Tag: borrowing

Shoppers to be protected by new Buy-Now, Pay-Later rules

  • Providers will have to ensure lending is affordable – stopping users from accumulating unmanageable debt  
  • Rules deliver better protection for shoppers and clarity for innovative sector after years of uncertainty

Millions of shoppers are set to be protected by new rules for Buy-Now, Pay-Later products.  

Buy-Now, Pay-Later products have become increasingly popular in recent years as they allow people to spread the cost of purchases over time, but users currently do not have access to a range of key protections provided by other consumer credit products.  

The Government has today launched a consultation on proposals to fix this by bringing Buy-Now, Pay-Later companies under the supervision of the Financial Conduct Authority (FCA) and applying the Consumer Credit Act, ensuring users receive clear information, avoid unaffordable borrowing, and have strong rights when issues arise.  

Economic Secretary to the Treasury Tulip Siddiq said: “Millions of people use Buy-Now, Pay-Later to manage their finances, but the previous government’s dither and delay left them unprotected.

“We promised to take action before the election and now we are delivering. Our approach will give shoppers access to the key protections provided by other forms of credit while providing the sector with the certainty it needs to innovate and grow.”

The new rules will allow the FCA to apply rules on affordability – meaning that Buy-Now, Pay-Later companies will have to check that shoppers are able to afford repayments before offering a loan, which will help to prevent people building up unmanageable debt.

Companies will also need to provide clear, simple and accessible information about loan agreements in advance so that shoppers can make fully informed decisions and understand the risks associated with late repayments.

Consumer Credit Act information disclosure rules will be disapplied so that the FCA can consult on bespoke rules that ensure users are given this information in a way that is tailored to the online setting in which Buy-Now, Pay-Later products are generally used.    

Buy-Now, Pay-Later users will be given stronger rights if issues arise with products they purchase, making it quicker and easier to get redress. This includes applying Section 75 of the Consumer Credit Act, which allows consumers to claim refunds from their lender, and access to the Financial Ombudsman Service to make complaints. 

Rocio Concha, Which? Director of Policy and Advocacy, said: “Which? has been a leading voice calling for the regulation of Buy Now Pay Later for years so it’s positive that new rules are coming in that should provide much-needed protections for users of these products.

“Our research found that many BNPL customers do not realise they are taking on debt or consider the prospect of missing payments, which can result in uncapped fees, so clearer information about the risks involved as well as the use of affordability checks and options for redress would be a win for consumers.

“We are keen to see legislation quickly passed to ensure that BNPL users are protected as strongly as consumers using other credit products.”

Sebastian Siemiatkowski, Co founder and CEO of Klarna, said: “Congratulations to Tulip Siddiq and the government on moving quickly!

“They have been working with the industry and consumer groups long before coming into office. We’re looking forward to carrying on that work to put proportionate rules in place that protect consumers while fostering growth.”

Michael Saadat, International Head of Public Policy at Clearpay said: “We welcome today’s update from City and FinTech Minister, Tulip Siddiq, on BNPL regulation.

“It is encouraging that HM Treasury has listened to industry feedback and evolved the previous framework to ensure a more proportionate approach to regulation.

“We have always called for fit-for-purpose regulation that prioritises customer protection, delivers much-needed innovation in consumer credit and that sets high industry standards across the board.

“We will continue to support the Government and the FCA to deliver fit-for-purpose regulation that ensures consumers are protected in a way that supports the UK’s thriving FinTech sector.”

Chris Woolard, Author of the 2021 Woolard Review, which looked at change and innovation in the unsecured credit market, said: “Today marks a significant milestone for consumer-focused financial regulation.

“The proposed package of regulation would implement the recommendations of the Review and mean millions of people up and down the UK will benefit from stronger financial protection as they borrow using BNPL, especially the most vulnerable in society. The incoming regulation will also provide long-term certainty and standards for the market.”

The consultation will be conducted quickly – closing on 29 November – to reflect the urgent need for action to protect consumers.  

Final legislation is expected to be laid in Parliament in early 2025. Once the legislation is laid, the FCA will finalise the rules so they can take effect in 2026 – bringing clarity to the sector after years of uncertainty about how it will be regulated.  

