What would you do or change?

[Welsh Boy]

There is so much experience and knowledge floating around on this forum, so I put the question what one thing would you change about the way the debt/finance industry is operating. I have my preference and that is to curtail negative equity loans.Any suggestions? -Tony

[thebear29uk]

Hi Tony

Negative equity loans are a dreadful idea. I have a question about it you can hopefully answer. On the valuation report you emailed me I notice some tick boxes for "demand for this type of property" and "sales prices for this type of property". Both have the "static" box ticked, the other choices being "rising" or "falling". I'm assuming a 120% LTV would be offered to somebody on the basis of the property's future value so if a valuation showed static or falling demand and prices would this make these lenders decline the loan or are they not that fussy as they can put a charging order on the property.

My own preference would be that credit card companies cannot increase your credit limit unless you request it and even then only if a full and thorough credit check reveals that the customer is not over stretching themselves by taking extra credit. I started with 4 credit cards with combined credit of £17500 and finished up with 8 with combined limit of £55000. In 5 years!!! Plus 3 loans. I was offered more and more credit for doing nothing more than paying my bill on time every month and hovering around the existing limit.

Regards

Dave

[gimmewine]

I would like to see a difference in the way credit ratings are shown. To me once a debt is paid in full or satisfied, it should drop off the credit ratings fairly quickly. If it stays on for six years regardless of whether you pay or not, where is the incentive to pay it?

Also, to protect us from ourselves, I think consolidation loans should be logged on a cr file for their duration. I don't know about others but I had consolidated twice before I hit real big trouble. If I had not been able to get the second loan, I would have sorted myself out a whole lot sooner.

[Welsh Boy]

Dave

Good point about credit cards only having your balance increased by request. With regard to the 120% or 125% loans, the lenders aren`t interested in anything other than present value and on that basis they will look to lend if you fit their criteria. How many many times do they place the loan as a charge behind the main mortgage and if the property were to be repossessed and sold of for current market value then I guess they would have a mortgage indemnity guarantee in place to pursue for the difference. I don`t know what the margins are but I was suprised when I read a post on this forum yesterday about the increase in one such companies profits.

Tony

[Storm]

Interesting comments re the credit cards - one of the primary uses for scorecards in Barclaycard is to predict the amount of money they can earn from a customer and when to increase the limit. As payments slow or min payments are being made / purchases are from particular merchants your limit will be increased.

Secured lending is long term game but obviously with the benefit of some security which will be increasing in some way and very rarely decreasing.

The Picture numbers were turnover which showed the agressive nature that they attacked the market with there high L2V product. Profit for that period was a couple of million which isn't bad.

The idea of Pictures 'innovative' risk model was that it offered these high L2V's to low risk applicants. What they didn't take into account was high levels of indebtedness of applicants releasing such high levels of equity.

[Andy2]

I think SECURED lending and UNSECURED lending should be just what they say they are. In reality, there is no such thing as UNSECURED lending as with charging orders, insolvency and bankruptcy your debts can transform into "secured" even if they were taken out at 30% APR to reflect the unsecured risk ! If the lending institutions knew they could not transform unsecured to secured as the ultimate sanction on a large proportion of their customers, they would not be so quick to lend.

[thebear29uk]

Hi all

Copied from BBC website

The amount of money people are borrowing against the value of their homes is rising, official figures show.

Homeowners released an estimated £14.6bn in the final quarter of 2006 through mortgage equity withdrawal, the Bank of England said.

Mortgage equity withdrawal totalled £49.7bn for 2006 as a whole, up from £36.6bn the previous year.

Economists suggest that rising mortgage equity withdrawal could bolster consumer spending on the High Street.

"The figures suggest that in the short-term, the recent strength in the housing market will support consumer spending," said Vicky Redwood, UK economist at Capital Economics.

"Despite higher interest rates, households are still keen to unlock money tied up in their house into a more spendable form."

Ms Redwood warned that if house prices were to fall, homeowners could live to regret their decision to borrow against the value of their home.

But she added that price falls, in the short term, were not "expected".

Homeowners also commonly use mortgage equity withdrawal to fund improvements to their property and repay credit card and personal loan debt.

And another report:

More than half of Britons' personal wealth on average is tied up in their homes, research suggests.

A decade ago, about 40% of personal wealth was tied up in this way.

Rising house prices are the key reason for the growth in importance of housing to many Britons, according to UK insurer Prudential.

While the importance of property to peoples' finances has been growing the role that pensions, life insurance and shares have diminished, it added.

A decade ago, 58% of UK household wealth was made up of financial assets such as pensions, life assurances, shares and savings.

But since 2001, the value of non-financial assets, such as housing, has risen dramatically, while pensions and shares have suffered from stock market volatility.

