it's due: firm revamped payment terms to cope with squeeze
WHEN Seamus Redmond made sweeping changes to his credit terms, the driver was sheer necessity. With €200,000 in bad debts courtesy of the construction collapse, the engineer knew his seven-man flooring company, Renobuild, couldn't withstand many more defaulting customers even though new business is flourishing.
"I've never seen anything to stop as sudden, abrupt, and severe as cash flow," he recalls with a near-shudder.
"We were being paid in 30 days, then it was turning into 90, then people stopped answering the phone. I was putting my own savings into the company to keep the place going."
Inspired by the practices of one of his own suppliers, Mr Redmond changed his standard credit terms from 30 days to a 50pc payment upfront plus a credit card with room to take the rest, or a letter of guarantee from a bank.
Credit insurance, something Mr Redmond admits he hadn't known about before the downturn, was also explored; but he found that door had already closed, leaving Renobuild to plough on alone.
Cutting off future bad debts at the source was only half the battle -- Mr Redmond still faced the challenge of his own creditors who'd gone unpaid when Renobuild's cash-flow dried up.
Believing himself to be "financially a bit of an idiot", he employed local Gorey firm Horizon Financial to run the rule over his company's books.
Source
"I've never seen anything to stop as sudden, abrupt, and severe as cash flow," he recalls with a near-shudder.
"We were being paid in 30 days, then it was turning into 90, then people stopped answering the phone. I was putting my own savings into the company to keep the place going."
Inspired by the practices of one of his own suppliers, Mr Redmond changed his standard credit terms from 30 days to a 50pc payment upfront plus a credit card with room to take the rest, or a letter of guarantee from a bank.
Credit insurance, something Mr Redmond admits he hadn't known about before the downturn, was also explored; but he found that door had already closed, leaving Renobuild to plough on alone.
Cutting off future bad debts at the source was only half the battle -- Mr Redmond still faced the challenge of his own creditors who'd gone unpaid when Renobuild's cash-flow dried up.
Believing himself to be "financially a bit of an idiot", he employed local Gorey firm Horizon Financial to run the rule over his company's books.
Source
Saturday, November 28, 2009
Is the interest-only mortgage endangered?
They have helped probably millions of people on to the housing ladder during the past two decades. But could low-cost "interest-only" mortgages be heading for the chop?
This week, the Financial Services Authority officially branded interest-only home loans as "high-risk", lumping them in with so-called liar loans and mortgages for people with dodgy credit records.
The FSA has also proposed that, in future, people applying for an interest-only deal would have to show they could in theory afford a more costly repayment mortgage. Bearing in mind that a repayment home loan can easily cost £300 a month more than an interest-only one, it is highly likely many wannabe homebuyers would fail this test.
The proposed clampdown could also spell bad news for some of those who already have this type of deal. What's more, when they come to remortgage, borrowers will find that lenders will be required to make more rigorous affordability checks, scrutinising their spending on everything from bills to booze.
In recent years, more and more people have turned to interest-only loans as a way of affording high property prices. With these, although you pay the interest, you don't pay off any of the capital debt, and it is up to you to set up a repayment vehicle – traditionally an endowment policy – to repay the loan at the end of the term.
It's not hard to see the appeal of these deals. Someone who today takes out a £150,000 mortgage fixed at 3.69% for two years with a 25-year term would have to pay £766 a month on a repayment basis, or £461 a month on an interest-only basis.
Around 30% of all home loans taken out between April last year and March this year – a total of 358,000 – were interest-only, and it is claimed that as many as five million people have this type of mortgage.
But the FSA has been worried for a while that many homebuyers who take out these mortgages could be storing up problems for the future, because they have little or no idea how they will pay back the loan. Some could be left with a huge bill when the loan matures in perhaps 20 or 25 years. If they can't pay it off, they could end up being repossessed.
