Unsecured lending jumped suddenly during February 2008 by £2.4 billion it was revealed by the Bank of England, which is claimed to be as a result of a rise in students seeking loans to cover tuition fees and maintenance costs.

This is the claim by the Financial Times who said that student loans totalling £800 million has been partly responsible for the increase in unsecured loans.   

The Student Loans Company (SLC) is now paying directly to universities for first year students and second year students to help cover tuition fees since they were introduced in 2006.

The Student Loans Company said that two payments are made to universities each year, one in February and the second one in May. An SLC spokesperson said, “We will see a similar rise in unsecured lending on that date for the same reason. The two cohorts are now getting the loans and the amount will rise again next year by a third after which it will plateau. That will be it because you start the natural process of rotation where everyone is doing three year degrees. We will climb to a plateau next year, it is the expectation.”

The SLC also revealed that they were ‘almost certainly’ receiving the maximum numbers of eligible people taking up their offer of tuition fee loans. Each entitled student, a number in the region of one million undergraduates, will receive £2,000 a year to pay towards tuition fees which can be as much as £3,070.

However, the loans taken on by students is leading to three out of four graduates still amassing debts even after they have started their first job. Only a quarter of people leaving university with a degree are earning enough money to reduce their debts because of the high inflation figure the government is using to set student loan interest rates.

The government denied this claim, saying that students were only paying back in real terms, what they had borrowed. The average graduate is earning £18,000, and is paying back £219 a year on a £10,300 debt. However, the amount of interest added to account for inflation stands at £489. 

Shadow University’s Secretary, David Willets MP said, “Ministers claim student loans are interest free. But that is not the case in practice. The interest rate on student loans is over twice as high as the official inflation rate. Three quarters of new graduates in work are seeing their student loans continue to grow. They are getting into more and more debt. For the majority of this group, half of all new graduates, their loans are increasing even though they are making repayments to the Student Loans Company. Only the top 25 per cent of graduates in work are earning enough to see their debts fall.”

President of the National Union of Students, Gemma Tumelty said, “Graduates are already struggling to pay off thousands of pounds of debt and these huge increases in repayment rates are making things even worse. We have continually urged the government to review this unfair system and these figures only strengthen our case.”

The “prime” rate is the rate charged by all banks in the country. The prime rate doesn’t change regularly or often, only when 75% of the country’s top 30 banks decide they need to change it. People who have a decent credit rating are usually given mortgage and other loans at prime rate.

Subprime borrowers are people who probably have pretty poor credit ratings. They may have a history of bad financial management, perhaps including collection accounts, repossessions, maybe even a bankruptcy. At any rate, they are perceived to be more likely than the average borrower to default on this loan. A subprime lender exists to lend money to borrowers who are not expected to act responsibly in the repayment of the debt. The interest rate that a subprime lender charges will be higher than usual because of that increased risk of default. Subprime lenders know about the risk; they fully understand that these borrowers cannot really be counted on to repay their debt. Why should they be surprised when it turns out exactly the way they expect it to?

Lending takes place when one business or individual lets out money to another business or individual, for a defined period of time, and at a specified rate of interest. When you’re talking about a mortgage, it might be – for example – a fixed-rate loan for 30 years, at 5.7% interest. (The annual percentage rate is referred to as the APR.) This is a common type of mortgage: the borrower agrees to pay the lender back over a period of 30 years, at a yearly 5.7% interest rate.

So there are three elements of the puzzle: borrowing, subprime, and lending. What else has contributed to the current situation? Lending practices of dubious quality joined with a huge number of subprime borrowers whose ability to repay their loans was questionable. Yes, we are definitely in a mortgage crisis; foreclosures have never been higher. Whose fault is that?

When a homeowner falls behind in monthly payments on a mortgage, the bank takes notice. If payments are not made for three months, generally the process of foreclosure is initiated. This is a lengthy and costly process that often spans many months. The home is foreclosed and the property is repossessed by the bank.

