Loan insurance complaints rise

According to a recent report the level of complaints being submitted with regards to loan insurance cover has been rising, and eight hundred complaints each week have been pouring in from consumers with regards to this type of controversial cover. The data has come from the Financial Ombudsman Service.

The FOS has also said that the number of loan insurance related complaints that is now being upheld is unprecedented, but it is thought that the level of complaints will now subside as a result of sweeping reforms that will see the sale of single premium payment protection insurance being stopped from the end of May.

In many cases PPI has been sold to those that are not eligible to claim or did not even want to take out the cover, which can be quite costly. An official from the FOS said: “It is still the single biggest source of complaint, amounting to about a third of the total. We are upholding about 90% of the cases we deal with, and with one firm 100% of the cases.”

The FOS added: “We are upholding an unprecedented number of consumer complaints about PPI. We have reported our concerns about some firms who seem to be systemically and deliberately mis-handling complaints.”

Banks need to be forced to lend

Some industry officials have said that the government needs to step in and start forcing banks to lend money to consumers and businesses again, after revelations that lending levels are unlikely to improve in the near future. A recent report claimed that higher lending levels were unlikely in the imminent future, which means that the economy could continue to suffer.

According to the Council of Mortgage Lenders there was a drop of 8 percent in mortgage lending levels between December and January, which equated to over £12 billion. The CML said that activity within the mortgage sector may have improved slightly but was still very bleak compared to last year.

The CML said: “Mortgage lending activity continues to be very weak and while people are searching eagerly for some signs of recovery, it would be unrealistic to expect a meaningful revival in lending in coming months.” A mortgage broker added: “The January lending figures are a joke. Enough is enough. It is time for the government to get the gloves off and force the banks to lend.”

The government has been looking at various ways to try and increase lending by banks, and more recently has been looking at quantative easing to try and boost the economy and improve lending levels to consumers and businesses.

Loan site aims to match borrowers up with lenders

A loans site, Zopa.com, has recently reported that in the current climate where getting finance has become increasingly difficult, some consumers may find that they are able to access suitable loans more effectively by using the site, which is aimed at matching borrowers up with suitable lenders based on their circumstances and their needs.

An official from the company said that the site used a ’stringent vetting process, we don’t have a problem admitting that and don’t want anyone to be disappointed.’ Another official from the group said: ‘As the banks continue to fail their customers despite huge bail outs from the UK taxpayer, it is not surprising that record lending is taking place between the growing number of Zopa members.’

He went on to state: ‘Creditworthy borrowers shunned by the banks are able to access loans at much better rates. And now that banks have all but given up trying to address their liquidity problems by attracting savers, more and more people are discovering the fabulous returns they can earn on their savings by becoming a Zopa lender.’

According to Zopa officials it managed to arrange 150 percent more loans in the run up to Christmas last year than in the same period the year before, which it classes as impressive given the fact that credit conditions have been so tight and lenders have been so reluctant to hand out finance over the past year.

Lending increase but house prices still falling

Recently released figures have shown that whilst lending levels in December increased slightly, house prices have continued to fall. Officials reported that house prices dropped for a sixteenth month in a row for the month of January, with a further 1 percent drop in property values. Over the past twelve months house prices are said to have fallen by around 9.4 percent according to Hometrack, having already fallen for a number of months previously as well.

One economist from Global Insight commented on the increase in mortgage lending for the month of December, stating: ‘Mortgage approvals were still at exceptionally low levels by historical norms in December, so the best that can really be said is that activity may be stabilising at an extremely muted level. To be honest, mortgage approvals were so low in November that there had to be a rise in December.’

The change in activity with both borrowers and lenders has been put down to plummeting interest rates by some officials, with the base interest rate having fallen from 5 percent in October to just 1 percent. Whilst the base rate was not as low as it is now in December, it had fallen several times in as many months, and was at the lowest that it had been for some time.

Figures have also shown that there was a drop of around 23 percent in total mortgage lending last year by major High Street banks compared to the year before, with the major lenders advancing £170 billion over the course of the year.

Government assistance does not go far enough

Officials have recently stated that government assistance to try and ease the country’s failing banking system is not going far enough, despite the hundreds of billions that the government has ploughed into the financial sector by way of a rescue effort. Analysts have stated that even with the latest schemes to try and sort out the problems in the financial sector not enough is being done.

One economist said that the latest efforts that had been put into place by the government would simply result in the ‘nationalisation’ and the establishment of a ‘bad bank’. The concerns have arisen despite the fact that the government has announced further measures to try and assist the financial sector, including insuring toxic debts and lending out billions to large corporations.

One industry official said: ‘One of the keys in the resolution of many banking crises is removing bad apples from the barrel - extracting the toxic assets from the banking system. This looks like a feeble excuse for not doing a proper job and makes us worry that the amounts involved are too large for the government to finance.’

Another official said that the measures had come too late to stave off the recession that has now gripped the nation, stating: ‘These measures may still leave banks cautious. ‘Even if credit supply does improve significantly, it is too late to prevent a severe recession.’

Base rate could fall further

It has recently been revealed that the vote to cut interest rates to record lows following January’s Monetary Policy Committee meeting was a unanimous one, and this has sparked rumour that there is likely to be a further base rate cut at February’s meeting, which will push the base rate down even further.

At 1.5 percent the base rate is already at its lowest in the history of the Bank of England, which spans over three hundred years. Some officials are now predicting that the base rate will fall to just 1 percent in February. Since October the base rate has fallen by 3.5 percent, and a further cut in February would signify the fifth rate cut in a row.

The vote for interest rates to be cut again in January came as a result of the deepening recession and the economic downturn. There are now even rumours that the base interest rate could fall to 0.25 – 0.5 percent by the summer, and one economist said that there is every chance that at some point this year the base rate could fall to zero.

He also said that the minutes from the last Monetary Policy Committee meeting did nothing to indicate that the base rate would not be coming down again in February, stating: ‘They portray a generally very downbeat view of the UK economy.’

Lenders told to meet fairness deadline

UK lenders that deal with borrowers taking out home loans have been issued with a warning from the UK’s financial regulator with regards to how they treat customers that have arrears or may be facing repossession. The FSA has contacted lenders that deal with these loans, stating that they have a deadline by which they must prove that they act fairly towards these borrowers.

Lender have until 31st January to prove to regulators that they are acting fairly towards those in arrears and facing repossession, and they must reflect this in their written policies. In the meantime, lenders are being told to change and amend their policies to ensure that fairness is exercised to those in this situation.

One official from the FSA said: “Conditions in the mortgage market are difficult and it seems likely that these conditions will persist for sometime. In such a challenging operating environment it is particularly important for senior management to ensure the fair treatment of customers.”

A spokesperson from the Building Societies Association said: “With arrears forecast to increase over 2009, it is essential that all lenders ensure that their arrears and repossession policies treat customers fairly. Building societies want their borrowers to remain in their homes if they have repayment difficulties, and genuinely view repossession as a last resort.”