Monthly Archives May 2012

The Ins And Outs of a Secured Loan

If you are thinking about taking out a secured loan it is important to make sure that you have a clear understanding of exactly what is involved. Secured loans have a number of advantages and disadvantages and whether or not they are the right product for you will depend on your circumstances.

If you do decide to opt for this kind of borrowing then you can compare secured loans by using a comparison website to help you determine which lender and product best meet your needs.

How Does a Secured Loan Work?

You can only get a secured loan if you have some kind of asset with equity in it, usually your home, that can act as collateral for the loan. Lenders like secured loans as they are less risky for them.

When you take out a secured loan you agree with the lender that in the event of you defaulting on repayments they can legally take possession of the asset that you have used to secure the loan.

What Are the Benefits of a Secured Loan?

Secured loans are usually for large sums of money and are repayable over a long term. This can make them beneficial to those looking to fund major home improvements or big purchases.

Because the lender has the security of your home if you do not meet the loan repayments, a secured loan can be easier to obtain than alternative products. This means that they can be useful for those who are self-employed or who have had a problem with their credit history in the past.

What Are the Disadvantages?

The main disadvantage to a secured loan is that your home is at risk if you do not keep up repayments. As a result, it is important to ensure that you can comply with the terms of the loan both now and in the future.

Are There Any Alternatives?

There are alternative financial products available if you are looking to take out a loan. An unsecured loan is not backed by any assets so can be a less risky option. Failure to repay will still have an impact on your credit rating, however.

If you are looking for a loan to cope with a cashflow difficulty then a payday loan may be an option. However, these loans are only suitable for short-term borrowing if you need a small amount.

When you decide to take out a loan it is important to make sure that the product that you opt for is the most appropriate for you. Whichever type of loan you are interested in, it is always a good idea to compare the products offered by different lenders so that you ensure that you get the best deal available.

The Rotten Core of CitiGroup

If you want to know why the world is currently in financial turmoil then this is a very insightful read: http://www.bloomberg.com/news/2012-05-31/woman-who-couldn-t-be-intimidated-by-citigroup-wins-31-million.html

To summarise, Citigroup (a whopper of a US bank with all sorts of questionable ties and one that received a massive bailout from the US Government) sold mortgages and they also bought mortgages from other financial institutions.

It then sold on these mortgage debts to other lenders and that alone is enough to make some people’s head spin.

The debts were sold on because they had value because the people who actually owed the money were paying interest.

Lenders often sell off their mortgages, it’s quite common.

The problem with Citigroup is, it was doing so much of this it failed to identify bad debts.

They did at first but then the volumes became so high they couldn’t check them all.

Citigroup got greedy (what’s that? a greedy bank? Who would have thought…)

It turns out people did identify some of these bad debts but not only did Citigroup try to brush them under the carpet, they also asked some of their staff to falsify documents to make some of the bad debts look good!

The link above is all about one woman who refused to participate and who blew the whistle on the whole fiasco resulting in a large settlement being paid to the US Gov’ment and her in turn receiving $31 million dollars as a kind of reward.

The more I read, the more I got the feeling that Citigroup may have been hugely responsible for much of the aftermath of the financial crisis.

Here’s the link again: http://www.bloomberg.com/news/2012-05-31/woman-who-couldn-t-be-intimidated-by-citigroup-wins-31-million.html

 

Ah, Facebook. You line ’em up…..

I came across something about Facebook that made me laugh and it inspired me to go ahead and write something I’ve been mulling over for a while now.

Ever since MZ (Mark Zuckerberg) was slated for wearing his hoodie to meetings with investors and the much publicised IPO I’ve been itching to write something but this is a bit of a fail because I’m going to re-post something someone else did.

But first, so what if he wore a hoodie! I’m more interested in what he said in the meetings! But I couldn’t find much about that in the press… Why do they focus on the banal!

I imagined that, if he talks as slick as he did in ‘The Social Network’, the discussions would have been smart, concise and succinct (I know that was scripted ad acted but one wants to believe!).

Personally, at his age he probably thought he was a teensy bit invincible and life was going as well as anybody could have dreamed (what with being a multi-billionaire and about to get married to a very pretty woman).

Oh how the mighty fall! So the share value has plummeted. People are actually suing FB for their losses and where’s MZ? On his honeymoon? Maybe he should sell his holiday snaps to OK?

What a mess.

Personally though I think Facebook advertising has much better ROI than Google and I’ve dropped some Google Adwords in favour of FB ads because the ads are more targeted and the clicks are soO much cheaper!

Still, Facebook, you did it to yourself you did, and that’s why it really hurts…

The following was originally posted here: http://allthingsd.com/20120529/please-give-generously-to-facebook-comic/ (just getting that in so folks know I’m not very good at drawing).

All you need is love, love....

TV Life Insurance Ads

A little while ago Aviva launched a series of life insurance ads on TV to try and raise awareness and so they should because apparently the UK population is grossly under-insured.

Having been in the industry for but a few short years these were the first TV ads I’d seen for life insurance.

It turns out (and it’s not a major revelation if you think about it) TV ads for life insurance have been around in other parts of the world for quite some time and while searching the interweb for ideas and information I came across one from late 2010.

The Aviva ads tried to address the issue with a direct but emotive message.

This one however, used humour! Enjoy…!