Actually, the bank would prefer the borrower to repay the debt rather than have to take the property. A bank is not a real estate company. There is also the risk of censure from the federal government if too many of their loans are defaulted upon. For these reasons, foreclosures can take a very long time. The bank is in no hurry.

The majority of subprime mortgages are nowhere near as easy to understand as the example we gave above. Lenders have gotten more and more creative in the last few years, in an effort to attract more subprime borrowers. Many of these borrowers are now carrying an adjustable rate mortgage (ARM). The initial low interest rate of these loans allowed lots of people to get involved in a loan for which they might not have qualified otherwise. When the loan resets in about two years, the interest rate usually goes up considerably. In addition, some of these loans have prohibited refinancing in the first several years.

Borrowers, subprime mortgages, lending, and foreclosure have all worked together to give us this picture. Contributing in addition were falling house prices, rising mortgage payments, changing real estate markets across the country, difficulty of finding accessible mortgages, and a glut of houses for sale on a market where few people are buying. Here’s the completed puzzle: the mortgage mess.

It appears that rising interest rates have had little impact on the UK housing market as the Association of British Bankers have revealed that mortgage lending in July 2007 increased by £13.6 billion. The figure is almost exactly in line with the preceding six-month average of £13.7 billion and represents a slight increase on the June rise of £13.1 billion.

The July increase is not what the organisation expected with BBA statistics director David Dooks admitting that the rise was ‘surprising’ following the cumulative affect of the recent interest rate rises. He added: “Steady growth in lending on UK mortgages in spite of five interest rate rises highlights the popularity of home ownership”, but Dooks also pointed out that much of the total advanced figure could be down to re-mortgaging activity as homeowners seal fixed rate deals to minimise the impact of the interest rate rises.

Those five rises over the last year have led many homeowners currently on due-to-expire fixed rate deals to frantically compare mortgages currently available in the market in an effort to find one that will alleviate the rate increases. Homeowners with a mortgage of £100,000 currently on fixed rate deals obtained two years ago could face a monthly increase in the region of £200 per month if they were to move to the variable standard rate; so the need to find a discounted or fixed rate remortgage is proving fairly critical for many families. That immediate need is what most experts believe are driving the current mortgage boom.

The Council of Mortgage Lending (CML) recently announced that total gross mortgage lending reached a new record for the month of July amounting to £34.4 billion, reflecting the trend highlighted in the BBA figures. The CML readily admit that they attribute market buoyancy to the remortgage effect and don’t expect autumn figures to be so high. Despite that, the CML are still predicting a record £360billion of mortgage lending for the year ended 2007. That will be due in part at least to the fact that more and more fixed-rate mortgages are due to revert to standard variable rate in the coming months.

However, the Royal Institute of Surveyors (RICS) has pointed out that the recent volatility in world markets, including the collapse of the sub-prime market in the USA, will lead to more expensive fixed rate deals, and that will impact on household finances. Chief economist for the organisation Simon Rubinsohn warned: “With 90% of borrowers currently opting for fixed rate deals, those who already find themselves financially stretched will be paying an even higher price for their peace of mind.”

So, even though mortgage lending is still at record levels it is primarily because of homeowners seeking new fixed rate remortgage deals. It appears that the interest rate rises designed to slow the economy are having the desired effect, even if it taking time to work its way through the system.

Lending loans, not easy anymore for loans companies. It’s really not easy to get a loan today, lending loans become a nightmare for some of us and the new dream is to get loans approval instead of dreaming about purchasing a home.

Loans companies today will ask more documentation from you to get just the loan approval, stated mortgage loans are almost non-existing anymore, so now you need to make sure that you will have a good income and enough money in your bank account to make payments for few months so the dti (debt to income) ratio will stay low.

Lenders loans have higher requirements now days, today you have to do two things before you will get a loan from a lender:

1.- Make sure your mortgage broker or the loan company you are dealing with know the lenders guidelines for your specific loan scenario.

2.- If you don’t know a mortgage broker or any loans companies, educate yourself before approaching a broker or any lender out there to help you.