The regulator says banks and building societies with higher numbers of interest-only customers tend to have more problems with people falling behind with their monthly payments. It adds it is aware that some borrowers are opting for these deals purely because they can't afford a repayment mortgage. It has therefore put them into the "high-risk" product category, but it is not banning them. Instead, it proposes that lenders will have to assess whether or not someone can afford an interest-only home loan by using the figures for an equivalent repayment mortgage.
"Interest-only mortgages are attractive to those on tight budgets because monthly payments are lower," says Melanie Bien at broker Savills Private Finance. "But they are riskier than repayment deals, particularly if you don't have an investment plan in place to clear the capital at the end of the loan. Those with interest-only mortgages are already finding tougher questions are being asked by lenders as to how they intend to pay back the capital."
Those borrowing less than 75% of a property's value will probably find it just as easy to get this type of mortgage as a repayment deal, though they may be quizzed about how they intend to pay off the loan. But above 75%, lenders are far more cautious. For example, Royal Bank of Scotland says its maximum loan-to-value (LTV) for customers wishing to pay their mortgage on an interest-only basis is 75%. Abbey announced last year that interest-only borrowers with "a proven repayment vehicle in place" would be able to borrow up to 75% – down from 85% – with those unable to produce evidence of a repayment vehicle limited to 50%.
What about those already on an interest-only mortgage? They will have no problem moving on to their lender's standard variable rate at the end of their initial period, says Bien, but remortgaging to a fixed or discounted rate could be more tricky. "If they are moving to a deal offered by their lender and have a high LTV, the lender may insist they switch part or all of the loan on to a repayment basis. If they want to remortgage to another lender, this will be even more difficult, as they will have to go through an affordability check, and the interest-only nature of the loan is likely to make the lender wary. This could mean borrowers have no option but to stick with their existing lender on the SVR – fine, perhaps, when interest rates are low, but not so attractive should rates rise and payments become more expensive."
So, if you have one of these deals, start thinking now about how you are going to pay off the loan.
Source
This week, the Financial Services Authority officially branded interest-only home loans as "high-risk", lumping them in with so-called liar loans and mortgages for people with dodgy credit records.
The FSA has also proposed that, in future, people applying for an interest-only deal would have to show they could in theory afford a more costly repayment mortgage. Bearing in mind that a repayment home loan can easily cost £300 a month more than an interest-only one, it is highly likely many wannabe homebuyers would fail this test.
The proposed clampdown could also spell bad news for some of those who already have this type of deal. What's more, when they come to remortgage, borrowers will find that lenders will be required to make more rigorous affordability checks, scrutinising their spending on everything from bills to booze.
In recent years, more and more people have turned to interest-only loans as a way of affording high property prices. With these, although you pay the interest, you don't pay off any of the capital debt, and it is up to you to set up a repayment vehicle – traditionally an endowment policy – to repay the loan at the end of the term.
It's not hard to see the appeal of these deals. Someone who today takes out a £150,000 mortgage fixed at 3.69% for two years with a 25-year term would have to pay £766 a month on a repayment basis, or £461 a month on an interest-only basis.
Around 30% of all home loans taken out between April last year and March this year – a total of 358,000 – were interest-only, and it is claimed that as many as five million people have this type of mortgage.
But the FSA has been worried for a while that many homebuyers who take out these mortgages could be storing up problems for the future, because they have little or no idea how they will pay back the loan. Some could be left with a huge bill when the loan matures in perhaps 20 or 25 years. If they can't pay it off, they could end up being repossessed.
The regulator says banks and building societies with higher numbers of interest-only customers tend to have more problems with people falling behind with their monthly payments. It adds it is aware that some borrowers are opting for these deals purely because they can't afford a repayment mortgage. It has therefore put them into the "high-risk" product category, but it is not banning them. Instead, it proposes that lenders will have to assess whether or not someone can afford an interest-only home loan by using the figures for an equivalent repayment mortgage.
"Interest-only mortgages are attractive to those on tight budgets because monthly payments are lower," says Melanie Bien at broker Savills Private Finance. "But they are riskier than repayment deals, particularly if you don't have an investment plan in place to clear the capital at the end of the loan. Those with interest-only mortgages are already finding tougher questions are being asked by lenders as to how they intend to pay back the capital."
