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Bank overdraft fees

The FCA has confirmed it is introducing reforms to fix a dysfunctional overdraft market and shake up Bank overdraft fees.

These changes will make overdrafts simpler, fairer, and easier to manage and will protect the millions of consumers that use overdrafts. Particularly more vulnerable consumers. The changes represent the biggest overhaul to the overdraft market for a generation.

Banks and building societies will no longer be allowed to charge fixed daily or monthly fees for overdrafts. In addition, there will no longer be higher fees for unplanned overdrafts than for arranged ones. The new rules will be in force by 6th April 2020.

Under the new measures, which were first proposed in December, banks will also be required to charge a simple annual interest rate on all overdrafts. Overdraft advertisements will need to come with that rate clearly displayed, to help consumers compare various products.

The FCA has announced that it is changing Bank overdraft fees :

• Stopping banks and building societies from charging higher prices for unarranged overdrafts than for arranged overdrafts.
  
• Banning fixed fees for borrowing through an overdraft – calling an end to fixed daily or monthly charges, and fees for having an overdraft facility.
  
• Requiring banks and building societies to price overdrafts by a simple annual interest rate.
  
• Banks and building societies to advertise arranged overdraft prices with an APR to help customers compare them against other products.
  
• Issuing new guidance to reiterate that refused payment fees should reasonably correspond to the costs of refusing payments.
  
• Requiring banks and building societies to do more to identify customers who are showing signs of financial strain or are in financial difficulty. To develop and implement a strategy to reduce repeat overdraft use.
  

Research on Bank overdraft fees

Extensive FCA research with consumers showed that they also wanted to see the cost of borrowing set out in pounds and pence alongside an APR and interest rate.  UK Finance have agreed to implement this alongside the FCA’s remedies.

Andrew Bailey, Chief Executive of the Financial Conduct Authority said:

“‘The overdraft market is dysfunctional, causing significant consumer harm. Vulnerable consumers are disproportionately hit by excessive charges for unarranged overdrafts, which are often ten times as high as fees for payday loans. Consumers cannot meaningfully compare or work out the cost of borrowing as a result of complex and opaque charges. They are both a result of and driver of poor competition.

“Our radical package of remedies will make overdrafts fairer, simpler and easier to manage. We are simplifying and standardising the way banks charge for overdrafts. Following our changes we expect the typical cost of borrowing £100 through an unarranged overdraft to drop from £5 a day to less than 20 pence a day.

“The decisive action we are taking today will give greater protections to millions of people who use an overdraft, particularly the most vulnerable.”

How much do Banks make from Fees

In 2017, banks made more than £2.4bn from overdrafts – with 30% alone coming from unarranged overdrafts.

Previous research showed those aged between 35 and 44 were most likely to have some form of overdraft and suffer from excessive Bank overdraft fees. About 10% of all 18 to 24-year-olds had exceeded their overdraft limit in the previous 12 months.

Responding to the Financial Conduct Authority’s announcement, Eric Leenders, Managing Director, Personal Finance at UK Finance said:

“The banking industry is committed to helping customers manage their money and we will be working closely with the FCA to implement these rules.

The industry is working on a voluntary agreement to make the cost of overdraft borrowing easier to understand for consumers which will be implemented in April 2020. This will build on the range of measures already introduced by the industry, such as text alerts which have been shown to reduce overdraft charges by 25 per cent.

Overdrafts can provide a convenient way for customers to smooth their short-term cashflow, and there is a highly competitive market in the UK with over 96 products on offer.

We would always urge customers to speak to their bank and arrange an overdraft in advance to ensure payments are honoured.”

https://thefinancehouse.co.uk
For more information on the reform of Bank overdraft fees, go to: https://www.gov.uk/government/news/new-overdraft-alerts-as-cma-banking-rules-come-into-force 

The Tenant Fees Act will bring an end to upfront fees charged by landlords and agents to their tenants. It will also limit the levels of both security and holding deposits. Most security deposits are capped at five weeks’ rent and holding deposits at one week’s rent.