How to know who is the right mortgage broker for you? First of all, nowadays we have Google or other search engines that can provide you information about any mortgage company in the world, how they started their business, who owns it, what is their proven record of success, etc. Also you can find a lot of information on websites like the better business bureau or your local chamber of commerce, you will know so much by talking to these companies.

Second of all, ask your friends and family to recommend you a mortgage broker or a loan company they have worked with in the past. You will be surprised about how much people around you know about mortgage broker and loans companies. You must also know that every lender can provide you with different types of loans, you will not find a loan construction in a bank that is lending loans for businesses only, as you might also not go to a residential mortgage bank to ask for a commercial mortgage loan.

I always believed that knowledge is power, you will save time and money, you will protect your self as well protect your family’s biggest assets- your home.

Let’s think about the past 4 years and today, lots of people got into bad loans, lots of people just didn’t know that they’re getting screwed by the loan officer they always trust, and after they signed their loan documents and got their first payment they were wondering why, how and who is responsible for this to happen. It’s all your fault, if you had the knowledge to understand what are you signing, if you had the knowledge about the person you were dealing with all this would not happen.

So the only thing we have to do today is to learn from the past and correct the mistakes you’ve done in the future. A lot of people waste to much time thinking about why they did their mistakes instead of thinking how not to do them again, so learn and even learn some more. I strongly recommend using the services of a mortgage broker that is knowledgeable with different lenders,loans, programs that are available out there, but don’t forget to know who is the broker you’re working with.

Home loan lending used to be relatively simple. Lenders were so hungry for business they readily accepted no-down mortgages, interest-only loans, and E-Z refinancing for borrowers with bruised credit. Recently, however, a wave of bad loans wiped out small independent mortgage brokers, devastated bad-credit lenders, and prompted the industry itself to tighten lending practices.

Today, it has become harder than ever for cash-strapped would-be homeowners to obtain home loan lending.

Who Is To Blame?
Experts blame subprime lenders for the recent home loan lending debacle. In the past, people with poor credit scores or large debts and modest incomes would not have been granted a loan. In recent years, however, a new breed of mortgage brokers – called subprime lenders – burst onto the market. Instead of denying loans to people with poor credit history, they let these people take out mortgages and then charge them higher interest rates to offset the high risks associated with the loans.

Such action on the subprime home loan lending front enabled a huge part of the population to own houses. Subprime home loan lending morphed dramatically from a start-up business into a $600-billion-a-year enterprise. The problem with high risks, however, is that they either pay off magnificently or go bust, and this is just what happened. The subprime market fell, and it was not long before homeowners who financed their purchase with subprime loans found themselves with foreclosure notices in their hands.

Stringent Loan Standards
When applying for home loan lending, expect more than run-of-the-mill scrutiny. The industry is cracking down on the so-called “liar loans.” These are mortgages obtained without verification of the buyer’s declared income, under a “stated income loan” or “no documentation loan.”

Additionally, the home loan lending industry has become more conservative in attaching value to houses. Before, bankers generously appraised homes for so much more than they’re worth. Today, the appraisal is based not on the recent market value of similar homes but on worst-case scenario market pricing. Worst-case scenario value is not the amount a house can be sold for, but the amount it will fetch once it goes into foreclosure.

The Silver Lining
That home loan lending implements stricter regulations is sure to dismay everyone, from borrowers to lenders . However, three good things can come out of this. First, inexperienced and even fly-by-night mortgage brokers will be driven out of business, leaving the home loan lending market to legitimate lenders. Second, with lenders no longer eager to grant high-risk loans, there will be more money and better rates for borrowers with sufficient downpayment and good credit. Finally, fewer high-risk loans that never should have been granted in the first place will be floated into the market. This will result in fewer homeowners being dismayed and losing their homes due to inability to meet payments.

Every story has a moral, and this article contains only one. If something sounds too good to be true, it probably is too good to be true. So when buying a house, do not be tempted to take shortcuts. Go the longer but perfectly legitimate and business-sound home loan lending route.