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Most loans are . The amount charged against your credit card is an unsecured loan. The personal loan granted by a friend is an unsecured loan. The student loan you received for your university education is an unprotected loan.
However, there are loans which need some form of safety. This security is a valuable property - most of the time, your house - which you own. This is what we call as a mortgage loan. The thought is to attach this asset, the mortgage, to the approval of the loan. If you forget to pay the loan once it becomes expected and mandated, the creditor can decide to bar the belonging to satisfy the said loan.
Why are mortgage loans needed by somelending institutions? Generally, a mortgage lessens the risks that these credit institutions have to take on when giving out loans to the debtor. With the mortgage included to the loan, the creditor can most of the time utilize the same for the fulfillment of the loan if the borrower becomes remiss in settling his loans.
Since the lending companies will undertake fewer dangers, they can give loans with lesser interest charges, which is usually the case with mortgage loans.
Additionally, credit insitutions can also extend loans comprising larger sums, because the mortgage will be available to protect thefulfillment of the same anyway.
Foreclosure is the means of vending the mortgaged belonging, where the income will be useful to the approval of the loan. The vending feature of foreclosure happening comes in the form of public auctions where the starting amount is the fair selling value of the possession.
The most famous method of mortgage loans is a home mortgage loan, where the debtor borrows funds to fund the purchase of a house. The house itself will work as a mortgage to safeguard the said credit. If the debtor fails to satisfy the loan after the lapse of the scheduled period, the creditor will collect the mortgage and foreclose the same.
A former sub-prime mortgage lender is offering an 8% discount to its borrowers if they redeem their loans.
Edeus, which started up in 2006, is making the cash-back offer to 400 customers and may extend it to thousands more if it proves popular.
The lender wants to get the loans off its books but can no longer find professional investors willing to buy.
A spokesman admitted the idea sounded “bizarre” but it was cheaper than selling the loans in any other fashion.
‘Lesser evil’
Alan Cleary, the managing director of Edeus, admitted this would mean making a loss on each mortgage.
“It’s the lesser of two evils,” he said.
“Over the last 10 months the only way we have been able to raise fresh loans is by offering steep discounts to multi-national banks.
“So instead of offering that to the bank we are dealing with customers directly,” he added.
Mr Cleary said the response from his customers had been very good so far, with 20% already expressing a firm interest in paying off their loans early.
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 The market for selling on the mortgages is almost dead, and they can be sold only at a very distressed price  Ray Boulger, John Charcol
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Edeus is also willing to waive its early redemption and exit fees, but people will have to pay any set-up fees that might be demanded by a new mortgage lender.
The company is no longer offering mortgages to new customers.
Along with other sub-prime and specialist lenders it has been hit hard by the credit crunch.
As a result it has not been able to package up its mortgages and sell them off wholesale to professional investors in order to raise fresh funds.
“The market for selling on the mortgages is almost dead, and they can be sold only at a very distressed price,” said Ray Boulger, from mortgage brokers John Charcol.
Earlier this year several other lenders which had relied on this business model withdrew from the market and closed down.
Edeus says it is staying in business until the market revives by offering mortgage advisory services to other firms in the industry.
Lower rates
Meanwhile the average cost of new, two-year, fixed rate mortgages has dropped back below 7%.
“In the last week a number of lenders including Halifax, Abbey, Cheltenham & Gloucester, Nationwide BS and Woolwich have all started to reduce their rates,” said Michelle Slade, from Moneyfacts.
“[This] has resulted in the average two-year fixed falling back below 7%, today standing at 6.96%,” she added.
The Woolwich, part of Barclays bank, has become the latest to join in by cutting its fixed-rate mortgage deals for the second time in two weeks, by up to 0.32%.
The latest cuts affect its 10, five and three-year deals.
But experts said it was too early to say the mortgage market had “turned the corner”.
“We need to see a more prolonged period of rate reduction, something which is starting to look unlikely,” Ms Slade said.
source: BBC News
The Bank of England is expected to announce it is keeping interest rates at 5% when it meets later - amid growing signs the economy is weakening.
A recent report suggested the UK was at risk of recession, and building firms have laid off thousands of jobs.
However, City experts believe that with inflation hitting 3.3% last month the Bank will leave rates unchanged.
Meanwhile, accounting firm PwC expects higher living costs will mean the consumer squeeze will worsen in 2009.
As a result, PricewaterhouseCoopers expects consumer spending to rise by just 0.5% next year.
