Posts Tagged ‘lending’
As we all know, interest rates have been lower than a limbo bar for ages now, but with increasingly-present signs of economic recovery, most of the types who know this sort of thing are predicting that rates will rise from next year onwards. While this could spell bad news for borrowers, who are currently enjoying rock-bottom loan rates, savers and those on a fixed income might be looking forward to an increased return. However, forecasts from analysts at credit ratings agency Moody’s suggest that savers may have to wait longer to see an upturn in their personal fortunes.
While the Bank of England is probably going to start slowly increasing the rate, which has been at the lowest-ever 0.5% since 2009, Moody’s claim that savers will not benefit when interest rates rise. They suggest that instead the banks will seek to hold down deposit rates to improve their profit margins. As if our local friendly banks would do such a scurrilous thing.
“These increases should contribute positively to the banks’ profitability since we do not expect them to pass the benefit immediately to savers,” said Moody’s Carlos Suarez Duarte. “We think it’s unlikely that UK banks will pass all the benefits of higher interest rates to their customers and therefore, margins should initially improve,” he finished.
However, they also suggest that the crunch of higher borrowing rates might be tempered by attractive offers as banks fight for market share as well as profitability- challenger banks such as TSB and Virgin have taken a larger chunk of the market from the big boys than they would like to admit.
The ratings agency also predicted there would not be widespread financial hardship among UK households on the back of a rate rise. Partly this is down to the expected slow and steady increase, which allows households to adjust to increased payments over time, but also because the industry has, purportedly, learned something from the financial crisis, and tighter affordability checks mean that a 1% rise should be able to be absorbed into a household budget.
“Low interest rates and bank competition have made consumer debt more affordable, hiding the risk to highly indebted consumers. However, we expect only moderate and gradual interest rate hikes during the outlook period, which would allow borrowers to adjust their personal budgets and therefore, prevent a material deterioration in asset quality,” said the Moody’s, adding that they anticipate that “an increase of 1% on the base rate will have no effect in the level of arrears of the prime mortgage portfolios.”
“Even a three percentage point increase in the base rate would imply only 4% more borrowers facing payment problems according to our forecast,” he finished
Looking forward to interest rate rises? No? Well, you’ll want to bury your head in the nearest bucket of gin when you hear that – potentially – homeowners might have to pay more than £1000 more a year than they do now.
That’s according to a report by estate agents Savills, who calculated that if the base rate went up from 0.5% to 1.5%, that means cash strapped homeowners on an interest only mortgage will have to find an average of £1,312 for the pot.
And if you’ve got a capital repayment loan, you will have to magic an extra £872 from the back of the sofa.
Interest rates might go up by the end of the year, although the Bank of England has promised that the rise will be ‘gradual.’ But if it does go up by 1%, or even to 2%, it will push affordability to the limit and your mortgage alone will constitute over 20% of your earnings. That was the exact situation in 2007, before THE CRASH.
So when will interest rates rise? When do we have to prepare our nooses? Only Mark Carney knows. But for homeowners, it is written in the wind – Winter Is Coming. Better start your dodgy webcam business now and earn some £££s from home.
Despite the fact that we’re all on the skids, queuing at food banks and living in rented hovels, there’s been a surprise rise in mortgage lending, according to the Council of Mortgage Lenders. In May it hit the highest level since October 2008 – £14.7bn – leaving even lenders wondering WTF is going on.
Some say the rise in lending just be a freak incident, but others think that there’s a definite recovery going on in the housing market, thanks to government schemes like Funding for Lending, which offers funds to banks on the condition they lend them to out to people looking to buy homes or start businesses.
The housing market has also benefitted from the Help To Buy scheme, another government idea, which allows buyers to borrow money from the government and get a mortgage with just a 5% deposit.
Mortgage broker Mark Harris reckons it’s onwards and upwards: ‘Recovery in the housing market is well underway. This comes as no surprise: finally, the pick-up in business that estate agents and mortgage brokers have been reporting since the start of the year is filtering through to the official figures.’