Tenant fees Act, a new guide

The Tenant Fees Act will apply in England only, however similar legislation is being introduced in Wales. This means landlords in England will no longer be able to charge for many services provided to the tenant. Such as referencing, credit checks, and services, such as cleaning or gardening.

The only charges allowed will be for replacement of a lost key or security device, and a charge when rent payments are at least 14 days late. Landlords will also still be able to claim for damages where there is a breach of the tenancy agreement.

There will be a twelve month transition period for existing tenancies. This means that any tenancies agreed before 1st June 2019 will not be subject to the new rules until 2020. However, all new tenancies from 1st June 2019 will need to comply with the regulations. Landlords must make sure that any tenancy agreements are up-to-date and reflect the provisions around fees. For landlords who are found to be in breach of the fee ban, a fine of £5,000 will be issued for an initial breach of the ban. However, it will be a criminal offence if an individual has been fined or convicted of the same offence within the last 5 years.

Alternatively, financial penalties of up to £30,000 for breaching the Tenant Fees Act can be issued by local authorities instead of prosecution.

For an Independent, whole of Market, free, Brighton mortgage broker who can get you the best Buy to Lets Mortgage go to www.thefinancehouse.co.uk .

For more information on the Tenants fee act go to the government site at https://www.gov.uk/government/collections/tenant-fees-act .

Pepper Money is the latest lender to remove DSS tenant restrictions on lending to landlord who rent out to a DSS tenant from the 29 June 2019.

The Mortgage Lender (TML) has also said that it has removed the restrictions on mortgages with benefits tenants (DSS tenant restrictions) in-situ last week.
The good news is that most mortgage lenders will to lend to landlords letting to tenants receiving benefits.

Paul Adams, who is the sales director at Pepper Money, commented: “We’re really pleased that we have been able to make the necessary risk and process changes to remove the DSS restrictions on our buy-to-let mortgages. We are continually reviewing our products and risk criteria to ensure they are appropriate for the market and meet the needs of our customers. This was an area, where it was clear that change was required, so we have listened to the feedback and made those changes a reality.”

If this trend continues than renting to DSS will not be the problem that it has been in the past.

What is a DSS tenant? DSS stands for Department of Social Security, which means DSS tenants receive financial housing benefits from the local council, also known as Local Housing Allowance (LHA). The allowance will contribute towards their living expenses.

In the past most lenders have specified that properties can’t be rented to a DSS tenant as they felt it was a high risk. Many landlords also placed the same restriction on their tenants although a lot preferred these tenants as the money was often paid directly to the landlord from the local authority.

This should now mean that it will now be easier to obtain a mortgage if lending to a tenant on benefits as they will have a choice of more lenders. The Finance House can advise on the best deal for landlords, http:thefinancehouse.co.uk/mortgages-2/.

For more information on benefits click here

Individuals and families struggling with problem debt will be given extra help and time to get their finances under control, the government has announced.

People struggling with problem debt are to benefit from a new two-month “breathing space” during which they cannot be hassled by debt collectors and bailiffs, the government has said.

During the 60-day period, those eligible will be protected from enforcement action from creditors, and will also see their interest, fees and charges frozen.

Those experiencing mental health issues will also benefit from extra protection, said the Treasury.

The breathing space scheme was a 2017 Conservative party manifesto commitment, and while the measure has been widely welcomed, it will not be implemented until 2021.

The Treasury said the scheme meant individuals and families struggling with problem debt would be given more time and help to get their finances under control.

Record numbers of people have been seeking debt help, the debt charity StepChange revealed in April this year. It was contacted by 657,000 people in 2018, which was up 6% on 2017.

The majority of its clients are under 40, in work and rent their home, and the most common arrears were on council tax, while credit card debt was the most prevalent form of consumer debt.

The government has previously said the breathing space scheme “would stop most collections and recovery action from taking place”. All contact with a debtor relating to repayment demands would be prevented, while a creditor would not be able to apply to the court to enforce a judgment or order.

It has said the protection would apply to “as many of an individual’s personal debts as possible,” and the Treasury confirmed a broad range of debts would be covered, including money owed to central and local government such as council tax arrears, unpaid personal tax and benefit overpayments.

