As banks tighten their lending criteria and end generous offers, more complex deals are emerging, finds ALASTAIR JAMIESON
TENS of thousands of Scottish consumers are reconsidering their financial future this month as credit card providers, mortgage lenders and loan companies begin to close off their supply of cash.
First-time buyers, particularly those struggling to
raise a deposit, are the latest to be hit by the crisis, while there are also reports of growing numbers of people who took out their first mortgage two years ago struggling to remortgage.
The knock-on effect is likely to be felt on the high street, as shoppers tighten their belts in response to wider economic fear.
Last week, the chief executive of the Financial Services Authority warned that the era of cheap credit may be over forever.
Hector Sants said he believed the financial markets will never return to the practices seen before the global credit crunch hit last summer.
The impact on the sub-prime mortgage sector of the wholesale money markets drying up has been well documented, with firms hiking their rates and reducing the proportion of a property's value they are prepared to lend on. But as funding constraints continue, other borrowers are now being caught up in the problems.
Ray Boulger, senior technical manager at mortgage advisers John Charcol, said: "All borrowers are going to be in the firing line. The sub-prime market was affected very quickly and very badly, but that does seem to have run its course, and (now] the main mortgage market is being hit, with lenders continuing to put up their tracker rates."
There are also signs that some people are turning to more desperate measures, including controversial sell-and-buy-or-rent-back deals. New research reveals Edinburgh, where the housing affordability gap is the worst in Scotland, is also the country's top destination for those looking to sell their homes and rent them back.
A survey by the Property Buyers Association found the capital's residents most likely to consider such a scheme. The top 10 areas were Edinburgh, Glasgow South East, Glasgow North, Fife & Kinross, Ayrshire, Glasgow South West, Dundee, Stirling, Falkirk and Aberdeen.
Around five years ago the idea of selling a home and renting it back from a private company was almost unheard of, but now the practice has spawned a multi-billion-pound industry as people attempt to beat the gloomy predictions of a recession and a property slump.
Brian McGee, senior partner at property buying firm Eden Cross, said: "Rent-back schemes are an obvious solution for many people but they're not for everyone.
"There are lots of reasons why people decide to sell and rent back. They could be in debt and want to sell rather than be repossessed, or in the process of getting divorced and they don't want to relocate the kids to another school.
"Alternatively they could be looking to pay off existing debts and start afresh without the hassle of having to find somewhere new to live."
A spokesman for independent debt advisory firm Harvey McGregor said that rent-back schemes were an option for some people, which, if done through a reputable company, could provide a useful solution to debt problems.
The firm's David McCowan said: "The biggest issue for people in debt is the prospect of losing their home because of all the stuff that goes with it. Uprooting the family, sending the kids to another school or even having to give up their jobs because they can't afford to live close enough to commute. Then there's the stigma of perhaps having to stay with friends and family in cramped situations or even becoming homeless. It is easy to see why more and more people are considering the idea."
Last month saw the dramatic withdrawal of all lenders from the 125 per cent mortgage market in a matter of days. These loans, which enable people to borrow up to 125 per cent of the value of their home, were particularly popular with first-time buyers as they removed the need to save for a deposit, while also providing extra cash to cover stamp duty and solicitors' fees.
At the same time, Scottish Widows Bank announced it was exiting from the 100 per cent-plus mortgage market, leaving Dunfermline Building Society as the only lender that will advance more than a property is worth, although it only offers the product to professionals and graduates in Scotland.
With banks now restricting lending, Glasgow Credit Union fears those on low incomes will turn to unscrupulous doorstep lenders for credit, worsening the debt crisis.
The union is urging those who need money not to take the easy cash offered by doorstep providers as it can often lead to spiralling debt problems.
June Nightingale, its chief executive, said: "If people have been in debt in the past, they often think they will be declined for a Credit Union loan. This isn't always the case. Although we do factor in past credit history we use affordability as our main criteria for lending, ensuring that members get a good deal that doesn't over-commit them."
Union loan rates (currently 11.6 per cent for loans up to £4999) are transparent, in that everyone who is successful in their loan application will be eligible for this rate. However, banks often advertise a "typical" APR that changes based on personal circumstances or credit history.
Margaret Prior, a Glasgow Credit Union customer, said: "I didn't have any savings put aside to help with my son's university fees so I looked into a loan. I noticed that the rates advertised by the banks often increased when I rang up which put me off. Then someone suggested GCU. I was delighted with their service and had to double check that the low interest I was paying was correct."
The full article contains 985 words and appears in The Scotsman newspaper.