“The outlook for household spending growth in the UK is looking more subdued now than at any time since the early 1990s,” said John Hawksworth from PricewaterhouseCoopers (PwC).
Tighter household budgets will have an impact on economic growth, PwC said.
It predicted that the UK economy would grow by 1.75% this year, down from 3.1% in 2007. This is expected to fall to 1.25% in 2009 - much lower than the government’s current forecasts.
Slowdown
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The PWC report adds to growing signs of a slowdown in the UK economy:
‘Little scope’
Most economists expect interest rates to remain at 5% for the rest of 2008.
The Bank of England had cut interest rates at the beginning of the year to try to boost the slowing economy. But growing inflation means the interest rate-setting committee is less likely to do so again.
“There is little scope for the Monetary Policy Committee (MPC) to come to the rescue of either the economy or the housing market with interest rate cuts until 2009,” Mr Hawksworth said.
At the MPC’s last meeting, they discussed the possibility of raising rates to try and dampen inflation, although none of the members voted for this.
source: BBC news
A report into the much-criticised activities of credit rating agencies has found conflicts of interest at the firms it studied.
The US financial regulator, the SEC, found that the firms, which rate investments, had broken its rules.
It began looking into their work after they gave positive ratings to sub-prime related investment products whose value later slumped.
The agencies are now implementing better procedures, the SEC said.
‘Fee discussions’
Fitch Ratings, Moody’s and Standard & Poor’s - the three agencies investigated by the Securities and Exchange Commission - were paid to determine credit ratings of products by the companies issuing those securities.
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Fitch is currently in the process of updating its policies, procedures and code David Weinfurter, managing director, Fitch Ratings
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In breach of SEC rules, the inquiry found that the three firms had failed to ensure analysts were kept away from fee negotiations so that they could not be influenced to give a more positive rating.
“While each rating agency has policies and procedures restricting analysts from participating in fee discussions with issuers, these policies still allowed key participants in the ratings process to participate in fee discussions,” the SEC report said.
It identified cases at two of the three firms where analysts or their supervisors were directly involved in fee negotiations. Procedures at both firms have since been changed, the SEC said.
Only one - unnamed - ratings agency actively monitored compliance to ensure against conflict of interest, the report said, so it was able to detect “certain shortcomings”.
‘Transparency’
Reacting to this and the report’s other findings, Standard and Poor’s said it was taking “27 specific steps in hopes of restoring confidence in the ratings process, and to address issues of relevance and transparency”.
“Standard and Poor’s is fully committed to increased openness and transparency, and building on the reforms we announced in February, we look forward to taking any additional steps needed to improve our processes and ensure they are of the highest quality,” said S&P spokesman Ed Sweeney.
Fitch’s managing director David Weinfurter said it had abided by its code of conduct, which “was designed to maintain the integrity of Fitch’s analytical processes and to manage conflicts of interests”.
“Fitch is currently in the process of updating its policies, procedures and code,” Mr Weinfurter added.
Moody’s could not be reached for a comment.
Upbeat assessments
The Commission began its investigation into the three major credit rating agencies in August last year to “review their role” in the financial turmoil which followed the collapse of the US sub-prime mortgage market.
Lawmakers and some investors have criticised the agencies for giving upbeat assessments of investments made up of bundles of debt that included sub-prime mortgages.
Higher interest rates squeezed these mortgage holders’ abilities to meet their repayments, triggering heavy losses on the investments they were linked to.
Billions of dollars have been wiped off bank balance sheets as a result.
source: BBC news
The European Central Bank (ECB) is expected to raise interest rates from 4.0% to 4.25% in an attempt to control inflation, which is at record levels.
The decision will be announced at 1145 GMT on Thursday and an increase would be the first for a year.
But there have been many objections to a rate rise, in particular from French President Nicolas Sarkozy.
Critics have argued that the causes of inflation - rising global oil and food prices - would be unaffected.
Rate hints
Political pressure is unlikely to sway ECB President Jean-Claude Trichet, who said in comments to appear in Thursday’s Die Welt newspaper that decisive action is needed, to avoid the risk, “that inflation could explode”.
Figures at the beginning of the week showed that inflation in the eurozone had hit an annualised rate of 4.0%, which was well above the ECB’s target of 2.0% and also the highest since official records began in 1996.
Mr Trichet hinted after the last ECB meeting that there could be a rise in July.
“After having carefully examined the situation, we could decide to move our rates [by] a small amount in our next meeting in order to secure the solid anchoring of inflation expectations, taking into account the situation,” he said.
“I don’t say it’s certain. I say it’s possible.”