This follows the Prime Minister saying he would remove regulation that needlessly holds back investment and growth. Today’s announcement brings in much needed regulation that stops people spiralling into debt.

Justin Basini, Co-Founder and CEO of The ClearScore Group said: “We welcome this consultation to bring Buy-Now, Pay-Later borrowers under the same protections and creditworthiness assessments as other mainstream financial products such as credit cards and loans.  

“It is a sensible step in ensuring that this new, important form of credit continues to provide much-needed flexibility for consumers while also managing any risks.”

L&G: Bank of Family lends £20.7k on average to homebuyers in Scotland

  • Bank of Family support varies regionally and isn’t closely aligned to house price differences – recipients in the East of England are receiving most support (av. £32,100), while those in the West Midlands receive the least (av. £19,800)
  • Affordability issues are universal but most Bank of Family support goes to urban home purchases (216,500), compared to 100,500 rural homes
  • According to the survey, just 39% of Bank of Family recipients will benefit from professional advice from a mortgage broker or financial adviser before accepting help this year

Housing affordability is worsening across all UK regions, forcing many aspiring homeowners to depend on financial gifting from relatives – the Bank of Family – to step onto the ladder, according to new data from Legal & General and the Centre for Economics and Business Research (Cebr).

The report reveals that Bank of Family recipients may receive varying amounts of support depending on where they live. Surprisingly, levels of gifting don’t closely align to house price differences – according to the data, borrowers in the East of England are receiving the most support (av. £32,100), while those in the West Midlands receive the least (av. £19,800).

Huge gulf between the UK’s urban and rural markets

The data also indicates that the volume and individual size of Bank of Family gifting varies depending on whether the borrower lives in an urban or rural area. In 2023, the Bank of Family is expected to support the financing of 216,500 urban home purchases. Meanwhile, the number of rural homes bought with support from the Bank of Family will be less than half that total, at 100,500.

Homebuyers in towns and cities are not only more likely to lean on the Bank of Family to buy a home, but they often need to borrow more than those in rural areas. The Bank of Family is estimated to gift £5.7 billion towards urban home purchases in 2023, accounting for 70% of the value of Bank of Family support and more than two-thirds (67%) of the transactions it facilitates.

That equates to roughly £82bn worth of housing in 2023. The average gift or loan size for an urban home is also higher at £26,200, compared to £23,900 for a rural property. 

Bank of Family propping up purchases up and down the country, but with huge regional variations

Although house prices appear to be softening, homebuyers are still facing worsening affordability across the UK property market. The Bank of England base rate increased from 0.1% in December 2021 to 5.25% in August 2023, significantly increasing mortgage costs, with the average repayment for a semi-detached house rising by 61% across all UK regions from 2022 to 2023.

These wider affordability currents are reflected in Legal & General’s report, which investigates the amount of property transactions in each UK region that received funding by a loan or gift from the Bank of Family. Buyers in London are by far and away the most likely to receive financial aid from family members, perhaps unsurprising with the average house price standing at almost double the UK average (£534,000 compared to £286,005 in April 2023).

In fact, the survey suggests the Bank of Family supported two-thirds (67%) of recent homebuyers in the capital, more than double the proportion of the second-placed region (the North West at 36%).

Legal & General also recorded the average size of Bank of Family financial gifts across all UK regions.

London, the South East, the East of England and the South West see the greatest contributions from the Bank of Family. However, there is not always a direct correlation between regional house prices and the average size of a Bank of Family gift. The East of England leads the way across all UK regions for the highest average Bank of Family gift or loan at £32,100 despite its lower house prices, trumping even London gifting at £30,000.

Find out more about the regional variation in Bank of Family lending with Legal & General’s interactive map, here.

Kevin Roberts, Managing Director, Legal & General Mortgage Services, commented: “Up and down the country, the Bank of Family is making significant financial sacrifices to help family members onto the housing ladder.

“Support is concentrated in urban and southern areas, where house prices are the highest, but is prevalent across the UK. While a brilliant lifeline for those able to draw on it, many people will not have access to such generosity and this widespread support is indicative of deep, underlying affordability issues affecting the UK.”

Significant gender split in borrowers seeking professional financial advice

Despite the Bank of Family being set to support a record number of home purchases in 2023, Legal & General’s survey also found that many recipients are not seeking professional advice.