Those borrowing less than 75% of a property's value will probably find it just as easy to get this type of mortgage as a repayment deal, though they may be quizzed about how they intend to pay off the loan. But above 75%, lenders are far more cautious. For example, Royal Bank of Scotland says its maximum loan-to-value (LTV) for customers wishing to pay their mortgage on an interest-only basis is 75%. Abbey announced last year that interest-only borrowers with "a proven repayment vehicle in place" would be able to borrow up to 75% – down from 85% – with those unable to produce evidence of a repayment vehicle limited to 50%.
What about those already on an interest-only mortgage? They will have no problem moving on to their lender's standard variable rate at the end of their initial period, says Bien, but remortgaging to a fixed or discounted rate could be more tricky. "If they are moving to a deal offered by their lender and have a high LTV, the lender may insist they switch part or all of the loan on to a repayment basis. If they want to remortgage to another lender, this will be even more difficult, as they will have to go through an affordability check, and the interest-only nature of the loan is likely to make the lender wary. This could mean borrowers have no option but to stick with their existing lender on the SVR – fine, perhaps, when interest rates are low, but not so attractive should rates rise and payments become more expensive."
So, if you have one of these deals, start thinking now about how you are going to pay off the loan.
Source
Sunday, November 15, 2009
Bad Credit Loans Company Unveils Remortgaging Products Customised for the Recession
More homeowners in the UK face the imminent threat of repossession due to the reluctance of banks and mortgage companies to let them remortgage their problem loans. But UK Bad Credit Loans are now being offered - even to those with prohibitive credit problems like low FICO scores, blemishes in their credit history, or even a recent bankruptcy or redundancy.
The uplifting news of these bad credit remortgage products comes as millions of UK households fighting to survive the economic onslaught of the recessions and hold on to their family homes despite the conspicuous lack of consumer credit.
The percentage of home value that banks are willing to offer homeowners in the form of remortgage loans has shrunk dramatically within the past two years, even as homeowners struggle to make monthly payments and balance their household budgets. Although many consumers want to use a remortgage to consolidate their debts, switch into a more manageable and affordable loan, or free up emergency cash to help them survive unemployment, stiffer standards imposed by mainstream lenders do not allow them to do so. The tighter lending guidelines are being cited by experts as one of the main reasons that the number of remortgages has fallen by more than 55 percent compared to last year.
Even if home prices bounce back and start to go higher, lenders still reeling from the credit crisis are going to do fewer remortgage loans for fear of defaults. Anyone with blemished credit, not enough income, or insufficient proof of financial worthiness and job stability will find it harder to meet lender guidelines.
Meanwhile the rate of unemployment has hit double digits in some parts of the UK - climbing to a devastating 15 percent or higher in some towns and cities. With millions of people in the UK suffering from lost jobs and income, the number of people with low credit scores and bad credit is extraordinarily high - making bad credit a rather commonplace situation for most Brits.
S
Source
SS
The uplifting news of these bad credit remortgage products comes as millions of UK households fighting to survive the economic onslaught of the recessions and hold on to their family homes despite the conspicuous lack of consumer credit.
The percentage of home value that banks are willing to offer homeowners in the form of remortgage loans has shrunk dramatically within the past two years, even as homeowners struggle to make monthly payments and balance their household budgets. Although many consumers want to use a remortgage to consolidate their debts, switch into a more manageable and affordable loan, or free up emergency cash to help them survive unemployment, stiffer standards imposed by mainstream lenders do not allow them to do so. The tighter lending guidelines are being cited by experts as one of the main reasons that the number of remortgages has fallen by more than 55 percent compared to last year.
Even if home prices bounce back and start to go higher, lenders still reeling from the credit crisis are going to do fewer remortgage loans for fear of defaults. Anyone with blemished credit, not enough income, or insufficient proof of financial worthiness and job stability will find it harder to meet lender guidelines.
Meanwhile the rate of unemployment has hit double digits in some parts of the UK - climbing to a devastating 15 percent or higher in some towns and cities. With millions of people in the UK suffering from lost jobs and income, the number of people with low credit scores and bad credit is extraordinarily high - making bad credit a rather commonplace situation for most Brits.
S
Source
SS
Thursday, October 15, 2009
TheDebtAdvisors highlight Record Number of Personal Insolvencies
Figures published today by the Insolvency Service show the number of personal insolvencies reached 33,073 in the second quarter of 2009 – an increase of 27.4% on the same period a year ago and a record figure for England and Wales. The figures consisted of 12,225 Individual Voluntary Arrangements (IVAs), an increase of 27.4% on the corresponding quarter in 2008, 18,870 bankruptcies, representing an increase of 15.3% on the corresponding quarter last year and 1,978 Debt Relief Orders (DROs).
Bev Budsworth, managing director of The Debt Advisor and Credit Today’s 2008 ‘Debt Counsellor of the Year’ and ‘Personal Insolvency Practitioner of the Year’, commented: “The number of personal insolvencies represent an all time high for England and Wales. We have seen a huge increase in referrals of personal insolvency cases from IFAs and mortgage brokers from the first half of 2008 to the first half of 2009. It’s encouraging to see that the brokers now have faith that IVAs and debt management plans do work and regard them as ‘fit for purpose’.
“Mortgage brokers and IFAs are often the first port of call as debtors will look to see if they can raise money to clear their debt. For many, remortgaging is no longer viable or best advice. Brokers and IFAs are now far more aware of IVAs and debt management and it is encouraging to see they are looking after clients through good times and bad.
“I believe the rise in IVAs is to be expected. The protocol has definitely helped to make IVAs much more workable. However, I still think that organisations that represent creditors need to take a more practical approach and not just squeeze every spare penny out of debtors in contributions. IVAs require discipline and usually mean that for a five year period, debtors have to adhere to tight budgets which, if too tight, make life unbearable and the IVA will ultimately fail.
“Today’s statistics now include numbers of DROs which have contributed to the record statistics we see today. Launched in April 2009, these provide debt relief for individuals with unsecured debts under £15,000, gross assets of less than £300 and a disposable income under £50. As a result of objections from creditors or investigations by the official receiver, it is understood that a number of DROs are rejected as assets have not been fully disclosed. Numbers are likely to increase in line with awareness and intermediaries understanding the process. Currently, there is an anomaly with the DRO in that if debtors have total pension fund assets over £300; this precludes them from the order even though their pension fund is likely to be excluded from a bankruptcy.
“Bankruptcies remain relatively constant, though I would have hoped to see a reduction in these figures to early 2008 levels. It’s clear that people with serious levels of debt continue to be ‘pushed’ down the bankruptcy route as a quick and often lucrative fix for more unscrupulous, non-regulated advisers. We have even seen cases of individuals coming to us saying that they have been persuaded to declare themselves bankrupt and charged up to £5,000 for the privilege.”
The number of company liquidations reached 5,055 in the second quarter of 2009 – an increase of 2.9% on the previous quarter and 39.1% on the same period a year ago. The figures consisted of 1,457 compulsory liquidations, a decrease of 6.8% on the previous quarter but up 8.7% on the corresponding quarter in 2008 and 3,598 creditor’s voluntary liquidations (CVL), representing an increase of 7.4% on the previous quarter and 56.8% on the corresponding quarter of the previous year.
“Small businesses are undoubtedly the backbone of our economy – there are 4.7 million of them in the UK employing over 13 million people and contributing to over 50% of UK GDP”, added Budsworth. “Many of these businesses are finding it extremely difficult to source finance at the moment, especially if they have a weak balance sheet and limited reserves that are continually being eroded by falling sales and bad debt.
“I believe we are simply not doing enough to help small businesses and we must do more by leveraging a rescue culture to help turn them around. A recent House of Commons regional paper gave quite a bleak outlook. There seems to be layers of organisations set-up, receiving taxpayers’ money to help businesses through the recession but not much consultation with people at the ‘coal face’ – the professional advisers who are speaking to these businesses on a daily basis.
“We have a perfectly functional commercial rescue culture in the UK with the necessary skills and expertise to turn many ailing businesses around. I don’t see the need for more taxpayers’ money to be ploughed into free debt relief services at a time when we can all least afford it! There are plenty of commercial advisers who have the trust and relationships with these companies who are best placed to advise.
“Company Voluntary Arrangements (CVAs) continue to be low, which is unfortunate. A CVA is an extremely useful tool and can save viable businesses. They are often underused and abandoned in favour of liquidation or administration. The CVA can protect the business, allowing it to retain its assets and provide for debt forgiveness. It can also save the directors thousands of pounds as personal guarantees do not crystallise and, most importantly, creditors can get some of their money back.”
Source
Bev Budsworth, managing director of The Debt Advisor and Credit Today’s 2008 ‘Debt Counsellor of the Year’ and ‘Personal Insolvency Practitioner of the Year’, commented: “The number of personal insolvencies represent an all time high for England and Wales. We have seen a huge increase in referrals of personal insolvency cases from IFAs and mortgage brokers from the first half of 2008 to the first half of 2009. It’s encouraging to see that the brokers now have faith that IVAs and debt management plans do work and regard them as ‘fit for purpose’.
“Mortgage brokers and IFAs are often the first port of call as debtors will look to see if they can raise money to clear their debt. For many, remortgaging is no longer viable or best advice. Brokers and IFAs are now far more aware of IVAs and debt management and it is encouraging to see they are looking after clients through good times and bad.
“I believe the rise in IVAs is to be expected. The protocol has definitely helped to make IVAs much more workable. However, I still think that organisations that represent creditors need to take a more practical approach and not just squeeze every spare penny out of debtors in contributions. IVAs require discipline and usually mean that for a five year period, debtors have to adhere to tight budgets which, if too tight, make life unbearable and the IVA will ultimately fail.
“Today’s statistics now include numbers of DROs which have contributed to the record statistics we see today. Launched in April 2009, these provide debt relief for individuals with unsecured debts under £15,000, gross assets of less than £300 and a disposable income under £50. As a result of objections from creditors or investigations by the official receiver, it is understood that a number of DROs are rejected as assets have not been fully disclosed. Numbers are likely to increase in line with awareness and intermediaries understanding the process. Currently, there is an anomaly with the DRO in that if debtors have total pension fund assets over £300; this precludes them from the order even though their pension fund is likely to be excluded from a bankruptcy.
“Bankruptcies remain relatively constant, though I would have hoped to see a reduction in these figures to early 2008 levels. It’s clear that people with serious levels of debt continue to be ‘pushed’ down the bankruptcy route as a quick and often lucrative fix for more unscrupulous, non-regulated advisers. We have even seen cases of individuals coming to us saying that they have been persuaded to declare themselves bankrupt and charged up to £5,000 for the privilege.”
The number of company liquidations reached 5,055 in the second quarter of 2009 – an increase of 2.9% on the previous quarter and 39.1% on the same period a year ago. The figures consisted of 1,457 compulsory liquidations, a decrease of 6.8% on the previous quarter but up 8.7% on the corresponding quarter in 2008 and 3,598 creditor’s voluntary liquidations (CVL), representing an increase of 7.4% on the previous quarter and 56.8% on the corresponding quarter of the previous year.
“Small businesses are undoubtedly the backbone of our economy – there are 4.7 million of them in the UK employing over 13 million people and contributing to over 50% of UK GDP”, added Budsworth. “Many of these businesses are finding it extremely difficult to source finance at the moment, especially if they have a weak balance sheet and limited reserves that are continually being eroded by falling sales and bad debt.
“I believe we are simply not doing enough to help small businesses and we must do more by leveraging a rescue culture to help turn them around. A recent House of Commons regional paper gave quite a bleak outlook. There seems to be layers of organisations set-up, receiving taxpayers’ money to help businesses through the recession but not much consultation with people at the ‘coal face’ – the professional advisers who are speaking to these businesses on a daily basis.
