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Families Hit As Soaring Cost Of Loans Wrecks Home Plans

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If you ever want an example of contorted logic and financial naivety, you'd be hard pressed to beat this fluff piece.

Hope it gives you a Sunday morning chuckle.

Published Date: 26 July 2009

By Teresa Hunter

BANKS are preventing hard-pressed couples from extending their homes to accommodate growing families by profiteering from customers who wish to "improve rather than move".

They have been accused of "turning the clock back 15 years" by introducing exorbitant surcharges and fees of more than £1,000 on loan applications of just a few thousand pounds. The development is also stifling jobs in the building sector and choking dead any knock-on fillip for retailers.

Experts predict that around 3.5 million homeowners who need to move because they have outgrown their homes will not be able to do so over the next couple of years, following deadlock in their local housing market or because their credit status means they will no longer find it easy to qualify for a new mortgage.

Many may have wanted to convert a loft, add an extension, enlarge their kitchen or otherwise alter their space to accommodate growing children or the arrival of an elderly relative who can no longer cope alone.

But research by Scotland on Sunday has revealed that not only is finance hard to come by, customers are charged penal rates on further advances and can face arrangement fees of around £1,000 on small loans, as well as valuation fees on top.

John Postlethwaite, an adviser at PSFM, said: "I've done a couple of further advances recently, and the rates and charges were horrendous. It is almost like customers are being penalised for being existing borrowers.

"Lenders have turned the clock back 15 years, so that borrowers must pay more than their primary mortgage, plus huge fees on top."

Charcol broker Ray Boulger added: "It is ridiculous to ask for such huge arrangement fees if people are only borrowing a few thousand pounds. It may be worth paying them for a substantial development, but anyone else should think carefully before proceeding on those terms. Unfortunately, there is more demand for funds than supply so the banks can effectively charge what they like."

Most homebuyers want to borrow relatively small sums, from £5,000 to £25,000, when it comes to home improvements. Twenty years ago raising this money could be problematic and expensive. Banks charged hefty arrangement fees and a premium of perhaps 2 per cent above what the borrower was paying for their main mortgage.

Over the past 15 years, such draconian rules were relaxed, and it was relatively easy to roll it all up into your main mortgage, for a minimum fee, which kept repayments manageable.

Now, with the best two-year fixes starting at about 3.5 per cent, typical further advances have soared to around 2 per cent higher than a normal mortgage; a surcharge of nearly 60 per cent. On top of this, borrowers face valuation fees, and arrangement charges of up to £1,000. By borrowing more, householders will also be diluting the equity they have in their properties, and those with the higher "loan-to-value" ratios are worst stung.

Yet even those left with a relatively high equity of 60 per cent, and therefore considered at lowest risk of default, are being charged exorbitant fees. Lloyds TSB, for example, has fixes and trackers charging a £995 fee to borrowers with 60% equity in their homes, as does Nationwide. At Halifax, borrowers with up to 75 per cent equity could be charged arrangement fees of £799.

The banks say they also offer further advances with lower fees which customers can select, but these have even higher interest rates, so could be dearer still.

Not all lenders are punishing home improvers. Royal Bank of Scotland's highest fee is £299, it will lend up to 90 per cent, and the interest surcharge is more moderate. Similarly, smaller building societies such as the Skipton and Yorkshire charge 1 per cent above their standard mortgage rate, with Yorkshire pegging the fee at £95 and Skipton at £299.

Valuations can be another headache as lenders use automatic indexation. This means they look at what your kind of property was worth two years ago, and then slash the price according to the average fall in your area since then, irrespective of whether your own home has held its value rather better during the crash.

The final sting in the tail is, having been fleeced to sign up for a further advance, if the new loan takes all your borrowings into a higher risk bracket, you will be charged even more for your primary loan when that deal comes to an end.