Aspiring buyers who draw upon family support largely do not speak to an adviser before accepting family help, with just 39% of borrowers seeking guidance from a mortgage broker or professional adviser during their Bank of Family transaction. More than a quarter (28%) did not seek any advice at all.

Gender also plays a crucial role in borrowers’ decisions to seek professional advice. At 46%, women are far more likely to speak to a professional adviser than men (30%). In comparison, men (42%) were much more likely to depend on advice from friends than women (29%). Overall, 35% of all respondents asked friends and acquaintances who had similar experiences for advice.

Kevin Roberts, Managing Director, Legal & General Mortgage Services commented: “The Bank of Family has not only become a major lender – the ninth largest in the UK if it were a formal entity – but also a significant source of financial advice, with less than 40% of financial aid recipients seeking professional guidance before their transactions.

“The gender dynamics at play are also fascinating. At 46%, women are far more likely to speak to a professional adviser than men at 30%. In comparison, men are much more likely to depend on advice from friends than women, at 42% compared to just over a quarter (29%). 

“In such a challenging economic climate, buyers must not overlook the insights that an adviser can bring to even the most complex of property transactions. Failing to do so could prove a very expensive mistake later down the line.”

Read the full report on the Legal & General website here. Find out more about how families can support each other when it comes to homeownership in the Legal & General Guide to Gifting here. 

Housing market experts advise: hurry if you’re selling, halt if you’re buying, stay if you’ve borrowed

How the new interest rates affect house prices and rent

  • Housing market: hurry if you’re selling, halt if you’re buying, stay if you’ve borrowed, finance experts advise
  • Landlords will likely increase rent prices or sell to cope with increased mortgage repayments
  • Inflation and interest rates will keep rising, but house prices are already slowing down

The Office for National Statistics announced last month that UK inflation rose to 10.1%, from 9.4% two months earlier. The Bank of England expects it to further increase, peaking at 13.3% in October. The accompanying higher interest rates, currently at 1.75%, and bleak two-year economic outlook generally means bad news for homebuyers, landlords and renters across the UK.

Top market analysts at CMC Markets expect interest rates to further rise to 2.25% in September. This directly impacts mortgages on variable rates – around 1 in 5 households in the UK – and another 3.1 million whose fixed-rate periods expire in 2022-2023, according to UK Finance estimates.

Borrowers whose repayments are directly linked to the base rate, as set by the Bank of England, will now face mortgage repayments at rates between 3% and 4%, up from 1.75% and 2.75% only five months earlier. This will inevitably spill into rent prices.

CMC Markets analysed the latest data for June 2022 from HM Land Registry, published on August 17th, and concluded that the likely tendency for house prices is in a temporary slowdown, which is good news for those waiting a little longer to buy a home.

Michael Hewson, Chief Market Analyst at CMC Markets comments: “Houses sold in June 2022 only increased in price by 1% compared to May, whereas, last year, this constituted a much more generous 5.7% surge.

“This is only the first month this year for prices to slow down at such a fast rate, so some caution before jumping to conclusions is advised. Remember, house prices may be slowing down, but they are not decreasing. Importantly, since this is transactions data processed at the time, it does not take into account the big leap in interest rates that the Bank of England announced later that month, let alone the even bigger hike in August.

“Therefore, despite the soaring inflation and rising consumer prices across the board, UK house prices appear to be trailing behind because demand for homes has generally come to a screeching halt. Most buyers are weathering the storm for a few more months at least, while some are also working out how the cost of living crisis will pan out in the medium term so that the new mortgage is not squeezing their pockets beyond their comfort zone.

“For those still keen to get on the property ladder, there are plenty of fixed-rate banking products that can insulate them from the current spiralling interest rates on mortgages. They should, however, prepare for the possibility of being faced with higher-than-expected repayments once the fixed rate period expires, as the new variable rates are at the lender’s discretion. Fixed rates are not a cure-all either, as they may now be set to a higher level to start with.

“The buy-to-let market is equally volatile. Landlords will either pass the increased mortgage repayments onto tenants by increasing their rent or simply sell fast to lock in a better price.

“Right now though, those already on the property ladder are generally better off staying put rather than moving or re-mortgaging. They would not get a good deal on their old house in this market and may likely end up losing more money overall.”