“We have a perfectly functional commercial rescue culture in the UK with the necessary skills and expertise to turn many ailing businesses around. I don’t see the need for more taxpayers’ money to be ploughed into free debt relief services at a time when we can all least afford it! There are plenty of commercial advisers who have the trust and relationships with these companies who are best placed to advise.
“Company Voluntary Arrangements (CVAs) continue to be low, which is unfortunate. A CVA is an extremely useful tool and can save viable businesses. They are often underused and abandoned in favour of liquidation or administration. The CVA can protect the business, allowing it to retain its assets and provide for debt forgiveness. It can also save the directors thousands of pounds as personal guarantees do not crystallise and, most importantly, creditors can get some of their money back.”
Source
Monday, September 28, 2009
Should Northern Rock cut mortgage rates?
Simon Lambert, Assistant Editor, This is Money, replies: Northern Rock became infamous for its 125% Together mortgage and was at the forefront of the 100%-plus mortgage movement.
However, while it had a chunk of customers with little equity, or none at all, it also had plenty of customers with good credit histories and substantial equity.
Since then a 20% fall in property prices has hit and this has caused major problems for those who took out mortgages with little or no deposit.
They are now in negative equity – their mortgage is worth more than their property - and will find it difficult to remortgage or move home.
But being in negative equity does not mean you will default on your mortgage or lose your home, as long as you can keep up with monthly payments and preferably start overpaying to chip away at the debt.
And this is where Northern Rock's bad debt problem comes in.
Northern Rock's bad mortgage debts have been exacerbated by the decision to encourage remortgaging customers to leave Northern Rock following its nationalisation: with the carrot of telling them they could get better deals elsewhere and the stick of failing to lower standard variable rates in line with the base rate.
This led to large numbers of good borrowers deserting Northern Rock for better rates at other lenders, but those who had borrowed large amounts found themselves unable to get mortgage deals from rivals.
These borrowers are now stuck with Northern Rock and despite Government calls on lenders to lower mortgage rates as the base rate fell, the taxpayer-owned bank has been one of those that failed to pass on all the cuts, leaving its already struggling borrowers paying over the odds.
How Northern Rock's SVR compares
• When the base rate stood at 5.75% at the end of 2007, just before Northern Rock was nationalised, the bank's standard variable rate was 7.84% - a difference of 2.09%
• The base rate now stands at just 0.5%; Northern Rock's SVR is 4.79% - a difference of 4.29%
This SVR compares very poorly to the SVRs of other major mortgage lenders: Nationwide's is 2.5%, Lloyds/C&G's is 2.5%, Halifax's is 3.5%, RBS' is 4%, HSBC's is 3.94% and Abbey's is 4.24%.
Compounding the sense of injustice for borrowers is that Northern Rock has been accused of aggressively pursuing repossessions and selling on job lots of properties at knockdown prices.
Repossessed by Northern Rock, Philip Wilkinson
Repossessed: Philip Wilkinson lost his home to Northern Rock
- Read his story
According to Northern Rock's results 22,141 customers were three months or more behind with their mortgage payments in June, 3.92% of its borrowers, up from 3.67% at the end of March and 2.92% at the end of 2008.
Arguably, this would not be rising by anywhere near as much had Northern Rock cut its standard variable rate further.
If the SVR had fallen in line with the bank rate, to 2.59%, borrowers with a £100,000 repayment mortgage on the SVR would be paying £453 per month rather than £572. If prudent, they could put the money saved towards paying off their negative equity.
The decision to actively push more customers of a taxpayer-owned bank into arrears through high rates appears perverse, but behind the scenes there is a business decision being made.
Obviously higher rates get the taxpayer loan paid off quicker, although losses through bad debts and the human and social cost of repossession is a major downside to this.
Furthermore, the plan is to divide Northern Rock into good and bad bank. The first will carry out new lending and hold the savings book, while the latter will hold the struggling mortgage book and the Government loan used to keep Northern Rock afloat. By keeping the SVR high, Northern Rock has essentially divided its mortgage book into good (new borrowers on strict lending criteria) and bad (old borrowers stuck with the lender). This will help in a future sale.
