There has never been a better time to get a mortgage from a credit union

New Government legislation means those on lower incomes - as well as the better-off - can take out cheaper loans and invest in favourable savings schemes from credit unions

More people will be able to take out mortgages with credit unions due to this week's government announcement that all credit unions can provide seven-year secured loans, and some 12-year secured loans.

More people will be able to take out mortgages with credit unions due to this week's government announcement that all credit unions can provide seven-year secured loans, and some 12-year secured loans.

Credit unions are low-cost savings and loans co-operatives, whose loans are pegged at a maximum rate of interest of 1 per cent per month (12.68 per cent APR) - though some of the larger credit unions are currently charging as little as 8 per cent. Dividends are limited to a maximum 8 per cent a year on savings, but more typically are paid at between 2-4 per cent.

The Government is particularly keen on credit unions as part of its strategy to tackle social exclusion and eradicate loan sharks. But credit unions are also proving very popular with better-off members. Successful schemes are run for British Airways, Lloyds Bank and News International staff, and there are several operating for police forces' and local authorities' employees.

Financial secretary to the Treasury, Melanie Johnson, saidthe relaxed regulations allowing all credit unions to offer secured loans for seven years and unsecured loans for three would help many people with debt problems, as would permission for credit unions to adopt more flexible repayment arrangements. She also announced that children would be allowed to deposit the same as adults - up to £5,000. The new rules will be in place from the beginning of next month.

"Enabling them to save more will encourage young people to join credit unions and get used to planning and managing their finances sooner. Greater loan flexibility will make it easier for credit unions to help members overcome personal debt problems and to compete for mortgage business," said Miss Johnson.

Credit union membership is already expanding by 18 per cent annually, with 260,000 people belonging to credit unions affiliated to the Association of British Credit Unions(ABCUL). But as ABCUL information officer Abbie Shelton explains, this is still a long way below their full potential.

The Scottish Executive gave the credit union movement a boost this week, when it announced a £1.5m budget for supporting their establishment and development. This follows a similar move last month by the Welsh Assembly, which is providing £1.5m for credit union support. ABCUL is now pushing the Government to press the banking industry to pay £20m for a UK-wide central support organisation (CSO) that will enable credit unions to operate more effectively.

The CSO would act as a clearing house between all credit unions and banks, allowing credit unions to earn higher rates of interest on overnight deposits and enable more credit unions to borrow commercially to assist with periods of high borrowing demand - particularly Christmas. A CSO is also expected to lead to more credit unions offering bill-paying services, and could lead to some offering cheque accounts and credit cards.

The West Midlands Fire Service Employees Credit Union was set-up in 1992, and is open to all employees. It has 1,050 members - 42 per cent of staff - ranging from cooks and cleaners, firefighters, the chief officer and deputy and assistant chief officers. Members' average salary is about £20,000, but even well-paid firefighters were recognised as facing problems a credit union would help solve.

One of the country's fastest growing credit unions is Fairshare, based in Telford in the West Midlands. It has 2,200 members, with a further 100 people joining each month, and is expecting a big increase in numbers after agreeing support from five local companies, including GKN. The companies will circulate employees with information and enable staff to make deductions at source for savings and loan repayments.

Fairshare grew out of a merger last year of the Telford council's staff credit union with two local community credit unions, following relaxations from the Government on the criteria for joining a credit union. It is developing an association with an insurance company and a housing association to offer better access to insurance for the financially excluded. Ultimately, it wants to offer such financial services as mortgages."

A recent Fairshare survey showed that members had mixed views about how it should develop. Some wanted it to focus on savings and loans, while others want it to expand into cheque accounts, credit and smart cards and cash machine withdrawals.

But the survey also found that it is not just the cheap loans that are popular - one of the most common reasons for opening an account was to keep your savings secret from your partner.

News
peopleFrankie Boyle responds to referendum result in characteristically offensive style
Arts and Entertainment
Highs and lows of the cast's careers since 2004
News
news
New Articles
i100... with this review
PROMOTED VIDEO
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Senior BA - Motor and Home Insurance

    £400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

    Market Risk & Control Manager

    Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...

    SQL Developer - Watford/NW London - £320 - £330 p/d - 6 months

    £320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

    Head of Audit

    To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...

    Day In a Page

    Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

    Despite the result, this is the end of the status quo

    Boyd Tonkin on the fall-out from the Scottish referendum
    Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

    Manolo Blahnik: Flats, Englishness, and Mary Beard

    The shoe designer who has been dubbed 'the patron saint of the stiletto'
    The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

    Scrambled eggs and LSD

    Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
    'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

    'Normcore': Blending in is the new standing out

    Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
    Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

    New leading ladies of dance fight back

    How female vocalists are now writing their own hits
    Mystery of the Ground Zero wedding photo

    A shot in the dark

    Mystery of the wedding photo from Ground Zero
    His life, the universe and everything

    His life, the universe and everything

    New biography sheds light on comic genius of Douglas Adams
    Save us from small screen superheroes

    Save us from small screen superheroes

    Shows like Agents of S.H.I.E.L.D are little more than marketing tools
    Reach for the skies

    Reach for the skies

    From pools to football pitches, rooftop living is looking up
    These are the 12 best hotel spas in the UK

    12 best hotel spas in the UK

    Some hotels go all out on facilities; others stand out for the sheer quality of treatments
    These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

    Widespread fear of Isis is producing strange bedfellows

    Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
    Topshop goes part Athena poster, part last spring Prada

    Topshop goes part Athena poster, part last spring Prada

    Shoppers don't come to Topshop for the unique
    How to make a Lego masterpiece

    How to make a Lego masterpiece

    Toy breaks out of the nursery and heads for the gallery
    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
    Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

    Ian Paisley’s decision to make peace with his IRA enemies

    His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam