Greedy lenders should help struggling borrowers

This time last year lenders were falling over themselves to loan as much money as possible to anyone who wanted to borrow. The lucrative sub prime sector was particularly sought after and if you wanted to borrow 125 percent of your home equity, then lenders were prepared to lend those multiples.

Twelve months ago if you had equity in your home then you were a sought after customer for the many loan companies. Borrowing more than the home equity value presented the lenders with an excellent opportunity to make maximum profits, particularly if they charged an arrangement fee too.

Those with credit problems were welcome as long as the equity in their homes provided security to the lender. Having a bad credit history also provided the lender with an opportunity to charge high interest rates and arrangement fees.

The loans market was booming, the housing market was booming, creating more equity to support further borrowing.

How times have changed.

With credit and mortgages in short supply, and 1.4m people nearing the end of their cheap fixed rate mortgage deals, the wind of change feels very chilly. Those who took out large secured loans alongside their existing mortgages, using the equity in their homes as security, are now faced with a big problem.

Their total loans now exceed the value of their property. To make matters worse, if their cheap fixed rate mortgage deal is coming to an end, their monthly mortgage costs are going to increase. Negative equity is now a serious threat for thousands of borrowers tempted by last years deals.

So the outlook for those who borrowed heavily is gloomy and repossessions are set to soar this year, according to The Council for Mortgage (CML) lenders – maybe as high as 47,000 in 2008.

Those banks and lenders who were so eager to lend large amounts in recent years, making huge profits in the process, should now take a lenient view with their borrowers encountering difficulties. Rather than seeking repossession orders at the earliest opportunity, lenders should be working with their customers to help them through these difficult times.

The CML insists that it’s members are taking a sympathetic view with borrowers, however it remains to be seen if this transpires in practise. Sensible borrowing has to be met with sensible lending and those lenders willing to loan maximum amounts now need to take some responsibility.

If you are facing debt problems then taking early action and talking to debt management specialist could help you avoid more serious consequences.