Britons have taken a wild financial ride in recent years, responding to global economic turmoil, as well as conditions unique to the UK. Brexit and other uncertainties have helped stymie a sustained recovery for many Englanders, with low wage growth and inflation standing in the way of personal financial stability.
As residents continue to grapple with these unusual circumstances, many have taken up a considerable amount of debt. Overall, national numbers have risen, prompting alarm among some analysts, fearful of repeating the major economic downturn seen in 2007. A Bank of England warning recently advised lenders to keep their standards high for loan approval.
Understanding financial products and lending options provides the essential background information needed to make reasonable borrowing decisions. Choosing the right form of funding for each need not only keeps costs low for borrowers, but it also supports a healthy lending environment and hedges against default. Select from the following types of funding for your next financing need.
Designed specifically for financing house buys, mortgages offer low interest rates and payback periods longer than most other types of loans. Mortgage interest rates are closely tied to rates set by the Bank, which are adjusted periodically, based upon economic conditions. Recent numbers have intentionally been kept low to facilitate recovery and keep housing markets as healthy as possible.
Rumblings of a rate raise have come and gone, but this important economic indicator has nonetheless remained unchanged for years. Though house prices are high and wages are stagnant, the rate may go up before year’s end as a measure against rising inflation. If you are in the market for a house, shopping a wide sampling of lenders will help you get the best rate on your mortgage loan. This type of financing is secured by the value of your home, giving lenders the right to seize the property should you fail to repay your loan according to the agreed upon terms.
Your credit history is almost always evaluated when seeking standard personal loans. Because they are not secured by a house or other personal property, the loans present greater risk to lenders than some other forms of financing. As a result, interest rates are higher and you must prove your creditworthiness before being approved for a loan. The flexible funding isn’t necessarily earmarked for a particular purpose, so once approved, you can usually spend the money as you wish. The loans are commonly used for house improvements, car buys, holidays and other spending needs.
This unique form of financing is designed for borrowers without the credit strength to qualify for loans on their own. Young people with insufficient credit histories or those with past credit difficulties are good candidates for guarantor loans. When applying, a second party is added, strengthening eligibility. The “guarantor” serves as extra assurance for the lender, reducing risk and giving the creditor another avenue to pursue, should the primary borrower default during repayment.
Family members and close friends typically serve as guarantors, because they share responsibility if repayment problems arise. If you are in the market for such a loan, make sure your cosigner understands the risks and be sure to pay on time.
Your house can be used as collateral for financing. Like mortgages, equity credit puts your property on the line, guaranteeing repayment. Because the loans are secured, there is less risk for lenders and interest rates are lower than those of unsecured loans. The flexible funding solution can be issued in a preset amount and repaid in regular instalments, or opened as an account to draw from, much like other types of open-ended credit. If your house needs improvements, it makes sense to use its equity to get the job done.
Until you understand your funding options, you can’t be sure you’re financing suits your needs. For results you can count on, compare various types of loans and their terms, before settling on the best match.