The Impending Doom of the Interest Only Mortgage

Interest only mortgages first came to our attention alongside the infamous endowment policy (but that’s another story), but whilst endowments are no longer popular because of their poor returns and inflexible properties, interest only mortgages have remained a firm favourite with homeowners, mostly because it is cheaper to pay interest only instead of capital and interest.

Now they are coming of age and lenders as well as borrowers are beginning to realise that the monthly savings have been a false economy.

Many borrowers who said they had an investment vehicle such as an ISA or a pension were not telling the truth and as the mortgage expiry date approaches panic is setting in because there is no way that the capital can be repaid on time.

The result in many cases will be a forced sale and possibly a homeless family or elderly couple following that. These regulated loans cannot easily be extended just because it suits the borrower and lenders have already started to show their teeth when faced with this situation.

Not only is the writing on the wall, but it is written in very large letters. The question arises as to where should any blame be laid?  Probably there is no single culprit but it is clear that it will be the borrowers who suffer the most. If only people would review their finances on a regular basis!

Too late – the FSA has woken up to the problem and is warning lenders to be more careful in future when asked for an interest only mortgage. Virtually no lender will allow it if the loan exceeds 75% of the property value and some go no further than 50%.

Lenders now want confirmed evidence of repayment vehicles which in many cases must be existing products, sufficiently well funded to repay the capital at a prudent rate of interest.

Halifax recently made some changes to their acceptable list of repayment vehicles and all new interest only Mortgage Applications must be supported with evidence.

They will no longer accept cash savings as a repayment vehicle for any new interest only lending.

Pensions must have a minimum current value greater than £1 million and up to 25% of the current fund value can be used to support interest only lending. So even if you are lucky enough to have a pension worth £1 million it will still only support a £250,000 mortgage – even if that mortgage is still going to run another 25 years!

How many people do you know with pensions worth £1 million or more?

All other repayment vehicles, or combinations of repayment vehicles, require a minimum current fund value of £50,000 of which up to 80% of the current fund value can be used to support interest only lending. So if you have an ISA with £100,000 in it, you can use it to support borrowing of £80,000.

As you can see, lenders just don’t want the risk on their books so they are making it incredibly difficult for anyone to qualify for an interest only mortgage.

Exceptions are buy-to-let properties where it is still acceptable to pay just the interest and to use the eventual sale of the mortgaged property as a repayment vehicle and any capital gain is considered the return on investment. Whether that is a good idea depends on all the particular circumstances.

Anyone with an interest only mortgage who is concerned about the future should take stock of their current predicament and make in-roads to reducing the debt by switching to a ‘repayment’ mortgage if they can afford it or by making ‘overpayments’.

The majority of lenders allow limited overpayments to be made (usually 10% of the balance per year) and while interest rates are low it seems sensible to overpay within a comfortable budget and so reduce the capital debt.

If in any doubt, consult a professional adviser. Or to put it another way – Don’t take chances – take advice!

Some of these words were kindly donated by a friendly Chartered Financial Planner and I just put them in the right order!

House Prices to Stay Flat for 10 Years! – Oh No!

A bit of a shocker of a headline! House prices to stay flat for 10 years!

That was the headline I read for an article I received today based on discussions from the BSA conference.

I don’t know why I only received this today when the conference took place in April and I’m not sure how ‘on the pulse’ the delegates are at the ‘British Sociological Association’ when it comes to the wonderful world of finance and mortgage lending.

The article didn’t exactly say who had made this claim but it did reference a Mr Robert Parker, head of strategic advisory group at Credit Suisse (and he should know a thing or two).

Mr Parker is said to have commented that we, in the UK, are changing the way we look at property and returning to a frame of mind that regards houses as ‘homes’ as opposed to money making commodities.

Two competing opinions suggest that house prices will remain stagnant for a time due to 1/ Affordability and 2/ Availability of credit

John Cridland, director general of CBI is going with “Until wages catch up, the forecast of flat house prices is probably right” and Peter Griffiths, chief executive of Principality Building Society disagrees insisting that the bigger issue is the availability of credit.

I think the stigma of the crash is still making investors the word over a bit skittish when it comes to investing in property so they are not making the money available to the lenders.

Another reason they don’t want to invest is because they don’t see much in the way of short term ROI due to the lack of borrowing taking place.

People can’t buy houses because they don’t make enough money to save up the percentage deposit required. The average household does not have a great deal of spare cash so saving for a deposit is a mammoth task (or would that be ‘tusk’?)

Less people are in a position to borrow at the moment but if all of a sudden all the major lenders decided to offer 3%, 5 year fixed rate mortgages at 95% LTV something would surely happen.

So both Mr Cridland and Mr Griffiths have a point.

Lenders aren’t going to all of a sudden start offering such great deals because most of them are still trying to convince the market they are on top of their bad debt problems of the past. Not to mention the billions they’ve had to pay back in PPI claims.

Households aren’t about to start putting enough away to quickly come up with the deposit they need.

So is the projection of 5 – 10 years accurate for a flat housing market?

I’d go with closer to 5 but probably not as long as 10.

The economy needs to gain strength before salaries can increase so the country regains stability and creditworthiness. People will be able to save, banks will have more capital and will also be more stable which in turn will attract money for lending.

I could be wrong but it seems the banks are still very much at the heart of the problem but they are not alone. The Government may profess to be doing all it can but the ‘credit crunch’ (dust that off and use it again) left a massive hole which is taking a long time to fill.

I heard the books should balance by about 2015..?