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Credit Where It's Due but Don't Accept Every Offer
IT SEEMS AS THOUGH we are finally starting to lose our taste for personal debt.
According to the Bank of England, credit-card borrowing in July increased at its slowest rate for more than four years and mortgage lending, too, was muted. Total lending was £23 billion, while the growth in net lending (which does not take into account repayments and redemptions) was at its lowest for eight months. These figures do, however, have to be considered in conjunction with the fact that many people will have held off taking out a mortgage in expectation of an interest-rate cut, which indeed is what happened last month, and it is the figures from the next few months that will give us a better picture of where the market is heading. That rate cut may well prove to be a one-off, rather than the first of several this autumn. Although the actual value of loans was slightly higher than the previous month, last week the British Bankers' Association reported that the number of new mortgage approvals had fallen, but David Dooks, the BBA director of statistics, clarified the figures by saying: "July's rise in net mortgage lending was the weakest since December 2001 but this resulted largely from higher than usual levels of redemptions, particularly relating to maturing fixed-rate loans."
But even though we are not borrowing as much money as we might be doing - which is no bad thing - we are still borrowing an awful lot of money from the Halifax. In the November issue of Your Mortgage, to be published on September 28, the magazine has highlighted the disparity between the country's biggest lender and some of the smallest. Your Mortgage reports that Halifax advanced £68.5 billion in mortgages in 2004 - or £7.82 million an hour, which is more than some advance in an entire year.
For example, the City of Derry Building Society lent only £4.6 million in 2004 - a figure it would have taken the Halifax only 35 minutes to advance. Paula John, editor of Your Mortgage, said: "These figures serve to highlight not just the giant scale of Halifax mortgage lending, but the diversity of the UK mortgage market, where huge household names co-exist happily with comparatively tiny mutual societies."
And, of course, with assets of more than £440 billion, Halifax is considered a safe haven by a lot of people, despite its abysmal advertising campaign. Formed 150 years ago, the company has 22 million customers and even though it is, along with many financial companies, increasing its provision for bad debt this year, its profit before tax last year was £4.6 billion.
Melanie Bien, associate director at the independent mortgage broker Savills Private Finance, says: "Borrowers do get reassurance from borrowing from a well-known name, which probably explains why so many people take out a mortgage from the bank they have their current account with, even though it is unlikely to offer the best deal on the market. To compete with the big boys, the smaller lenders have to offer the best rates to try and get the coveted spot at the top of the ' best buy' tables. This raises brand awareness and pulls in business. They can't compete on volumes or advertising so this is the best way of generating business for them."
When the "must get on the housing ladder" pressure is at its greatest, people do all kinds of daft things to do so, the most common being opting for a self-certified mortgage. In 2003, a fifth of all mortgages were "income non- verified" loans and although some unscrupulous lenders were unearthed at the time, the Financial Services Authority, the industry's regulatory body, had to set guidelines for financial advisors, reminding them not to assist their clients in committing a criminal offence by encouraging them to lie about their income to obtain a larger mortgage.
But you don't get to be Britain's biggest lender by blindly handing money out to anyone who asks: Halifax provides these types of mortgages only through its Birmingham Midshires arm. "Self-certification mortgages are a niche proposition, albeit a growing market," a Halifax spokeman said. "And not just for the self- employed but because more people have income from a variety of sources, such as investments. But they are a product which needs specialist advice and specialist underwriting. Of course we have a number of checks and balances in place: there are obvious ones such as income reasonability, but we also do spot checks on these types of applications."
It's about being responsible. Self-certified mortgage deals are for people with income to cover repayments but who can't prove this adequately at the time, not for people who can't afford one in the first place. Likewise, just because we are swamped with credit-card offers doesn't mean that we should take them all up. When it comes to debt, it's worth remembering the words of that great American philosopher, Mad magazine: "The only reason a great many American families don't own an elephant is that they have never been offered an elephant for a dollar down and easy weekly payments."
By Catherine Riley