Times: Homes at risk as banks seek more security for credit card debt

In message , "tim (not at home)" writes

I don't see the connection with bankruptcy laws. A bank would have gotten the same return out of bankrupting someone before the change in the law as they would after it. (IN fact, its possible they would now get more as all Income Payments Arrangements are now 3 years, the two year one having been abolished). I would also point out that the increase in use of Charging Orders began long before the Enterprise Act. I can't see a connection at all.

In message , Derek Geldard writes

Mortgage payments? I thought we were talking about credit cards and unsecured loans here.

In message , Tim writes

Why would the court make someone bankrupt? Its none of their business unless a creditor makes a petition.

In message , John Anderton writes

Then why would you offer unsecured loans if your expectation of repayment would be from the sale of the property?

I'm not sure why you think that.

Secured lending represents a lower risk than unsecured lending, and it is therefore the norm for secured interest rates to be lower than unsecured interest rates.

Where a creditor asks the court to grant an order to turn a hitherto unsecured debt into a secured debt, I would have thought the court would require the creditor to apply future interest at a rate more appropriate to secured lending.

That's the whole point. The lender whose loan the borrower has defaulted on would only be able to stand a good chance of getting their money back by petitioning the court to make the borrower bankrupt. The option of charging orders to turn the unsecured debt into a secured one is *better* for everyone concerned because it avoids the need to go down that road.

With the average dividend on bankruptcy being just a few pennies in the pound, its not a route they would likely wish to take anyway in most cases, and indeed it never has been a route that has been a popular one. The danger in a Charging Order lies in the potential enforcement of that by an Order for Sale and while they are uncommon at the moment, a charging order was uncommon 10 years ago so we clearly can see that things change.

"Mike_B" wrote

The average is irrelevant here : we're considering specific cases where there *is* sufficient equity in the house to pay the debts, but even so the borrower has defaulted on the loan.

In message , Tim writes

The question surely is whether loss of one's home is a reasonable expectation for those who agree to take on an unsecured loan.

No, it is whether that is a reasonable expectation for those who think it's OK simply not to repay the loan.

Nobody said it was, but IMO if a bank lends money based on the expectation that in case of default it be repaid by sale of the property then they should be making them secured loans, not pretending they are unsecured in order to be able to charge a higher interest rate.

But they can turn on into the other by making the person bankrupt.

Nothing has change here.

tim

Where's the problem? People are owe money to the banks and the banks are doing what they think necessary to get the money back.

FoFP

The trouble with credit bubbles is that when they burst, the guilty take down the innocent with them. With all these stupid bailouts, the central banks are aiding and abetting that project.

FoFP

The banks are holding the money of the people who saved rather than recklessly borrowed. If they're owed money by someone who seems to be reneging on their obligations, and they see that the defaulter has assets, it seems perfectly reasonable to go after those assets to ensure that the obligations are met.

Just because a debt is unsecured, it doesn't mean that it doesn't have to be paid.

FoFP

Thinking about it, it seems to me that this situation reflects a discussion we had in uk.finance a few years ago. We'd concluded that after the credit bubble had burst, the banks would be keener to take back cash rather than give it out in many circumstances. However they would be unable to do that where borrowers were not in breach of contract. Our conclusion was that wherever there were even tiny breaches of contract, the banks would move aggressively to protect or recover money.

It would seem that this circumstance is simply one of the early examples.

FoFP

The right of lenders to get their money back has to be limited. In this case it appears that the supposed limit was not the real limit.

Or do you think that the lender has an absolute right to their pound of flesh? Why not let them sell the borrowers internal organs if they think it necessary to get the money back?

If I were offering money for loan, then I'd take the highest interest rate the borrower was willing to pay, wouldn't you?

FoFP

The only reasonable limit I can imagine is that we limit them to the amount of money actually owed. Did you have some other limit in mind?

An interesting possibility. I suspect many defaulters would try much harder if this option were open to the banks.

FoFP