According to David Hollingworth, an adviser at L&C, even those with flexible mortgages whose deal explicitly permits them to overpay, with a view to re-drawing down the cash, are on the rack. He said: "At Northern Rock, for example, borrowers were told they were free to overpay their mortgage and then funds could be drawn down in the future. Technically this facility still exists. But borrowers are finding that when they go to re-draw down the cash, rather than being allowed to do so automatically, they face intensive investigations. If their situation has changed, because they have lost their job or the value of their property has fallen, then they may not be able to draw it down at all."

Sue Anderson, a spokeswoman for the Council of Mortgage Lenders, said:

"It's not a question of preferring first mortgages over further advances. But at a time of mortgage rationing, such as we currently have, lenders are looking for the safest risks. Many further advances are inherently more risky."

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I got a quote yesterday from Cheltenham & Glos (Lloyds TSB) for a 90% LTV mortage...

7.29% with a £995 product fee (****** me)

or 7.89% without (double ****** me)

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Many may have wanted to convert a loft, add an extension, enlarge their kitchen or otherwise alter their space to accommodate growing children or the arrival of an elderly relative who can no longer cope alone. or in the sometimes mistaken belief of adding significanly to resale value.

corrected

the last bit helped a lot in the financial decision making of whether or not to MEW or take out the additional financial burden to make those alterations during the boom.

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come on guys, the logic is correct. the banks are preventing people buying things. they must be encouraged to lend otherwise nobody will be able to afford anything.

A D

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It is the banks duty to loan money to hard working families to buy whatever they fracking want at up to 10x salary and with no interest. Why don't they understand this? What is wrong with these people?

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It is the banks duty to loan money to hard working families to buy whatever they fracking want at up to 10x salary and with no interest. Why don't they understand this? What is wrong with these people?

at last a fellow poster has seen the light.

if prices are so high, why on earth are the banks afraid? if the people default, they can easily sell on.. not only that, but they are in danger themselves of forcing prices down...and what effect will that have on themselves....they MUST keep lending.

shot themselves in the foot they have.

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Exactly. How can anyone afford to eat when the evil banks wont lend them £150k twice a year?

I have no bread or milk, so I went to Barclays and asked for a £50k loan to tide me over till monday. They REFUSED!

BROWN ARE YOU LISTENING?

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I got a quote yesterday from Cheltenham & Glos (Lloyds TSB) for a 90% LTV mortage...

7.29% with a £995 product fee (****** me)

or 7.89% without (double ****** me)

Not saying I don't believe you, but just went on the Lloyds site and they are offering this ...

http://www.lloydstsb.com/mortgage/3_yr_tracker_mortgage.asp

3.29% (variable) tracks at 2.79% above the base rate until 31 October 2012 2.50% for the remainder of the term 2.8% APR £995 Yes. Until 31/10/2012

3.79% (variable) tracks at 3.29% above the base rate until 31 October 2012 2.50% for the remainder of the term 2.9% APR None Yes. Until 31/10/2012

??????

Edit Doh !!!! Thats for 60% LTV.

Edited by RDW

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Not saying I don't believe you, but just went on the Lloyds site and they are offering this ...

http://www.lloydstsb.com/mortgage/3_yr_tracker_mortgage.asp

3.29% (variable) tracks at 2.79% above the base rate until 31 October 2012 2.50% for the remainder of the term 2.8% APR £995 Yes. Until 31/10/2012

3.79% (variable) tracks at 3.29% above the base rate until 31 October 2012 2.50% for the remainder of the term 2.9% APR None Yes. Until 31/10/2012

??????

Edit Doh !!!! Thats for 60% LTV.

i saw a really cheap holiday in the travel agents window yesterday, was gutted when I went in and found I needed to be a party of six and leave yesterday.

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Exactly. How can anyone afford to eat when the evil banks wont lend them £150k twice a year?

I have no bread or milk, so I went to Barclays and asked for a £50k loan to tide me over till monday. They REFUSED!

BROWN ARE YOU LISTENING?

I'm so angry I've got f@cking chest pain.

Brown isn't listening this morning I'm afraid. He's been beamed back to the mother ship to try to sort out that hilariously inappropriate smile that's still troubling him (e.g. when discussing the million troops lost in the Great War). Keep working on it Gordo and we might actually believe you're a human being.

