Money Magic

Despite more rigid enforcement against the practice by industry monitors, some mortgage providers are still assessing an exit fee against borrowers who change lenders. 

Online search engine mform.co.uk, a mortgage website which provides information to help borrowers make better decisions has done research which shows that, despite efforts in August by the Financial Services Authority to make the process clearer, borrowers still pay an average fee of £150 when they change lenders. 

Some major lenders, including the Royal Bank of Scotland Group companies, Standard Life Bank, Cheltenham & Gloucester, and Lloyds TSB have dropped the fee, but most firms continue to charge in excess of £100. 

The FSA has ruled that customers who are charged a higher fee than what is set out in the terms of their loan documents can reclaim the fee. The agency has urged lenders to make borrowers more aware of the terms of their loan agreements. 

The report by mform suggests that some lenders are not including information about the fees in their online information.

The FSA’s actions seem to be curbing rising redemption charges. Some lenders are putting an end to the fees altogether, according to Francis Ghiloni of mform. 

He believes that borrowers are beginning to understand the fees do not cover administrative costs involved in completing a loan; rather, they are part of the price of doing business with the mortgage bank. For that reason, the fees should be imposed at the front end of the loan, rather than at the end. 

Ghiloni warns borrowers to consider the impact of going from lender to lender, as application fees, exit fees and other costs add to the cost of the loan.

Bankers and credit providers working together have developed a new set of standards to help people with high levels of debt.  Individual Voluntary Arrangements (IVAs) will give them access to tools to help them manage their finances, according to the British Bankers’ Association (BBA). 

Providers that offer IVAs will be subject to industry-wide standards governing advertising, advice, information and documentation. The BBA explains that the standards, which should be in place by February 2008, will streamline the application process for IVAs. 

Angela Knight, Chief Executive of BBA, wants borrowers and creditors to understand that an IVA recommendation is the best way to resolve debt problems. 

The standards should give borrowers more confidence as they make decisions about their financial futures, according to Knight. 

The Government’s Insolvency Service reported 26,956 people in England and Wales were declared insolvent in the second quarter of 2007.

PriceWaterhouseCooper have released their “Precious Plastic 2008” report, and company accountants suggest a tightening of consumer credit in response to increasing debt loads and unrecoverable loans. 

The firm predicts that credit card providers will see a decline in profits as more and more borrowers find it impossible to make payments on their debt.  Increased competition in the industry will compound the sector’s troubles. 

Credit companies have already lost nearly £4 billion, and PwC believes this will contribute to a substantial number of credit application rejections this season. 

The report indicates that the average adult owes approximately £33,000 in unsecured loans, double the amount in 2000. 

The rise in consumer debt is forcing banks to tighten their lending standards, according to Richard Thompson of PwC. 

He fears that many consumers will find it difficult to obtain credit in the months before Christmas.