And the dominant role of property in people's finances is set to continue. The insurer predicted that by 2009, 60% of people's wealth would be tied up in bricks and mortar.

"It is interesting to see how important property has become in constituting our main source of financial wealth," said Ali Crossley, director of Lifetime Mortgage at Prudential.

"House prices have risen significantly over the last 20 years and this is one of the reasons why we have seen such a shift in wealth components," he added.

Rate danger

The fact that so much of UK personal wealth is tied up in property has long been a cause for concern for some economists.

In recent years, many people have borrowed against the increased value of their home to fund consumer spending, pay off other debts or fund home improvements.

The concern is that rises in UK interest rates could tip many people's finances over the edge.

The Bank of England's Monetary Policy Committee (MPC) meets on Wednesday to discuss the next move in UK interest rates.

Most experts are expecting the MPC to keep rates steady, but a rise from their current level of 5.25% is a possibility.

I still feel that another 2 rate rises this year will see more people become insolvent. Its possibly a reason the government don't seem concerned. We go mad on credit cards thus supporting the retail index. We get a bit over stretched so we release equity from our property. Strong economy = more people in debt (both secured and unsecured). Great eh?

Dave

[ian]

Hello.

All i see is about people with secured credit,and i think thats the problem with this forum,i dont seem to hear from people who do not own property.

And going through an IVA as i did,with totaly with no assets.

Going back to the main question about getting credit,i think the government should practise what they preach, in saying that they are going to make it harder for people to get credit.

Regards.

Ian

[Welsh Boy]

Ian

I agree that direction should be given perhaps by government but this is not just about secured debt, take student debt for instance, weren`t some rules changed recently about students and IVA`s? Should we start in schools because let`s face it this is the sort of thing our children will also be encountering. Tony

[Adam Davies]

Hi
I would just add that my "wish" would be that once a credit card balance is transfered to another the original card is cancelled,also for loans taken out for consolidation of cards a provision that not only are the cards cleared but cancelled as well.In both these cases,at present, the card that is "cleared" or has the balance transfered off still has the credit available on it.
It was certainly the downfall of me
regards

Andy Davie
IVA.co.uk Spokesperson and site manager
(aka Neverending)

Please check out my blog: http://andydavie.blogs.iva.co.uk

View my profile here:
http://www.iva.co.uk/andy_davie_profile.asp

[louiseh]

I'd like to see proper credit and affordability checks carried out. I had a loan with an existing lender 1 year to go, I wanted to borrow more to consolidate, they obviously did a credit search and decided they couldn't offer me unsecured credit. They could however offer me a secured loan provided my payments were less than the original loan, because they then didn't need to do an affordability check. Outcome is 1 year later I now have a 10 year secured loan, no equity and am facing an IVA, If they'd checked if I could actually aford the loan I would have been turned down and had to address my debt issue there and then, but I've wasted a year, back to where I started but with less equity and more debt in an even bigger hole trying to dig myself out of.

[tracy.h]

To be honest just to lighten the subject up a bit or not
That advert that picture put on with the sickly man saying oh thats great £25000 and we dont have to fill out loads of forms you no the one ,well befor i even realised i was in so much trouble he annoyed me.
Well my point is they make it look so easy,and for people that are desperatley trying to consolidate i think like smokeing it should issue a health warning,like we will give you an unsecured loan that will be secured on your property even if it does meen you will have 120% mortgage,surely if these companys did a thorough credit search then as much as its a dissapointment at the time more people would face up to there problems sooner,and realise they need to take action sooner rather than later,and not another £20,000 down the line.
The sad thing is when you are desperate you will agree to anything as i myself have learnt,and my point is the goverment are so intent on putting a health warning on a pack of ciggerettes,why then do they allow these companys to give loans that will seriously affect your health as many people that post on this forum have found out to there cost,and there homes.I no at the end of the day we make the desicion to take the money but 9 times out of 10 its our desperation that puts us in this situation.
I think the laws that creditors adhere to should be seriously looked at.

[aguise]

I agree with all the comments here but the one that is coming over as the most obvious is that it is just too easy to get credit and as Andy said, when you consolidate or transfer balances it should be compulsory that these accounts are closed, its too easy to put the card in a drawer and say I wont use it, but you always end up taking it back out again. Also how these banks can allow computers to make decisions for them, a few years ago, I went to ask for my overdraft to be increased by £200 and was told the computer says no BUT you can have a loan for £10,000 no problem, how could they come to that conclusion, I cant afford 200 but can 10,000. You cannot say its all their fault but as I think they are finding out with the increase in bankrupcy and iva's, some of the blame is also theirs for bad lending.

