IVA News

A payday loan firm which charges interest rates of 4,200 per cent or more was at the centre of a storm today after launching a service for hard-up small businesses.
Experts said the move represents a stark reflection of the crisis created by banks refusing to lend to small firms.
Wonga.com has extended its controversial short-term loan scheme, launched in October 2007, to Britain’s businesses.
The borrowing site is capitalising on banks refusal to lend to small businesses
As of today, a company boss can apply for a loan of up to £10,000 from Wonga for Business and receive the money as soon as 15 minutes later.
But the costs are crippling. If a high-risk business wanted to borrow £7,500 for a year, the interest costs of £7,800 would be higher than the original loan.
And, with fees, the total repayments would balloon to £15,675 overall – more than twice the amount of money originally lent by Wonga.
In reality, many firms will fail to keep up with weekly repayments, trapping them in an ever-increasing debt spiral as they borrow more money to pay off the original loan.
It is worryingly easy to get a loan from Wonga.com or its corporate division Wonga for Business, as you apply online and do not need to speak to anyone.
Businesses can seek a loan of between £3,000 and £10,000 and can borrow money for as little as a week or up to a year.
The application takes around 12 minutes and, if accepted, Wonga says the money reaches the account between 15 minutes and 24 hours later.
The new service is currently restricted to businesses which were set up at least three years ago and have sales of more than £20,000 a month.
The fees and charges depend on how risky Wonga decides the business is.
For example, a low-risk business pays a fee of 1 per cent of the amount they borrow, rising to 5 per cent for a higher risk.
And interest rates rise from 0.3 per cent a week for a low-risk business up to 2 per cent a week for a high-risk firm.
The service is currently only available to limited liability companies and limited liability partnerships but Wonga said it hopes to broaden the criteria in future.
Chuka Umunna, shadow Business Secretary, said: ‘This is a damning indictment of our banks, and their failure to serve our businesses.
It is deeply worrying that our small and medium-sized businesses are driven into the hands of a company like Wonga to get access to the finance that they need.’
An average of 70 firms a day are collapsing, the highest rate for two years, as banks make funds scarce.
Almost two thirds are small firms with between one and 50 members of staff, the sector worst hit by the lending drought. A third of small firms were not given the loans they requested last year, a survey by BDRC Continental found.

Wonga chief executive Errol Damelin said: ‘All our research and speaking to other entrepreneurs tells us that small business lending is broken. We intend to use our platform to offer a real alternative.’
Mr Damelin said many young, entrepreneurial companies are struggling ‘because they cannot get quick access to the credit they need to cope with everyday challenges’.
Lord Oakeshott, a Lib Dem peer who resigned over the Government’s Project Merlin initiative to increase bank lending and cut bonuses, said Wonga’s move reflects badly on the banks. He added: ‘This is the ultimate proof that British banks just won’t lend to small businesses.
‘It is tragic that small firms are forced to go to Wonga by the “no-loan sharks” at the big banks.’
Wonga’s representative APR (annual percentage rate) on non-business loans is 4,214 per cent. But it says people do not pay this rate as they can only borrow money for between one day and one month.
Latest figures from the Bank of England show net lending – the difference between the amount of loans handed out by banks and the amount businesses paid back – reached a landmark minus £96.5billion between November 2008 and March 2012.

Mail Online 8th May 2012

Read more: http://www.dailymail.co.uk/money/news/article-2141126/Hard-firms-offered-cash-controversial-payday-loan-firm-Wonga–known-4-200-rates.html#ixzz1uIlZrba8

