| Most people believed that when
the recession was officially announced as being over, everything
in the finance industry involving mortgages , remortgages and
secured loans would immediately return to normal.
Mortgage, remortgage and secured loan lending fell during
the credit crunch.
However there have been changes changes made to these home
loans over the course of the recession that should place them
in a more stable position in the future.
Secured loans tumbled more than the other home loans, and
between the beginning of 2007 and the start of 2010 secured
loans had fallen to less than 20% of their previous level.
Interest rates for secured loans was low up to the end of
2006 and they started at about 5.9% APR.9%.
There were very slack equity plans such as the old favourite
125% equity plan which enabled a borrower to obtain a homeowner
loan at 25% more than their property was worth.
First Plus, the Cardiff based lender, introduced this loan
plan and in fact specialised in it and other secured loan
lenders such as Paragon and EPF followed their example.
It therefore may come as no surprise to learn that, partly
due to the fall in house prices, none of these three firms
are still granting homeowner loans with First Plus and EPF
completely out of business and Paragon only grnting further
advances to existing customers but not granting loans to any
new customers.
The 125% homeowner loan plans have long gone as have self
declarations of income for the self employed and a good thing
this may very well be, as it lead to many people borrowing
much more than they could comfortably repay.
Future Mortgages, who were owned by Citi Bank, were one of
the first of the many secured loan lenders to cease trading
during the credit crunch, and they even accepted self declarations
of earnings from employed applicants as well as from the self
employed.
It was not unusual for certain workers to earn so much that
even if they were working twenty four hours a day seven days
each week, the amount of money that they claimed to earn was
clearly grossly over stated.
Before the end of 2006 some homeowner loan lenders disregarded
unsecured borrowings in their income calculation which again
lead to many borrowers being over commited financially.
This came as a result of the fact that most lenders then,
as in fact now, allow 40% of gross income to cover outgoings
and the only outgoings that were taken into account in the
past, although this is no longer the case, was the mortgage
payment and the secured loan being arranged.
Therefore if an applicant earned say £30,000 per annum
the amount taken into account monthly was £1,000. If
the homeowner loan payment was £300 and the mortgage
payment was £400 the income calculator would fit the
lending criteria.
Households have many other outgoings every month such as
school fees, shoes and clothing for the family and food for
the table. and in the past they could also be paying out hundreds
of pounds every month on credit cards and other loans, the
repayments of which were in the past completely disregarded.
Now the payments for all other debt are taken into account,
self declarations are no longer acceptable and this means
that the borrower should now comforably be able to make repayments.
This same underwriting criteria also applies now to mortgages
and remortgages, all hopefully making the finance sector of
mortgages, remortgages and secured loans more secure when
business returns in the future.
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