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High Cost Of Borrowing May Be The Legacy Of The Credit Crunch

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http://www.guardian.co.uk/money/2010/aug/09/high-cost-borrowing-legacy-credit-crunch

The three years since the onset of the credit crunch have seen the cost of borrowing for households soar despite interest rates falling to a record low and the banks returning to bumper profitability.

Young people and first-time buyers are bearing the brunt of the crunch with a much higher premium charged to those who lack large deposits for mortgages. Figures from Countrywide, Britain's largest estate agency, reveal that the most common mortgage taken out by its customers took last month had a starting interest rate of 6.49%.

That is almost six full percentage points above the Bank of England's historic low rate of 0.5%, but while rates have fallen over the past three years the cost of borrowing has headed in the opposite direction, fast.

Personal loans were selling at an interest rate of 6.8% in August 2007, according to Moneyfacts. Today the best rate is 8.8% – but only for those with an "excellent" credit record. If the borrower has a "fair" credit rating, then the best rate today is an extraordinary 53.9%.

The average credit card three years ago charged 16.5%, but that rate has not been seen since. Moneyfacts says that now the average credit card charges 18.6% – and applicants who have only a middling credit record are more likely to be offered rates of 30%-35%.

The best two-year fix in August 2007 was a 5.39% deal from Alliance & Leicester, available on a deposit of just 5%. But less than a year later Alliance & Leicester was taken over by Santander, and low-deposit mortgages went the same way. Of the few still around, the interest rate charged is 7% or more. Those mortgage customers of Countrywide are paying 6.49% because, perhaps not surprisingly, they can only find a 10% deposit.

According to Moneyfacts, the margin on five-year fixed rate mortgages at six leading lenders increased from 2.39 points to 3 points in 12 months, raising the cost of a £200,000 loan by £1,200 a year, the Sunday Times reported yesterday.

The ultra-low deals that appear at the top of best-buy tables are reserved for the small amount of new buyers who can stump up a 30% or even 40% deposit. Most average income earners struggle to raise a 10% deposit, and for them, talk of record low interest rates is a sham. And maybe they should perhaps consider themselves lucky even to be offered a loan at 6.49%. Ray Boulger, of mortgage brokers John Charcol, says he knows of one major bank which turns down 90% of people who apply for a 90% loan.

I find some of the figures here quoted here a bit hard to believe.

"If the borrower has a "fair" credit rating, then the best rate today is an extraordinary 53.9%."

What bank will offer a loan at 53.9%, this must be from a specialist lender to those with poor credit rating.

Clearly if you are being offered a loan at 53.9% you shouldn't be able to get credit.

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Can we please have a compulsory health warning at the start of any thread with any mention of that Boulger person?

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http://www.guardian.co.uk/money/2010/aug/09/high-cost-borrowing-legacy-credit-crunch

I find some of the figures here quoted here a bit hard to believe.

"If the borrower has a "fair" credit rating, then the best rate today is an extraordinary 53.9%."

What bank will offer a loan at 53.9%, this must be from a specialist lender to those with poor credit rating.

Clearly if you are being offered a loan at 53.9% you shouldn't be able to get credit.

Anything over 50% is considered extortion and is (or was) illegal.

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Since MBS and other tricks like that are now off-limits, the banks have to make more money directly off their customers to finance their huge bonuses.

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"If the borrower has a "fair" credit rating, then the best rate today is an extraordinary 53.9%."[/i]

What bank will offer a loan at 53.9%, this must be from a specialist lender to those with poor credit rating.

Clearly if you are being offered a loan at 53.9% you shouldn't be able to get credit.

Indeed. Banking before all these innovation have always been about lending money to good borrowers with sound security.

one major bank which turns down 90% of people who apply for a 90% loan.

They should indeed reject 90% mortages. When HK/Singapore and many Asian countries suffered from banking crisis that rooted in housing bubble, they instituted legal requirements to limit lending to 80% LTV. On the other hand, the 'advance' economy is trying to get the bank to do 100% (or 125% mortgage).

Bernanke (who was a Fed Governor since 2002 under Green Span) should really have known that credit bubble caused the 1929 depression and should have stopped it in the track by getting the Fed to restricting lending / raise rates since 2003. That was the root cause of the depression - unchecked lending to borrowers without sound securities.

Edited by easybetman

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  • 140 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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