Families are getting trapped in an ever-tightening ‘debt noose’, having to pay almost £200 a month just in interest.
The burden – coming on top of spiralling fuel costs, high inflation, and a pay freeze for many public-sector workers – signals a difficult time for households already pushed to the limit on credit bills.
The typical UK household is currently using up to a quarter of their income to pay off their ‘interest burden’ after paying off their regular bills, suggested the Consumer Credit Counselling Service.
The charity also tracked the sharp increase in mortgage debt as house prices have risen, from around £20,000 per household in the early 2000s to more than £47,000 by December 2011.
CCCS warned that that older people will be the ones increasingly feeling the pain of debt problems.
The charity is seeing an increasing demand for debt advice from late-stage professionals aged between 45 and 59.
The report said: ‘There has been a gradual rise in counselling demand from this group, with its share rising from 22.8 per cent in 2005 to 31.7 per cent by the end of 2011′.
It added the demand for debt advice will peak in 2014, indicating the ‘lasting distress caused by the financial crisis’.
The charity said that households were struggling as disposable income was being swallowed up by high inflation, with expensive petrol, utilities and housing costs and deteriorating employment conditions.
With diesel hitting a record £1.50 a litre yesterday, even the cost of filling up a typical family car is costing more than £100 each time.

The report said: ‘Interest payments are a heavy burden on household finances.
‘With payment necessary regardless of economic circumstances, they pose a major threat to the solvency of many families.
‘As a major spending component that must be met on time, the need to service debt is posing a significant challenge in the current economic downturn when household heads lose their jobs and income sources dry up.’
The report predicted rising unemployment, but a ‘positive effect’ of the weak economy for indebted households will be several years of low interest rates.
The ratio of one in every four pounds of disposable income spent on servicing debts increased to one in three earlier during the financial crisis as households piled on debt and then faced a deteriorating labour market.
Since the second half of 2009, the share of discretionary income going towards interest payments has been stable and the report predicted it will remain this way in the coming months.
Mortgage debt has risen around £20,000 per household a decade ago to more than £47,000 by 2011
It highlighted high rates of home ownership in the UK at 66 per cent of households, compared with 42 per cent in Germany.
‘With rising property prices and rising borrowing, mortgage debt has grown in importance compared with other areas of household finances,’ the report said.
‘This development is evident in the growing share of mortgage debt as a proportion of total household debt. This has risen from 80.3per cent in January 2000 to 86.3per cent by the end of last year.’
Property repossessions began to increase in 2005, indicating households were already getting into trouble. Repossessions climbed until 2009 but have eased off.
The report said: ‘The last two years have seen some easing to about 36,500 but, apart from the middle of the crisis, they remain at the highest level since 2000.’
CCCS chairman Lord Stevenson said: ‘While debt levels continue to decline, interest payments are a growing burden on too many UK households.’
London and the North West have seen the highest demand for counselling, while Wales and Yorkshire and the Humber are areas with some of the fastest rises in demand for help.
Research was based on the charity’s database and analysis by the Centre for Economics and Business Research.

The mail online 27th Feb

The credit crunch ‘honeymoon’ is over for homebuyers as lenders continue to increase mortgage interest rates while reducing the choice of loans.

After the banking crisis of 2007 and 2008, rates plunged to record lows – a lifesaver for borrowers with no equity and where household incomes were squeezed.

Banks also held off repossessing homes, even where borrowers were late with payments, in what was called ‘forbearance’.
But almost five years after the collapse of Northern Rock, experts warn that the situation is about to get tougher for mortgage payers.

Not only have Halifax, Bank of Ireland, the Co-op and other lenders increased standard variable rates, but the cost of the average two-year fix has gone up by almost ten per cent since last October.
Coupled with these rises are tough restrictions on qualifying for mortgages. These are expected to be tightened further as new rules are introduced by the Financial Services Authority that will exclude more borrowers from new loans and create ‘mortgage prisoners’ who cannot afford to remortgage.

Especially vulnerable are the hundreds of thousands of borrowers with interest-only loans. Their monthly mortgage bills are lower because they pay just the interest, but nothing towards reducing the sum borrowed.

These were particularly popular in the boom years of 2005 and 2006, when almost 40 per cent of new loans were interest-only. The squeeze is tightening on these homeowners, warns broker Mark Harris of SPF Private Clients in London.

