ROOF Blog

Reckless lending to first-time buyers remains endemic in the financial services industry. An investigation by ROOF into the practices of leading banks and a mortgage broker found a worker with an income of £28,000 could borrow more than £153,000 from one high street bank. The repayments would have put an impossible financial squeeze on the buyer, bringing a serious risk of repossession. The amount the banks were prepared to lend in relation to the value of the property was also huge. Many offered an 85 per cent loan and one went up to 95 per cent. Kay Boycott of Shelter said, ‘With latest figures showing over 270,000 mortgages in arrears, it’s shocking to see banks continuing to lend to new borrowers based on such basic checks on their ability to pay. People are being encouraged into home ownership that may not be sustainable and potentially unmanageable debt. There is absolutely no point in giving a mortgage to someone who cannot afford it - every day we see the human fall-out from the repossessions that often follow.’

Another £70 billion should be shaved off public spending to rebalance the budget, The Confederation of British Industry (CBI) has told the Treasury. The Treasury is planning to borrow £703 billion from 2009/10 to 2013/14, an unprecedented run of deficits that will push the national debt to £1.4 trillion. However, even that stark estimate may be too low because the economy will not rebound as fast as ministers hope, business leaders said. ‘With a lacklustre recovery in prospect and a structural loss in output, the CBI estimates that borrowing could even exceed this projection by £50 billion,’ the group said in a submission to the Treasury. In addition, another £70 billion will be needed over the following two years to balance the budget by 2015-16, the CBI said. The CBI has drawn up a detailed plan to significantly shrink the public sector, cutting costs and handing over many tasks to private companies. The group also wants public sector staff pay and benefits to be curbed.

Meanwhile a book from the University of Warwick has found the UK’s housing market was ‘encouraged’ by the government. The investigation said the government wanted to meet the cost of support an ageing population by encouraging people to invest in housing assets as a way of accumulating wealth and making them less reliant on public pensions when they retire.

Nearly half of people having difficulties paying their mortgage do not seek advice, often because they feel their problems are not serious enough or they do not know where to go for help. Of those who sought advice, two-thirds went to their mortgage lender, while one in four got help from Citizens Advice. The Financial Services consumer panel which produced the figures and which advises the Financial Services Authority said there was an ‘urgent need’ for more investment in information and advice, so consumers understand that debt advice agencies must not be ‘seen as a last resort’.

Which? magazine has called for the Financial Services Authority to ‘name and shame’ lenders charging customers with exorbitant mortgage arrears charges. Which? wants the list submitted to judges hearing repossession cases and the culprits fined, with the revenue going to help borrowers access independent debt advice, and it has submitted a Freedom of Information request asking for the names of the lenders. It also wants lenders to provide an itemised breakdown of additional costs, the suspension of arrears charges where consumers have made agreements to pay off the debt, and a review of charges by the FSA.

The number of people over 65 filing for bankruptcy has almost tripled in the last five years, figures from the Insolvency Service suggests. The firm believes the increase is down to more people entering retirement with unpaid debts, and also blamed rising food and energy prices. During the same period the total number of bankruptcies for the entire population rose 89 per cent.

The number of people defaulting on loans has risen and are expected to increase in the coming months, a Bank of England survey has uncovered. A poll of banks and building societies found more people unable to repay mortgages and other debts because of rising unemployment. However, financial institutions expect the availability of credit to rise in the next three months, and households are likely to be offered and demand more secured credit. A rapid return to the pre-credit crunch lending levels remains extremely unlikely.

The government has announced that financial support to students will be frozen next year because of ‘difficult economic times’. The decision has been described as a ‘kick in the teeth’ for young people who argue the cap in grants and loans represented a real term cut and would increase student debt level.

Mental health charities warn that banks provide little support for customers with mental health issues, and in some cases exacerbate their conditions by treating debtors insensitively and selling them unsuitable products. A government thinktank Foresight suggests that debt collection agencies often ‘deliberately produce fear, anxiety and mental stress’ for debtors, and creditors needed to make stricter assessments to determine which borrowers are in a position to meet their financial obligations.

Meanwhile, debt charities have attacked high street banks for repossessing homes to recover credit card debts of just several thousand pounds. Citizens Advice has warned borrowers struggling to repay credit cards or personal loans they are at risk of losing their homes because lenders are increasing securing debts against a borrower’s property. Citizens Advice said that creditors are using the courts to ‘intimidate’ vulnerable debtors into paying unaffordable amounts. It points to research showing that since 2000 there has been a 722 per cent increase in the number of charging order applications.