They are no longer lending to clients with bad credit histories and even those with good ones are finding it harder to get credit.
Well, that’s what’s supposed to be happening but there’s evidence some lenders are still trying to make a fast buck from the public by encouraging them to borrow irresponsibly. Here I speak from experience.
Like the majority of credit card customers, I’m being bombarded with junk mail from companies that want to suck every last drop of blood out of consumers.
When I opened the latest unsolicited post from Virgin Money, it contained a letter urging me to use my credit card to take out cash.
It states: “Just hop along to the nearest cash machine.”
If that’s responsible lending, I’m Sir Richard Branson. After all, taking money out on your credit card is a big no-no. Customers are charged 3% handling fees while the interest rate on cash is a whopping 24.9%. And if you use cash machines abroad, you can add another 2.75% commission to the bill. Just hop along to debtors’ jail while you’re at it.
So what has this got to do with mortgages? It’s simple. Any home owner who falls for these credit card tricks is more likely to get into debt. You could argue that these letters, which no doubt have been sent out in their thousands, are aimed at those already in debt who may be desperate for the cash.
And the more borrowers who are struggling with debt, the harder it will be for them to make their mortgage payments, adding to the nation’s debt crisis.
These credit card offers are symptomatic of the irresponsible lending that has plagued the financial services industry over the past few years, including the mortgage sector.
Virgin is not alone. I have another letter sitting on my desk from Barclaycard urging me to spend. I’ve had the card for five years and have never used it in the shops. I only keep it for its 0% rate on football season tickets.
Barclaycard knows this and it also knows that if I use the card when it has a 0% promotional balance, any payments made will reduce that cheap balance first, allowing regular spending to rack up interest at a rate of knots. But that information isn’t emphasised by the providers.
At least if mortgage lenders try to pull a fast one on borrowers, brokers are often in place to spot their tricks. Credit card customers have no protection.
Virgin, Barclaycard and their competitors know this. It is time they got their act together for the sake of consumers and the financial services industry at large.