More…Mortgage fees soar by 30% in three years to £1,500
Cost of running a house hits £10,000 a year despite slump in mortgage repayments
NatWest last month announced it would restrict interest-only lending to those with a minimum annual income of £50,000 and who have had a current account with the bank for at least three months. Other crackdowns have been announced by Santander, Nationwide, Leeds and Coventry building societies, where at least 50 per cent equity is required from interest-only borrowers.

Before the credit crunch, lenders often did not ask how borrowers intended to pay off the capital loan. The assumption was that borrowers could always sell the property.

But now that house prices have fallen, lenders are asking tough questions. They will not accept the sale of the home, or the expectation of an inheritance, for example, as suitable repayment vehicles.

Some lenders, including Halifax and Woolwich, are even tougher. If borrowers, for example, tell these lenders that they intend to use equity Isas to pay off their loan in future, the lenders will assume the Isas will produce zero returns, regardless of the length of time invested. ‘It is becoming increasingly difficult to borrow on an interest-only basis,’ says Harris. ‘These moves mean thousands of borrowers getting trapped – unable to remortgage elsewhere.’

Figures published last week show that interest-only borrowing accounts for 35 per cent of outstanding mortgages, and that as many as eight per cent of these borrowers have already had some difficulty, for example missing payments. Their options to protect themselves against further mortgage rate rises are limited.

Lenders that are still accepting interest-only borrowers with at least 25 per cent equity include HSBC, First Direct, RBS/NatWest, ING and Newcastle Building Society.

Borrowers are advised to increase their equity where possible, either by overpaying every month or using savings to pay off a portion. This should put you in a stronger position when remortgaging.

Increasing your mortgage term, for example to 30 years, when switching to a repayment loan could bring monthly costs down, but would increase the total amount of interest paid.

David Hollingworth at independent broker London & Country Mortgages in Bath, Somerset, says some lenders will allow borrowers to have part of their mortgage on interest-only and part on repayment.

‘All lenders have restrictions on the maximum loan-to-value ratio for interest-only lending,’ he says.

‘But some borrowers may be able to restructure their debt and many lenders will allow additional borrowing on a repayment basis on top.’

The Mail on Sunday 15/04/12

Read more: http://www.dailymail.co.uk/money/mortgageshome/article-2129697/How-spring-free-mortgage-trap.html#ixzz1s7AMbTxZ

WESTLIFE singer Shane Filan faces losing everything in the property crash and is now set to relaunch his pop career in an attempt to revive his fortunes.

Filan, one of Ireland’s biggest pop stars, is believed to be in debt for up to €23m, according to well-placed financial sources.

The singer is reportedly in the process of cutting a deal with creditors by entering an Individual Voluntary Arrangement (IVA) in Britain.

Sources say he has employed a leading firm of London accountants and is currently negotiating financial arrangements with his banks — including Ulster Bank and Bank of Ireland — as a way of avoiding bankruptcy.

An IVA is a way of having debt written off if existing assets are sold to raise money for creditors.

It is understood in financial circles that Filan is attempting to keep earnings from the impending Westlife farewell tour out of the current negotiations.

This weekend his manager Louis Walsh, although refusing to be drawn on a figure for the Sligo man’s total losses in the property business, confirmed that the singer was about to start afresh.

“He’s wiping the slate clean and starting over,” said Walsh. “He is going to be fine.

“He has a massive solo deal in the pipeline and is going to be a massive, massive star.

“He is set to make millions from the Westlife farewell tour. They have sold out two dates at Croke Park — that alone is huge — and then he will make millions from the solo career too.”

The manager also said that he would be standing by his number one pop star and helping to get him back on his feet:

“I am 100 per cent sticking by him through this. He is facing up to it and doing it [in] a very honourable and honest way. And you have to respect him for that.”

He added: “Shane has something that you can’t buy, that no one else in Ireland has. He has a million-dollar voice. He’ll be okay.

“We’re meeting with record companies and I’m going to make him the next Michael Buble.