The plan is that the good and bad banks will be sold to the private sector, although the Government may get stuck with the bad one. This would take some or all of the bank off the taxpayer's hands and allow the Government to claim it made a success of handling Northern Rock.
However, that will be of small comfort to those who were encouraged to take out super-size mortgages and now find themselves on the brink of repossession thanks to Northern Rock's high rates.
Source
However, while it had a chunk of customers with little equity, or none at all, it also had plenty of customers with good credit histories and substantial equity.
Since then a 20% fall in property prices has hit and this has caused major problems for those who took out mortgages with little or no deposit.
They are now in negative equity – their mortgage is worth more than their property - and will find it difficult to remortgage or move home.
But being in negative equity does not mean you will default on your mortgage or lose your home, as long as you can keep up with monthly payments and preferably start overpaying to chip away at the debt.
And this is where Northern Rock's bad debt problem comes in.
Northern Rock's bad mortgage debts have been exacerbated by the decision to encourage remortgaging customers to leave Northern Rock following its nationalisation: with the carrot of telling them they could get better deals elsewhere and the stick of failing to lower standard variable rates in line with the base rate.
This led to large numbers of good borrowers deserting Northern Rock for better rates at other lenders, but those who had borrowed large amounts found themselves unable to get mortgage deals from rivals.
These borrowers are now stuck with Northern Rock and despite Government calls on lenders to lower mortgage rates as the base rate fell, the taxpayer-owned bank has been one of those that failed to pass on all the cuts, leaving its already struggling borrowers paying over the odds.
How Northern Rock's SVR compares
• When the base rate stood at 5.75% at the end of 2007, just before Northern Rock was nationalised, the bank's standard variable rate was 7.84% - a difference of 2.09%
• The base rate now stands at just 0.5%; Northern Rock's SVR is 4.79% - a difference of 4.29%
This SVR compares very poorly to the SVRs of other major mortgage lenders: Nationwide's is 2.5%, Lloyds/C&G's is 2.5%, Halifax's is 3.5%, RBS' is 4%, HSBC's is 3.94% and Abbey's is 4.24%.
Compounding the sense of injustice for borrowers is that Northern Rock has been accused of aggressively pursuing repossessions and selling on job lots of properties at knockdown prices.
Repossessed by Northern Rock, Philip Wilkinson
Repossessed: Philip Wilkinson lost his home to Northern Rock
- Read his story
According to Northern Rock's results 22,141 customers were three months or more behind with their mortgage payments in June, 3.92% of its borrowers, up from 3.67% at the end of March and 2.92% at the end of 2008.
Arguably, this would not be rising by anywhere near as much had Northern Rock cut its standard variable rate further.
If the SVR had fallen in line with the bank rate, to 2.59%, borrowers with a £100,000 repayment mortgage on the SVR would be paying £453 per month rather than £572. If prudent, they could put the money saved towards paying off their negative equity.
The decision to actively push more customers of a taxpayer-owned bank into arrears through high rates appears perverse, but behind the scenes there is a business decision being made.
Obviously higher rates get the taxpayer loan paid off quicker, although losses through bad debts and the human and social cost of repossession is a major downside to this.
Furthermore, the plan is to divide Northern Rock into good and bad bank. The first will carry out new lending and hold the savings book, while the latter will hold the struggling mortgage book and the Government loan used to keep Northern Rock afloat. By keeping the SVR high, Northern Rock has essentially divided its mortgage book into good (new borrowers on strict lending criteria) and bad (old borrowers stuck with the lender). This will help in a future sale.
The plan is that the good and bad banks will be sold to the private sector, although the Government may get stuck with the bad one. This would take some or all of the bank off the taxpayer's hands and allow the Government to claim it made a success of handling Northern Rock.
However, that will be of small comfort to those who were encouraged to take out super-size mortgages and now find themselves on the brink of repossession thanks to Northern Rock's high rates.
Source
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