So does this mean that we can all get a mortgage, put up a ‘Dunroamin’ sign, stick a gnome in the garden and put our feet up for a bit?
Or could it simply be the start of a new government-sponsored housing bubble that’s going to pop and leave us covered in negative equity and despair?
Payday loans have been around for a while; so have peer-to-peer lending sites like Zopa (established in 2005). Now a new peer-to-payday hybrid has been conceived, which enables ordinary people to cash in on their less fortunate fellow human beings.
New site The Lending Well* offers investors the opportunity to lend between £100 and £250,000 to those in desperate need of cash in return for a return of 12% a year. The APR charged on the loans is, as for other payday lenders, expressed as a simple monetary value of £1 per £100 per day, which works out at an eye watering 2464.8%
But is The Lending Well just ahead of the game? Payday loans companies are now everywhere and have made their founders millionaires. Peer to peer lending has also been very successful, with names like Zopa and The Funding Circle leading the way. Last month, even the Bank of England’s financial stability director, Andy Haldane, suggested peer-to-peer lenders could ultimately replace conventional banks.
But the attraction of peer to peer lending is that you can cut out the (evil) middleman of the bank. Rates are fair for everyone and everyone is happy. Surely peer-to-payday lending is going too far? Multimillionaire Tim Slesinger, founder of The Lending Well, thinks not. “I’m not going to defend the payday loans industry as there are lots of things wrong with it,” he told The Independent, “but we think we can offer better terms to responsible borrowers.
Mr Slesinger also said the business will turn down 90 per cent of prospective borrowers, turning down people with loans elsewhere, for instance. “We’re not looking to lend to the financially vulnerable,” he said. “We want this business to be ethical for borrowers and lenders.” Leaving aside for a moment the ethics of payday lending at all, is Mr Slesinger really suggesting that anyone who already has some credit will be refused? This criterion is nowhere to be found in its terms of business, and its website is very clear in not mentioning it:
“If you can answer yes to the following questions:
Are you over 18 years of age?
Are you a UK resident?
Are you employed?
Do you have UK bank account and debit card?
Are you borrowing for an essential purpose?
Are you borrowing an amount you can afford to repay on your next paydate?then it’s likely you will qualify to borrow from The Lending Well.”
So is Mr Slesinger just naïve in thinking that those without other loans would need this form of lending over other, cheaper forms of finance? Will The Lending Well really not lend to those with other loans? Who knows. But perhaps more importantly, will people really want to make big profits (with returns of around four times current savings rates) out of those in the deepest trouble? Wouldn’t that make us as bad as the bankers? Or should we stuff them in favour of our own bank balances?
Perhaps we shouldn’t be surprised- and if this particular venture weren’t set up by a “UK resident” with substantial offshore company shareholdings, presumably someone else would. After all, if you are the facilitator, taking 2,464.8% interest and paying out 12%, while risking none of your own money, you’d be daft not to.
*I have not linked to the site, not because am necessarily making any judgement on the site, but because their terms and conditions state “You may link to our home page, provided you do so in a way that is fair and legal and does not damage our reputation or take advantage of it, but you must not establish a link in such a way as to suggest any form of association, approval or endorsement on our part where none exists” and I didn’t want to be accused of seeking endorsement…
One of the drawbacks about the new era of e-reading is that if you’re reading a book on a Kindle, you can’t lend it to a friend once you’ve finished it. That is, unless you lend them the whole Kindle, and WHY would you ever do that?
Well, that modern problem will soon be solved before it’s even had the chance to get a grip on society. Amazon have announced that Kindle users will soon be able to ‘lend’ books to other Kindle users for a maximum of 14 days.
As with the lending of a conventional book, while the book is being loaned, the owner won’t be able to access it on their device. The book will only be allowed to be loaned to any given Kindle owner on one occasion as well and Amazon have announced that authors and publishers have the chance to opt out of the feature.
Positively though, it won’t come back with a creased spine or piece of dried snot stuck to page 62.