Ang

[thebear29uk]

I think a lot of lenders will tell you that most people complete their loans without missed payments and service their credit cards properly. Unfortunately the very people who are obviously struggling are the ones who are always up at the limit of their cards/overdraft and only making the minimum payments each month. These are the ones given higher limits. To me that is irresponsible lending. I also accept that we don't have to spend it but its a bit like the kid in the candy store. Its there and we need it even though we didn't ask for it.

My bank gave me a consolidation loan which I then used to finance a relocation and furnishing a property. Then 18 months later they gave me another loan to consolidate the 1st loan and a credit card but instead of paying the small balance into my current account after paying off the 2 amounts they simply paid the full loan amount into it. I left it there for a month waiting for them to carry out the internal transfer but after that my situation was such that I used it to reduce balances on other cards and so the merry-go-round continued.

Like Andy says if they give it you for a specific purpose then the old loan/card accounts should be closed.

22 years ago when I left school I worked in a bank for 2 years. You could only get a loan if you had proof of what you were buying. Consolidation loans were non existent. Home improvement loans or loans for holidays couldn't be for longer than 12 months and the maximum term for car loans was 60 months. You might have an Access card as well as a Visa but you didn't have 8 or more.

Oh happy days

Dave

[ordinary_world]

I agree with many of the comments posted particularly by louiseh and aguise. I believe we need joined up thinking across the sector - perhaps a central governing body which takes lending decisions out of the hands of lenders. Let's face it - a lender's primary interest (pardon the pun!) is to make cash - and lots of it! Staff probably get bonuses for enticing more consumers to take out more loans or credit cards. I used to get fed up with suited spotty teenagers touting for business on popular credit card (symbolised by marine/aquatic life) stall in a shopping complex or another very popular credit card (think Mr Bean!) at a city Townhall. Also, have you ever bought anything from say a popular high street clothes store or consumer electronics store without being offered their store card at 29% APR? Thought not!

OW's central body should be the first port of call for consumers who want to borrow money. The body would require an income/expenditure breakdown (perhaps using a spreadsheet similar to that offered by the British Bankers Association) and would also be able to verify existing loans/credit cards. Such a body could be like a centralised credit reference agency - whereby customers interface with it rather than the banks (lets call it the Consumer Credit Validation Agency - CCVA).

Anyway, lets remain with this idea for a second. Where necessary, the CCVA could ask for documentary evidence of income and expenditure to enable a correct borrowing decision to be made - all based on the ability of the consumer to pay and not on the ability of a bank to make money out that consumer. This would cause a healthy culture shift which would directly benefit the consumer (even if they were not happy that they were declined!). When they've been authorised by the CCVA they are then given a borrowing limit (loan amount and time period), a service requirement rating and a shortlist of banks that offer competitive services and products to meet the borrowing needs of the consumer. I know it all sounds a bit big brothery and 1984esque but it would benefit all! The lenders primary interests would then focus on becoming more attractive to the CCVA so that their products are included in their recommendations - lenders will evolve different methods to make money but in a way that is not as detrimental to the consumer!

Anyway, back to the real world....its idealistic and we know it wont happen. I'm probably a cynic, but in a capitalist world like ours it is all about making money and creating markets or revenue streams to make money! Money is never lost it is merely transferred (when somebody gains someone loses!). There's nothing wrong with a capitalist or free market - the problem is that it seems as though the odds in many ways are stacked against the consumer - its buyer beware at all levels (for the solvent and insolvent)...if you dont do your homework you could end up getting burnt!

These days money is just a number and doesnt become a tangible concept until we either own something physical or experience something positive or negative because of it. Banks work with numbers all day long, so it becomes quite easy to forget that when adding £30 for transaction x and a £30 penalty for account balances exceeding some threshold y, it is real people and real people's lives that are being affected! Equally, money coming in is income regardless of its type (wages, benefit) - therefore if the consumer goes overdrawn beyond their agreed limit then any future income is fair game...the bank takes your child benefit or 'numbers' if it brings you within OD limits...even if it means you go without food or other essentials (attitude is you 'should have budgeted sir'). Banks dont make money being charitable and if they do advise it will probably only be about their products so thus likely to be more in their interests than yours.

So its up to consumers to collectively protect themselves and let the lenders know that its not ethical to treat us as numbers in a spreadsheet or our lives as a liquidable commodity. To let them know that they cant just add unreasonable penalty or admin charges as and when they see fit or take our income regardless of its type.

Okay, I'll stop there![;)] You've probably guessed that my cynical view is that its all about profitable markets and making money in this world! Just think though, if we did have consumer-centric central governing body like the CCVA then IVAs and BR would be significantly reduced and the economy would also feel a positive ripple of life! But then it would also reduce risk and without high risks its sometimes difficult to make high gains (for both consumer and producer)!

Best

OW

- 'I wont cry for yesterday 'cause there's an ordinary world somehow I have to find...'