Unenforceable Credit

Millions of personal loan agreements could be unenforceable because banks and other lenders fail to factor-in the cost of controversial payment protection insurance (PPI) into annual percentage rates (APRs).

Campaigning group Debt on our Doorstep - an alliance of charities, debt advice groups and credit unions - which fights extortionate interest rates, warns adverts promoting "low APRs" and giving a "typical rate" could mislead. Adding in the cost of PPI, which should pay out if borrowers are ill, or out of work, typically turns a headline 7% loan rate into 14% or more.

Many people, such as the retired or the self-employed, are persuaded to buy expensive PPI which is worthless as they cannot claim.

Banks earn huge amounts from these plans - some pay out just 20p in each £1 of premium to policyholders as claims. "People are not told the APR they might have to pay if they take out PPI. As a result, nearly 14m loans, worth £6.5bn, could be legally unenforceable," says Damon Gibbons, the group's chair.

He says regulations due to be introduced in May 2005 would have improved the quality of information lenders had to give by including the costs of any PPI in the interest rate calculation.

"There is a lack of clarity in the Consumer Credit (Agreements) Regulations 2004. When these were brought in 2005, the OFT issued draft guidance stating lenders should include the cost of PPI in the calculation of the APR in loan agreements, and set out a single APR for the overall cost with subheadings that broke this down into the loan and the PPI policy so you could see each element clearly," he adds.

The Office of Fair Trading says: "We would always be concerned if a lender or broker was failing to provide accurate information to consumers. We are in the process of carrying out a review of typical APRs used in advertising."

Property buyers now do not have to pay stamp duty on properties costing £175,000 or less, this applies for the next 12 months.
For example, someone buying a property for £175,000 will save £1,750 under the updated scheme. The current £125,000 threshold has been raised as part of a package of measures aimed to boost UK's property market.

Other housing moves announced by the government include:
"Free" five year loans of up to 30% of a property's value for first time buyers of new homes in England. Extension of powers for councils and housing associations to be able to pay off debt for homeowners who can no longer afford mortgage payments and then charge rent.
Shortening from 39 weeks to 13 weeks the period before Income Support for Mortgage Interest is paid.

Bringing forward spending from future years to encourage more social housing to be built
According to the government, the finance for these measures, which unlike the stamp duty move will only apply in England, has been previously allocated and brought forward.