More Unintended Consequences?

1932: Winner Take All - Roy Del Ruth

The efforts of Europe to sure up the way that everyone borrows money and how Banks lend money has broadly been welcomed. After all, it was primarily the overborrowing that caused the credit crunch. You may be aware that Banks need to lend more carefully... which in theory is a good thing, at least if one assumes wisdom and care are linked in this instance. As a result they have to hold more reserves themselves and effectively ask borrowers to do the same with larger deposits. Interestingly here in the UK loans are not treated as being in default until they are 180 days in arrears. In Europe and in the new proposed legislation this is 90 days... so what? well the so what is that Banks use this as a part of their risk pricing and consequential fees to the borrower. In short, if the rules are applied in Britain in the same way, without doing anything else, we are likely to see borrowing costs increase. I dare say that Banks will take the opportunity to charge more because more work needs to be done proving the loan is "safe" and ultimately it will be borrowers that lose out and I doubt anyone will be too surprised that Banks will probably come out on top.

As you hopefully know, I do not arrange mortgages, this is work that I tend to refer to a mortgage broker. However, how you plan to repay debt, with a proper debt reduction strategy is a different matter. Importantly I believe that most debt is not good, so it should be minimized or cleared, there are occassions though when debt can work powerfully for your advantage. But be warned, utlimately all debts need to be repaid. Lenders tend to hold property as security and here in the UK, debts must be serviced with significant consequences for those that fail to do so.