Tag Archives: interest rates
Increasing Demand Could Mean Easier Access to the Cheapest Secured Loans
A popular website centered on the UK economy, FinancialReproter.com, posted the results of a poll that sheds light on a phenomenon that could open doors for individuals and businesses shopping for low interest rate secured loans. The poll, which tallied the responses of over 1,000 financial advisors, showed that 70 percent of participants would be interested in a model that allowed them to create their own loan products. Such an innovation would have implications for anyone searching for the cheapest secured loans.
The Poll
The poll asked: “As the loan markets improves, if there was an ‘out of the box’ model to help you set up your own loan/debt solutions business with direct agencies and full support, would that be of interest?” Over half of the advisors answered positively, at 52 percent. A third of participants–29 percent–answered “no,” and 18 percent were unsure.
Steve Walker, director of Promise Solutions, has stated that such an out-of-the-box solution could confer serious benefits to the loan market and that he felt it was possible due to the technological systems available today. He went on to say, “The key seems to be giving brokers the systems, control and additional income they need to be effective whilst ensuring the lenders have the comfort they want.” According to Walker, Promise Solutions has begun looking into the possibility of creating such a system with its partners.
Potential Game Changer
Many mortgage companies and banks have tightened their eligibility requirements for secured loans considerably since the collapse of the housing market in 2007. Despite overall improvement in the economy, the personal loan sector is recovering relatively slowly. The result is that while demand for loans from the public is increasing, on the whole, banks continue to wait for more favorable lending conditions. Consequently, the self-employed and those with weaker applications continue to struggle to secure loans even if they have valuable collateral to put up.
This could change if a turnkey financial services solution became available to sophisticated investors. If financial advisors could start their own businesses specialising in small secured loans, banks would be forced back into the arena or else risk losing their grip on an eager customer base.
Banks have already seen losses due to the emergence of online peer-to-peer lending schemes over the last few years. These platforms allow independent investors to offer loans directly to customers, completely bypassing bank involvement. To make matters worse for financial institutions, these individual investors can often afford to offer customers lower interest rates as they have lower overhead. In fact, the peer-to-peer platform itself covers the costs of collecting payments and virtually everything else. Typically, an investor’s only cost is a one-off fee or a commission per loan. If the peer-to-peer platform is auction-based, the investor may face stiffer fees, but ultimately, this is a pittance compared to the operating costs of even a small bank.
On top of that, If a simple-to-deploy solution hits the market that would allow financial advisors to get in on the action, banks may sit up and take notice rather than fight a battle on two fronts. All of this is wonderful news for you if you’re looking for the cheapest secured loans. Intense competition between lenders means lower interest rates overall, especially if financial advisors want to offer financial services to clients directly. Such a model is untested, and these entrepreneurs will have to overcome a certain amount of market hesitation before they can expect to turn a profit.
On another front, the proposed model could provide a viable alternative to payday loans, which have received widespread criticism. Although these loans generate lots of tax revenue, there is concern that they are easily available to persons who are unable to repay them. This is primarily because payday loan companies target individuals that earn less than £25,000 a year and then tack on exorbitant interest rates. Customers can easily find themselves falling behind, with no clear path to paying their debt.
Price War
This perfect storm of financial product diversification could result in a price war between the traditional banks and the more exotic services. Peer-to-peer loan auction site ThinCats, for instance, has already loaned over £25 million to businesses across the aisles, all the while keeping that money out of the hands of hungry banks. At the end of the day, anything that gives consumers more choice will ultimately result in lower prices as competition winnows profit margins.
How Parents Can Find The Best Secured Loans Deal To Help Their Children Get A Home Loan
With the property market heating up, there has never been more pressure for first time homebuyers to purchase their own homes. Interest rates are at record lows and competition between buyers is driving up property values. As such, people who have never had a home before should seriously consider buying now. For many first time homebuyers, however, buying a home is difficult, especially if they don’t have a very large deposit to put towards their home loans. Not surprisingly many parents are choosing to help their children buy a home through a number of different ways. Many parents are in a good position to help their children with their first home, but deciding what form that help takes can be difficult. This article will look at what parents can do in order to get their children on the property market sooner rather than later.
Lend Money
The simplest way parents can help out their children is simply by lending them money. This form of lending would usually take the form of a personal agreement between the parents and their children, so it is entirely up to both parties to negotiate a repayment schedule and interest rates. Because the size of a deposit has such a big impact on the interest rates homebuyers will pay for their mortgage, a little boost at the beginning can lead to big savings over time. Although government schemes like Help to Buy have made it much easier for homebuyers to put up deposits of just 5% and still get approved, it is important to realize that these small deposit mortgages will still suffer from some of the highest interest rates on the market. Of course, for personal lending to really be a help, the parents would have to charge less interest than what banks and other lenders currently offer for similar sums.
Using an Existing Home as Collateral
If parents don’t have the money sitting in their bank accounts to simply lend to their children, they can still raise funds in other ways. Since many parents will have a great deal of equity in their homes, getting approved for the best secured loans deal should be fairly easy so long as other factors, like income and credit histories, are taken into account. With this type of lending, the parents would use their own home as collateral when they borrow money from a bank or building society. Because the home acts as a guarantee that the money will be repaid, lenders are likely to offer much lower interest rates due to the lower risk they are taking upon themselves. Parents could then use the money they raise in this fashion to help their children either raise a deposit or to simply help make monthly mortgage payments. However, parents need to be aware that this route is risky as they could have their own home repossessed if they default.
Joint Mortgage
Another way parents can use the equity in their own property to help their children buy their first home is by applying for a joint mortgage with the children. Joint mortgages are usually easier to get since the financial status and credit history of both the parent and the child will be taken into consideration. Therefore, the mortgage is much more likely to be repaid so the bank looks at these arrangements as being far less risky to its own business. As such, joint mortgages usually come with better interest rates than traditional mortgages, especially if the parent uses his own property as collateral. With a joint mortgage, however, both the parent and child will have ownership in the new property, meaning both members are responsible for repayment. Again, if an existing home is put up as collateral then the parent risks that home being repossessed if he and the child cannot keep up with the mortgage payments.
Getting onto the property ladder is notoriously difficult, which is why so many parents are choosing to help their children raise the necessary funds for a mortgage deposit. Parents can help in a number of ways, through a personal loan or by using their own homes as collateral, but whichever route they choose they must make sure they are agreeing to terms that will place both themselves and their children in a strong financial position in the years to come.