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Archive for November, 2006

Mortgage terms getting out of Control

Wednesday, November 29th, 2006

For many people, the prospect of taking out a mortgage with a standard twenty five year term is a daunting prospect. However, if you have ever complained about the term of your mortgage, and the length of time it will take you to repay it, then take a look at the new mortgage from the Abbey that is being offered to teenagers.

The Abbey’s new mortgage is offered at a term of fifty seven years. This, says the bank, is the only way that such borrowers can afford to get on the housing ladder and buy a property that they can live in. Tesco Personal Finance, part of the Royal Bank of Scotland group, also offers mortgages of up to fifty two years.

These loans, say critics, are forcing young people to enter into extraordinary commitments that bare no relation to the reality of the situation. It is difficult to imagine anyone, let along a teenager, being able to properly understand the nature of a mortgage which will last well past their working life, and will stretch to the limits of their life expectancy.

Many have concerns about the lack of freedom and the restraints that such mortgages will put on such borrowers and the effects that this will have on their long term decisions and life paths. There has also been raised, concerns on the grounds of fairness, especially when one looks at the amount of interest that is being repaid if a mortgage is taken on over such extraordinary periods.

Lenders say that they are simply finding ways to allow more young people onto the property market and that as borrowers’ incomes rise as they get older, they will be able to increase their rates of repayment and clear themselves of the debt at a more usual pace.

Posted in Banking, Borrowing, Consumer Credit, Consumer debt, Financial news, First time buyers, Homeowner Loans, Homeowners, Housing news, interest rates, mortgages, Property, UK Finance | No Comments »

Debt Consolidation Not Free

Tuesday, November 28th, 2006

Indebted consumers are being urged not to seek a ‘quick-fix’ solution by consolidating their debts, Citizens Advice has said. The statement was in response to a report by the BBC’s Watchdog programme, which showed that some consolidation companies were not adhering to pledges to pay off a client’s debt.

Moira Haynes, spokesperson for the organisation, said that problems could arise when consumers look for a quick solution to their problems.

She said: “I think people just need to be wary of being offered what looks like a magic wand as it may not be the right thing for them and it may actually cause them more problems than it solves.”

In fact, the advertising suggesting that “there is an instant solution and that consumer can write off all their debts” is in some degrees a false statement.

Ms Haynes also explained that if indebted customers came to the group to receive advice they would not be pushed into choosing one particular solution.

This is important for UK consumers facing debt. There are many personal loan venues that the consumer can arrange themselves, free of the debt consolidation fee, that will, in fact, accomplish the same task of eliminating debt, without putting the consumer’s lifestyle and property at dire risk.

The best method is to switch unsecured personal loans to a more affordable secured loan. However, many UK consumers overlook this option because they are uncomfortable dealing with branches, and they are unaware of the alternatives – like online brokers.  The consumer’s fear of putting collateral against their loan is unfounded. If a person defaults on an unsecured loan, they are still at risk of losing their property whether it is through court action or insolvency.

Posted in Bad Credit, Borrowing, Consumer Credit, Consumer debt, Credit Card, Debt Consolidation, Financial news, Homeowner Loans, Homeowners, mortgages, Personal loans, UK Finance, Unsecured loans | No Comments »

100% mortgages and the risk of Negative Equity

Tuesday, November 28th, 2006

Many readers will recall the period in the early 1990s when tens of thousands of British home owners were forced into a position of negative equity. This is when the amount you owe is more than the actual value of your home. It means that for many, they cannot afford to sell their house, as there will still be thousands of pounds outstanding on their mortgage which they simply do not have the funds to repay.

Negative equity is always a risk when house prices drop, but many say that borrowers today are more at risk of the situation than ever in the past. This is because of the growth in popularity of the 100% mortgage.

For many, the 100% seems like a great way of getting onto the property ladder without having to come up with a large deposit. It can mean getting on the property ladder sooner, which in today’s housing market, can make the difference between being able to afford the house you want, and simply being priced out of the market.

However, it also means that the borrower is extremely vulnerable to a decrease in the value of his or her home. If you put down a 10% deposit on your home, you are borrowing the other 90%. If you house falls in value by 5%, your equity is still 5% greater than the value of your debt. However, if you have put down no deposit, and your home falls in value by any amount, you are immediately in a negative equity situation.

Exacerbating this situation is the growth of mortgages that are in excess of 100%. These mortgages mean that the borrower is immediately in a negative equity situation and will remain so, even in a healthy housing market, for a number of years. Many say that the growth in negative equity is a recipe for disaster and will lead to more defaults and repossessions.

Posted in Bad Credit, Borrowing, Consumer Credit, Consumer debt, Financial news, Financial products, First time buyers, Homeowner Loans, Homeowners, House buying, Housing news, mortgages, Property, UK Finance | No Comments »

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