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I'm so angry I've got f@cking chest pain.

Brown isn't listening this morning I'm afraid. He's been beamed back to the mother ship to try to sort out that hilariously inappropriate smile that's still troubling him (e.g. when discussing the million troops lost in the Great War). Keep working on it Gordo and we might actually believe you're a human being.

may I suggest a call to the NHS chestpain helpline for some useless medicine and an on line ECG?

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come on guys, the logic is correct. the banks are preventing people buying things. they must be encouraged to lend otherwise nobody will be able to afford anything.

A D

how about saving up to pay for the extension

or have things become so expensive that very few have surplus disposable income to be able to save anything and have to rely on finance for necessities

a nation of debt slaves to the bankers

at least that should stop people protesting as they have to put all their effort into paying the bills

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I'm so angry I've got f@cking chest pain.

Brown isn't listening this morning I'm afraid. He's been beamed back to the mother ship to try to sort out that hilariously inappropriate smile that's still troubling him (e.g. when discussing the million troops lost in the Great War). Keep working on it Gordo and we might actually believe you're a human being.

hes smiling because it was all part of the cunning plan

distraction

killing the average guy

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how about saving up to pay for the extension

or have things become so expensive that very few have surplus disposable income to be able to save anything and have to rely on finance for necessities

a nation of debt slaves to the bankers

at least that should stop people protesting as they have to put all their effort into paying the bills

saving? and exactly who is going to benefit from that? think again!

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may I suggest a call to the NHS chestpain helpline for some useless medicine and an on line ECG?

Apparently I flat-lined at 11:07 last night just after that fourth pint of Bombardier. ****.

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Apparently I flat-lined at 11:07 last night just after that fourth pint of Bombardier. ****.

ah, the old "shorted out the ECG with beer" bug. there is a hot fix for this.

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how about saving up to pay for the extension

or have things become so expensive that very few have surplus disposable income to be able to save anything and have to rely on finance for necessities

a nation of debt slaves to the bankers

at least that should stop people protesting as they have to put all their effort into paying the bills

Syntax error at Line 1.

"Saving up", are you mad ?

Look, an extension on the properdy will add £1000`s to it`s value. Anyway, we`ll never be able to save that kind of money.

(me) : "Ahem, excuse me........ I suggest that if you`ll never be able to save that much money, how will you be able to pay it back ?"

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Here's a crazy idea, now try not to laugh at me

If a familly want to convert a loft, how about they save up and do a little reading and damn well do it themselves.

In a normal house the only part the average joe can't do is the electrics but still then you can feed through all the wiring and have everything in place ready for a sparky to do the final part and give it the stamp of approval.

Now i know our education system has left 20-30 year olds with f**k all practical skills (and a masters degree in criminoligy) but i'd like to think that DIY extends to more than painting a garden fence...

Edited by LumpHammer

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snip

Look, an extension on the properdy will add £1000`s to it`s value. Anyway, we`ll never be able to save that kind of money.

(me) : "Ahem, excuse me........ I suggest that if you`ll never be able to save that much money, how will you be able to pay it back ?"

instalments....silly boy.

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instalments....silly boy.

Oh, I forgot about those.

Hang on a second. How about "instalments" into a (sorry to use bad language)........ savings account.

There, I mentioned it. Sorry about that.

Edited by Prof

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Now i know our education system has left 20-30 year olds with f**k all practical skills (and a masters degree in criminoligy) but i'd like to think that DIY extends to more than painting a garden fence...

The fence may be OK if they have seen the Karate Kid, otherwise they will have to ask their parents to come round and do it for them.

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Oh, I forgot about those.

Hang on a second. How about "instalments" into a (sorry to use bad language)........ savings account.

There, I mentioned it. Sorry about that.

instalments means I do the saving, as you say, AND get the thing I want.

why do it any other way?

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instalments means I do the saving, as you say, AND get the thing I want.

why do it any other way?

Theres a thing called interest...

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