Oil prices
Dr Chakib Khelil, president of the oil producers’ group Opec told the BBC on Wednesday that oil prices could rise further if eurozone interest rates are raised.
European interest rates rising makes the euro relatively more attractive to investors than other currencies, which makes it rise against the US dollar.
In recent months, when that has happened, oil prices have also risen.
The reason given is that some investors see the US currency and oil as alternative investments, so if they think the dollar is going to fall then they buy oil instead.
This is in contrast to the previous situation, when a weak dollar was seen as a sign of a weakening US economy, which would reduce the demand for oil and hence cut the oil price.
source: BBC news
The government is to unveil an initiative to help people, especially those on low wages, beat the credit crunch, the BBC has learned.
The Treasury will announce later that it is to relax the rules governing credit unions - community-based savings and loans organisations.
It is designed to help people who are having trouble either repaying debts or obtaining loans from other lenders.
Ministers fear such people could become easy prey for loan sharks.
Credit unions work as low-risk savings and loans providers, frequently for less well-off customers.
Common bond
The move comes amid concerns such customers may be particularly badly hit by the credit crunch, such as by finding it increasingly difficult to borrow money from traditional High Street lenders.
Why people in Tower Hamlets use a credit union
Although any area or organisation can form a credit union, they have to operate within their own communities - known as the Common Bond.
The Treasury plans measures to broaden the Common Bond, allowing the sector to expand.
By this time next year, ministers hope to get rid of many restrictions on who credit unions can lend to, allowing them to branch out by forming alliances with other unions, employers and housing associations.
They hope that by doing this, people will be able to access cheap, secure loans which they will be able to repay.
source: BBC news
The UK faces its “most difficult economic challenge for two decades”, the Bank of England governor has said.
Mervyn King was speaking at the Mansion House dinner and made it clear that inflation was set to rise, while growth and house prices were likely to fall.
Mr King also warned that real take-home pay would stagnate, making life difficult for some families.
His words came as Chancellor Alistair Darling said the Bank would have new powers over UK financial stability.
This would be in addition to its objective of setting interest rates, he told the annual dinner of business leaders.
It has also emerged that Sir John Gieve is to stand down early as Deputy Governor of the Bank of England.
‘Not an easy time’
Mr King said that the Bank had the “right framework” to make sure inflation returned to the government’s 2% target and that economic growth recovered.
He said the Bank’s rate-setting Monetary Policy Committee (MPC) was “prepared to take whatever action is needed” to bring inflation down.
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The BBC’s economics editor Hugh Pym said that this meant “in other words, interest rate rises couldn’t be ruled out”.
But Mr King added that no monetary policy could prevent the current effects of rising food and energy prices on living standards.
Neither could interest rate cuts coax banks, which are currently re-evaluating risk and keeping a tight grasp on their balance sheet, to be more generous in their lending to house buyers.
And he warned that higher living costs were likely to restrain consumer spending to a far greater extent than tighter lending conditions as a result of the credit crisis.
“It will not be an easy time, and I know that some families will find it particularly difficult,” he warned.
These predictions were echoed by Adrian Coles, of the Building Societies’ Association.
He said it would be “the first time in about 10 or 12 years that we’ve had no increase in real pay”, prompting him to conclude that “people are really going to notice a difference in the economic environment”.
Mr King also warned that “the era of cheap mortgage finance that underpinned the housing market in 2006, and the first half of 2007, is over”.
‘Act decisively’
In his first speech to the annual dinner, the chancellor emphasised the need to tackle inflation, although he pointed out that the current rate of 3.3% “remains low” compared to the 1970s “when it reached over 26%”.
Mr Darling said the new powers given to the Bank would see a new Financial Stability Committee set up to guide the Bank’s operations in this field.
“It will bring valuable, external expertise with City experience to bear on the Bank’s decision-making,” he said.
“The challenge for us is to ensure that the authorities can act quickly and decisively where necessary to support financial institutions,” Mr Darling added.
Alistair Darling talks about the Bank’s new remit
He intimated that the proposals would clarify and enhance the powers of the Bank of England and the UK financial watchdog, the Financial Services Authority, in addition to improving co-ordination between the regulators.
More details will come in a letter to the Treasury Select Committee chairman John McFall on Thursday.
Mr Darling’s stance was upbeat, arguing that the UK would continue to grow despite “global difficulties”.
He said: “Independent forecasters expect UK inflation to fall back next year.
“Employment is at a record high. Many order books are full. British business is competing and winning all over the world. Our economy is flexible and resilient.”