“I have big plans for Shane, there is huge interest and you know me when I say to watch this space. Shane’s future is very bright.”

Both Filan and Walsh have been in talks with several record companies in London in recent days.

It is believed that at least four different labels are making a bid to sign the Sligo father of three and release his debut solo album at the end of next year.

As a source explained: “There’s four, possibly five labels so far who have made it very clear that they want Shane.

“He already has loads of ideas about the kind of album he wants to make and the road he wants to go down.

“He and Louis have have had back-to-back meetings with the heads of the UK’s biggest record companies and he has his pick of deals.

“It couldn’t have come at a better time, just as he needs to start again. But Louis has taken him under his wing and will always look after him.”

Sources say that the money-spinning Westlife farewell tour is set to net the band more than €12m.

And Filan is thrashing out a deal so that this and all future earnings will remain untouched by his creditors.

The 32-year-old — who has sold 43 million records worldwide with Westlife, one of the biggest boy bands of all time — is currently being sued by Bank of Ireland for unpaid debts.

Filan auctioned off his James Bond-style Aston Martin for €398,000 last September. He had bought it just two years earlier as a birthday present to himself.

A spokeswoman for the Westlife star said Filan would not be commenting

Independent i.e 08/04/12

More than 8m people are left with nothing after paying for essentials, according to a new report.

Research by the third annual Scottish Widows Priorities of Life Index found after essentials 8.2m adults (16%) have absolutely nothing left to spend at the end of the month.

The index, released today (4 April), also reveals 4.4m people in the UK are “unsure” of their financial futures.

Scottish Widows savings expert Catherine Stewart said: “Families are feeling the pinch as tough economic conditions continue; outgoings are increasing while income largely remains the same, as a result of pay freezes.

“When money is tight, it’s even more important to spend time prioritising your finances.

“It is vital we all have a thorough understanding of what we can do to make sure we are as comfortable as possible, and that we understand exactly where savings can be made.”

The research also found the economic climate has continued to impact the nation’s wallets and financial priorities have suffered as a result.

Despite their best intentions 18.7m adults (38%) admit to neglecting their finances an increase of 1.7m since last year, according to the research.

Credit Today 04/04/12

Our sixties should be about enjoying holidays and spending time with family and friends but it seems that many retirees are instead struggling with alarming levels of personal debt.

The average retired person has £8,180 of debt according to a study from MGM Advantage and 178,000 people are juggling debts of at least £100,000. Only 57 per cent of the entire retired population has no debt worries hanging over them.

“At first glance the figures do look surprising, but they are probably heavily influenced by the number of mortgages that now persist beyond retirement,” says Joss Harwood from independent financial adviser Eldon Financial Planning. She attributes this in part to the increasing levels of parental assistance for children buying their first home.

The debt charity Consumer Credit Counselling Service (CCCS) says that demand for advice for the over-sixties has increased by 15 per cent in the past three years. It predicts this is the start of a long-term trend, as older people struggle to repay debts built up earlier in life.

There are steps that you can take to avoid this, however, including shopping around for the best annuity rate at retirement, rather than just taking the rate offered by your pension provider. You may also qualify for an enhanced rate for pre-existing medical conditions.

“It is vital that people shop around for the best annuity to maximise their income. The difference between the best and worst rates can be as much as 50 per cent” says Aston Goodey, a director of MGM Advantage.

You should also claim all the state benefits to which you are entitled – figures show that pensioners aremissing out on up to £5bn a year in unclaimed pension credit, housing and council tax benefits, as well as attendance and disability living allowances.

There may even be some old savings accounts and pension plans that you have lost sight of, in which case contact the Department for Work and Pensions’ tracing service (dwp.gov.uk/ thepensionservice) or for lost savings accounts try unclaimed assets.co.uk.

Preventative action will make the biggest difference though. Switching from an interest-only to a repayment mortgage, for example, can help ensure you have paid off most, if not all of your mortgage before you stop working. Financial advice website Unbiased.co.uk says that one in seven UK households only pay the interest on their mortgage and risk being forced to downsize or continue to pay off their mortgage well into retirement. As we reported last week, lenders are also clamping down on interest-only, making it even more difficult for people to find similar options when they come to remortgage in the future.