During this period individuals will be required to engage with professional debt advisers “so they can find a long-term solution to their debts and get back on track with payments”.

However, people receiving NHS treatment for a “mental health crisis” would not need to seek debt advice during the 60-day period. They will continue to receive the same breathing space protections, which will last for the whole of their treatment.

The package of measures also includes a “statutory debt repayment plan” for those struggling with problem debt, which offers similar protection to the breathing space scheme, helping individuals repay debts over a manageable timeframe.

The plan will adjust as people’s circumstances change – which could mean their monthly payments fall if their disposable income changes.

The Treasury said regulations on the breathing space would now be put to parliament “before the end of the year,” with the aim of it taking effect in early 2021.

For FCA details go to Register Home Page (fca.org.uk)

For Brighton Mortgage Broker go to Brighton Mortgage Broker – The Finance House

Mortgage approvals jump to highest level for more than two years.

The UK housing market has shown signs of resilience after figures revealed high street banks approved the largest number of mortgages approvals for more than two years last month.

British banks last month approved the largest number of mortgages since February 2017, showing stability in the housing sector. Banks approved 42,989 mortgages in April, which is up from 40,564 in March and 11.5% higher than a year ago, marking the biggest annual increase since March 2016, according to seasonally-adjusted figures from industry body UK Finance.

Net mortgage lending rose by 1.795 billion pounds last month, a smaller increase than March’s 2.440 billion pound rise which was the largest in 15 months.

Britain’s housing market slowed sharply in the run-up to the original March Brexit deadline but consumer spending has remained solid, driving economic growth just as businesses have cut investment spending due to Brexit uncertainty.

In a news release by consulting firm, EY. Howard Archer, chief economic advisor to the EY ITEM Club, comments:

“April’s marked rise in mortgage approvals suggests that housing market activity may well have got at least some temporary support from the avoidance of a disruptive Brexit at the end of March. It may very well also be that the housing market has benefited from recent improved consumer purchasing power and robust employment growth.”

“It is possible that the avoidance of a “no deal” Brexit at the end of March has provided some support to the housing market through easing some of the immediate uncertainty and concerns.”

For details on a Brighton Mortgage Broker go to Brighton Mortgage Broker – The Finance House

For FCA details go to Register Home Page (fca.org.uk)

Protection insurance ensures peace of mind for many as record number of protection claims are paid.

New figures released by the Association of British Insurers (ABI) and Group Risk Development (GRiD) show that the insurance industry paid out more than £5.3 billion in protection claims in 2018 – a £200 million increase year-on-year.

The numbers also revealed that:

 The number of claims paid surpassed 200,000 for the first time ever

 Nearly every claim made was paid (97.6%)

 Average life insurance payouts reached £81,000, the highest average on record

 More than 35,000 families/beneficiaries were supported following an unexpected bereavement, to the tune of £2.9 billion

 Payouts equal to £14.5 million paid every single day

The ABI recently launched a calculator to help consumers better understand their financial exposure to income shocks caused by being left unable to work after falling ill or injured. Percy The Protection Calculator can be found on the ABI’s website

Roshani Hewa, Assistant Director, Head of Health and Protection at the ABI, says: 

“It’s good to know that families going through some of the worst times, dealing with a loss and serious injury or illness, are at least getting more support from insurance products than ever before. The growing size of a typical life insurance claim shows how much of a difference such cover can have, and the potential difficulties families without it might face. 

“Falling ill or being injured can be traumatic, especially if you find yourself unable to work.  Protection insurance is there to ease the financial burden, so it’s heartening to see the levels of protection showing such positive growth, particularly considering the excellent mental health support many products provide.” 

Figures for the whole protection market (individual and group): 

* Includes figures from the Association of Financial Mutuals

**This is the total number of claims in payment at the end of the year

Give yourself the peace of mind that you and your family deserve by getting in touch so we can find a protection policy that suits you and your situation. For more information go to  Brighton Mortgage Broker – The Finance House