What did the Bank of England do earlier in August?

The Bank of England explained that the rise in interest rates was necessary due to external pressures which are expected to persist. This means that British firms and residents will continue to feel this weight reflected on rising domestic prices, wages outpaced by soaring inflation, and even higher mortgage repayments, despite the Bank’s attempt to widen the borrowing pool through less restrictive mortgage rules.

Although historic, the Bank’s decision was not a surprise for trading analysts at CMC Markets, a London-headquartered financial services company, who believe the Bank was expected to raise interest rates higher than 1.25% during the June meeting, as a means to keep import inflation in check.

This is on the backdrop of a 10% year-to-date depreciation of the British pound sterling against the US dollar and an indication from the Federal Reserve, the US central bank, of a further interest rate increase by 0.5% or 0.75% in September.

Michael Hewson comments: “The UK currently fares worse than both the EU and the US. This is due to its closer dependence on energy shocks than the States and less government intervention to soften the blow compared to its European counterparts.”

What’s next and when will things calm down?

Other than adjusting the interest rates to the accurate level to keep abreast of import inflation, the economic projections for the UK paint a bleak outlook for the next two years.

The UK is projected to enter a recession in the final quarter of this year, the Bank of England announced. The country’s economy will contract by 1.25% in 2023 and 0.25% in 2024, however, inflation is becoming a much bigger long-term threat, with unrealistic chances of falling back to the desired 2% much before 2024.

The current political race for the Conservative Party leadership and the consequent fiscal policies promoted by the new British government is a major factor to take into account for any inflation, GDP, and unemployment projections and investment decisions.

As it stands with the current measures, inflation is expected to peak at 13.3% in October – a sharper increase than the Bank anticipated in June, originally estimated at 11%. It will continue to rise throughout 2023 only to decline in 2024.

Meanwhile, forecasts for the Consumer Price Index (CPI) are less optimistic now, expected to decrease only to 9.5% in the third quarter of 2023, although the Bank anticipates a sharp fall in prices immediately thereafter.

Selling prices are set to increase to reflect rising costs while real household post-tax income is expected to plunge in 2022 and 2023. The Bank predicted that core prices will peak at 6.5% this year, meaning that, in the following six months, food and energy will constitute more than half of the headline CPI.

The next meeting for the Monetary Policy Committee, where the Bank of England will decide what the new base interest rates might be, is set for September 15th.

Never Never Land

Buy Now Pay Later regulations to be strengthened

  • Millions of people will be protected through strengthening regulation of interest-free Buy-Now Pay-Later credit agreements, under plans announced by the government today.
  • Lenders will be required to ensure loans are affordable and rules will be amended to ensure advertisements are fair, clear and not misleading.
  • UK Government will expand rules to cover other forms of unsecured short-term credit that pose similar risks to consumers, such as those used for dentistry work.
    Millions of people will be protected through strengthening regulation of interest-free Buy-Now Pay-Later credit agreements, under plans announced by the government today (20th June).

Buy-Now Pay-Later credit agreements can be a helpful way to manage your finances, allowing people to spread the full cost of a purchase over time. However, people do not currently have the usual full range of borrower protections when taking out this type of loan and they are rapidly increasing in popularity, resulting in a potential risk of harm to consumers.

Under plans set out by the government today it confirmed that lenders will be required to carry out affordability checks, ensuring loans are affordable for consumers, and will amend financial promotion rules to ensure Buy-Now Pay-Later advertisements are fair, clear, and not misleading. Lenders offering the product will need to be approved by the Financial Conduct Authority (FCA), and borrowers will also be able to take a complaint to the Financial Ombudsman Service (FOS).

Economic Secretary to the Treasury, John Glen said: “Buy-Now Pay-Later can be a helpful way to manage your finances but we need to ensure that people can embrace new products and services with the appropriate protections in place.

“By holding Buy-Now Pay-Later to the high standards we expect of other loans and forms of credit, we are protecting consumers and fostering the safe growth of this innovative market in the UK.”

Today’s consultation response sets out the government’s proposals for regulation of the sector. Given its complexity, the government will publish a consultation on draft legislation toward the end of this year. Following this, the government aims to lay secondary legislation by mid-2023, after which the FCA will consult on its rules for the sector.