Pay deals
As part of his strategy to tackle consumer inflation, Mr Darling again called for pay restraint in both the private and public sector.
Shadow chancellor George Osborne told the BBC that if he were running the Treasury he would not rule out renegotiating public sector pay deals.
“We need to be helping people with the rising cost of living, not hitting them,” he said.
Meanwhile, shadow chief secretary to the Treasury Philip Hammond called the chancellor’s speech a “missed opportunity”.
“What Britain needed from the Mansion House speech was a display of economic leadership. Instead all we got were rehashed announcements and no new ideas,” he said.
source: BBC News
http://news.bbc.co.uk
Rising food and energy prices have pushed UK consumer inflation to its fastest rate since the measure began in 1997, government figures have shown.
The Consumer Prices Index (CPI) measure of annual inflation was 3.3% in May, up from 3% the previous month, said the Office for National Statistics (ONS).
The rise means that the Bank of England governor must explain to the chancellor its policy for controlling price rises.
The wider Retail Prices Index rose to 4.3% from 4.2% in April.
The biggest contributor to consumer inflation was the rising price of food and non-alcoholic drinks, the ONS said.
This was mainly due to the increasing cost of meat products, particularly bacon, and vegetables.
Increasing household energy bills were also a significant factor, along with the rising cost of books, stationery and foreign holidays. However, this rise in the cost of leisure and recreation was offset by a fall in the price of DVDs, according to the ONS.
Further rises?
Some analysts have predicted that CPI could reach 4% this year.
If inflation rises more than one percentage point above the government’s 2% target, the Bank of England governor must write a letter to the government to explain what action it is taking to control consumer prices.
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This would almost certainly be the first of several letters Howard Archer
Economist  |
The Bank governor Mervyn King has had to write such a letter to the chancellor only once before, when inflation hit 3.1% in April 2007.
Mr King is likely to blame significant rises in international commodity prices.
“This would almost certainly be the first of several letters, as consumer price inflation looks well set to reach 4% this summer before starting to fall back late in the year,” said Howard Archer, UK economist at Global Insight.
Economic slowdown
The higher than expected rise in consumer price inflation has transformed expectations for interest rates, according to the BBC’s Economics Editor, Hugh Pym.
Confident talk of two or more cuts in borrowing costs from the present level of 5% has been replaced by forecasts of unchanged or even higher rates in the months ahead, our editor says.
Mr King and his colleagues are unlikely to cut interest rates further until they are convinced that the inflationary threat has passed - despite pleas from those struggling in the housing market.
However, analysts warn that raising interest rates to curb inflation could dampen an economy already dented by slowing growth and the weakening housing market.
“The key factor [deciding the direction of interest rates] will be whether increased inflationary expectations feed through into greater wage demands and second round effects – at the moment average earnings growth is stable, but the MPC will be watching it closely through 2008,” said economist Charles Davis from the Centre for Economics and Business Research.
Passed on
Consumers and companies are already feeling the effects of higher energy and food bills.
Oil prices have nearly doubled over the past year and on Monday the price hit a fresh high of almost $140 in New York.
That in turn has pushed up the cost of petrol and diesel, prompting many people to rein in their spending in other areas.
At the same time, many food prices have surged to record levels because of increased demand and inclement weather in key producer nations.
Interest rates are expected to remain at 5% when the Bank of England announces at midday the results of its latest monthly meeting.
Economists predict the Monetary Policy Committee (MPC) will decide to keep rates on hold amid concerns about the pace of inflation.
But a slowing economy and falling house prices have caused some to call for a cut in rates to boost spending.
Last month, the MPC voted eight to one in favour of keeping rates at 5%.
Rising food and fuel prices have pushed inflation to 3%, well above the Bank of England’s 2% target.
That accelerating rate of inflation means that the Bank of England is unlikely to cut rates to try to bolster the flagging economy, as this could make inflation worse.
Housing slowing
This week, the economic organisation the OECD, predicted that UK growth would slow to 1.8% this year and to 1.4% in 2009.
It said the global credit crisis, the high costs of commodities such as oil and slowing property markets were all hurting the UK economy.
Problems in the housing market have driven the Home Builders Federation to call for a 0.5% reduction in interest rates.
A cut is now “imperative”, it said, to alleviate “a severe housing market slowdown, driven primarily by a halving in mortgage availability”.
However, economists say this is highly unlikely.
“It’s difficult to envisage anything other than no change,” said KPMG chief economist Andrew Smith.
http://news.bbc.co.uk/