“If you are on an interest-only mortgage, is there a way you can switch to a repayment mortgage? The earlier you can do this, the better, as a large outstanding balance when the mortgage term expires – often close to retirement – can come as a nasty shock,” says Matt Hartley from CCCS.

Planning is to key to avoiding debt so the advice is to draft a budget by listing all of your monthly income and expenditure, including annual costs such as car insurance and road tax.

“If you are thinking ahead to retirement but have existing debts that you struggle to repay, it is essential to tackle these now,” says Mr Hartley. “Start by prioritising what you owe, and pay off high priority debts, such as mortgage, rent or council tax first. Then see what you can afford to repay on other debts and contact your lenders to explain the situation.”

The Independent 01/04/12

Economists are predicting that the figures released by the Office for National Statistics on Wednesday will show the number of people out of work has surged to a 17 year high. It is also predicted that figures will reveal youth unemployment has passed 1 million for the first time since records began.

http://www.dailymail.co.uk/money

Aol Money – Ten ways to save on food

According to the British Retail Consortium (BRC), food prices have been pushed up by 4.9% since last May. Consumer magazine Which? looks at how you can cut the cost of your weekly shop.

http://money.aol.co.uk/2011

Telegraph – Value of private pensions falls by nearly a third in three years

Research has revealed that people with private pensions will be 30% worse off than those with similar savings who retired in 2008 as a result of falling stock markets and poor interest rates.

http://www.telegraph.co.uk/finance

The CCCS welcomes new figures which reveal a dramatic fall in the number of people who are hiding debt from their partners. The number of people contacting the charity for debt advice who say their partner is unaware of their financial problems has fallen by over 3,000 in just 3 years.

http://www.cccs.co.uk/Portals

Telegraph – Household spending at lowest level for 10 years

Official figures reveal that the amount people are spending on essentials such as petrol and day-to-day groceries has fallen to its lowest level in more than a decade.

http://www.telegraph.co.uk/finance

Daily Mail – Families ‘will ration heating’ this winter – and some are set to turn it off altogether

Figures show that more than 1 in 4 households are already struggling to pay their energy bills. There is concern that many strapped-for-cash households will refrain from turning on their heating when the cold sets in as they are worried about the size of their bills.

http://www.dailymail.co.uk/money/bills

Figures reveal that consumers paying just the minimum repayments each month towards a £2,000 credit card balance will take 22 years to pay of what they’ve borrowed. They will also face paying an extra £2,275 in interest by doing so.

http://www.telegraph.co.uk/finance

Guardian – Cheapest energy deal rises beyond £1000

Energy customers are feeling the pinch as the cheapest energy deal soars to over £1000 a year. Experts urge households to sign up to fixed-term deals or a cheap internet tariff to save money this winter.

http://www.guardian.co.uk/money

Daily Mail – Shoppers spend £4,000 on credit cards each year, study shows

A report by Standard Life has revealed that just over half of UK adults own credit cards, spending an average of nearly £4,000 a year. The news comes just as David Cameron urges households to pay down their debts.

http://www.dailymail.co.uk/money

Today the Prime Minister will urge Britons to pay off their debts and to adopt a ‘wartime spirit of can-do optimism’ in the face the Government’s austerity drive.

http://www.dailymail.co.uk/money

Guardian – Stress now commonest cause of long-term sick leave

According to a recent report, stress over workloads, management skills and potential redundancies has become the most common cause of long-term sick leave in Britain.

http://www.guardian.co.uk/business

Telegraph – Pensioners pay £100 a week in taxes

Figures have shown that the average UK pensioner is paying 27% of their income on taxes, adding up to an annual tax bill of more than £34 billion. Experts warn people to taxes into account when saving for their retirement.

http://www.telegraph.co.uk/finance/personalfinance