The government has also confirmed that other forms of short-term interest-free credit, such as those used to pay for dental work or larger items like furniture, will be required to comply with the same rules announced today, given the risks posed are similar and consumers should receive consistent protections from similar products.

These rules will apply to businesses who partner with a third-party lender to provide credit, and the government is asking for further stakeholder feedback to confirm whether they should also apply to online merchants who directly offer credit for the purchase of their own products.

Today’s announcement forms part of the government’s plan to grow the economy to tackle the cost of living. The Chancellor has provided £37 billion of support to help, including providing the eight million most vulnerable British families with at least £1,200 of direct payments this year – and giving every household right across the UK £400 to help with their energy bills.

Black Friday shoppers rush into purchases they later regret, Which? research reveals

The hype around Black Friday leads some shoppers to make impulse buys they later regret – with many using credit or borrowing from friends and family to fund their purchases, Which? has found. 

Which? surveyed 2,000 members of the public to find out how they felt about items they bought in last year’s Black Friday sales and found that the majority who bought something in the 2020 sales regretted their purchases across five of the seven product categories featured.

Three-quarters (76%) of people who bought DIY products in the Black Friday sales later regretted these purchases.

Two-thirds (66%) of people who bought home appliances, nearly two-thirds (64%) who bought baby and child products, six in ten (58%) who bought health and beauty products and more than half (53%) who bought homeware or furniture also said they regretted their purchases.

The other two categories – clothing, shoes and accessories, and tech products – saw half (49%) and four in ten (41%) of shoppers feel regrets, respectively.

Three in ten shoppers (28%) who bought DIY products had to use credit or borrow from friends or family to pay for their goods, because they did not have the funds themselves.

Borrowing because they had no other way to pay was also common among customers who bought baby and child (24%), homeware or furniture (20%) and health and beauty products (20%).

The hype surrounding Black Friday can lead people to make rash decisions, sometimes skipping steps they would usually take before buying, such as shopping around and checking product reviews.

One in five people (20%) who bought home appliances felt pressured to rush into a purchase. These figures were even higher for people who bought DIY products, with 22 per cent feeling pressured.

To guard against any rash purchases, Which? advises consumers to do some research ahead of Black Friday, keeping an eye on prices for any potentially significant purchases before this year’s deals are announced so they have something to compare them to.

Previous Which? research has found that Black Friday deals are cheaper at other times of the year. The consumer champion’s Black Friday deals guide identifies the deals that offer the best discounts and is a helpful resource for shoppers to check during the sales.

If something catches their eye on the day, consumers can also use price tracker websites to help establish if they are getting the best price and check Which? reviews to see if a product is a Best Buy.

Ele Clark, Which? Retail Editor, said: “Our research has found that many people regret Black Friday purchases, as the hype around the sales pushes them to make rash decisions.

“More worryingly, some told us they had to borrow or use credit in order to fund their purchases, which could impact their credit score if they can’t clear the debt.

“Don’t feel rushed into making an impulse purchase. Thinking about what you genuinely want or need to buy in advance of Black Friday, checking product reviews and researching the item’s price history will help ensure you stay within budget and get the best value for money in the sales.”

Your Credit Union needs YOU!

North Edinburgh Credit Union AGM TONIGHT!

NECU

North Edinburgh Credit Union’s annual general meeting will be held

on Thursday 12 March at 6.30pm

at NECU Office, 63 Wardieburn Drive

The Credit Union has been around since June 1986 and is getting a bit ‘tired’ – especially the current volunteers! If you want your Credit Union to continue we need volunteers who are younger and have fresh ideas to take the Credit Union forward.

We have at last updated our Rule Book and extended our Common Bond to taek in Live and/or Work in the designated map area, which has also been extended to Silverknowes, Craigleith, part of Comely Bank, Fettes, Ferry Road to Newhaven Road and down to Newhaven harbour.

The current committee has been talking to a new group called Water of Leith Credit Union (Community Bank) who have lots of new ideas (including technology) which would help take this Credit Union forward. Some of their committee will attend our AGM to give a short presentation and answer questions.

Why not join us to hear their views?

North Edinburgh Credit Union