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My Home Finance : a welcome return to old fashioned lending
Andrew Hagger of Moneynet.co.uk comments on the government’s new ‘My Home Finance’ scheme
This is a welcome and much needed initiative, providing an alternative source of credit for those who find themselves excluded from mainstream finance.
It also offers people a real opportunity for people to get their finances back on track and repair their credit history in the process.
The new scheme will not be a soft touch and applicants will have to undertake 45 minute face to face interview to discuss their financial position in detail and to ascertain whether they have the capability to repay any credit advanced to them.
It is a move back to the old days where your bank lending officer would sit down with you and discuss your application in depth, long before the days of automated scorecards and an instant computer generated yes or no.
Banks moved away from this lending approach and adopted automated and centralised functions in order to reduce costs.
The interest rates of 29.9% APR and sometimes higher reflect the high administration costs due to in depth customer appraisal plus it no doubt takes into account the possibility of higher than average defaults or write offs.
However as this is a not for profit scheme it can absorb these extra administrative costs rather than having to increase revenue and account to shareholders.
For consumers this is a preferable alternative to payday loans and unregulated loan sharks where the interest costs are far higher, particularly painful for those operating on extremely tight budgets.
Let’s hope this scheme proves to be a success and is rolled out on a wider basis, as with banks currently operating ultra tight risk policies we are seeing growing numbers of people unable to borrow from traditional high street lenders.
ENDS
Published: 23/09/2010
The information in this article was correct at the time of publication and contains time sensitive data and links, it may not be accurate at the time of reading.