Money: Home improvement loans under scrutiny

CONSUMERS planning new year home improvements should pay attention to any credit deals offered. Trading standards officers are concerned at the increasing promotion of credit agreements with a variable interest rate, which are often much more expensive than standard personal loans charging fixed rates.

Unlike with a fixed-rate loan, lenders selling variable-rate deals do not have to quote a "total amount payable" figure, and trading standards officers say this is resulting in people being unaware of the full cost of a loan.

Double-glazing installers and agents for other home improvements are keen to arrange these loans, often making more in commission on the linked finance than they do from selling their own services, but often at the expense of higher interest rates for the borrower.

A local survey conducted by Leicestershire County Council's trading standards department found that seven out of nine double-glazing suppliers sold variable-rate deals, as well as a kitchen renovation company and a car dealer. In each case the APR, actual percentage rate of interest, was between 21.5 and 24.7 per cent - much higher than a typical personal loan of 15 per cent APR and more expensive, even, than most credit cards. All the lenders were divisions of major banks: Mercantile Credit (part of Barclays), Lloyds Bowmaker (Lloyds), First Direct (HSBC/Midland) and First National (Abbey National), as well as HFC Bank. Mercantile Credit says it has now left this market.

Trading standards officers believe that variable-rate credit agreements are often difficult for consumers to understand, leading them to pay too much for their loans. In particular they want an amendment to the Consumer Credit Act to require variable-rate contracts to include a total amount payable (TAP).

As rates on such loans change with interest rates generally, the figure would have to be a nominal one, based on the prevailing level. But it would assist consumers to understand the real long-term cost of a loan, say the officers. Variable-rate loans are often of 10 years' or longer duration, while fixed-rate deals are usually for shorter periods.

Variable-rate loan agreements are required to quote the APR, but many consumers do not understand APRs, say the trading standards officers. A quoted APR must include the interest charged and all administrative costs. Calculating an APR is very complex - the rules are laid out in a 20-page booklet published by the Office of Fair Trading - and lenders occasionally make errors in the calculations.

The structure and small print of these loans has also added a further layer of confusion in some cases. John Stanhope of Coalville in Leicestershire found his variable-rate loan considerably more expensive than he had expected. He borrowed pounds 6,600 seven years ago from Consumer Loans, consolidating several existing debts. No TAP was stipulated, but his repayments totalled pounds 10,367. Mr Stanhope says it was only when he had nearly completed the payments that he was told he had only paid off the interest due, and that the lump sum repayment of the capital amount was now payable on top. "I was gob-smacked," he says. "I would never have taken out an interest- only loan to pay off debts."

Consumer Loans was part of National Home Loans, which was rescued by the Bank of England. Kevin Allen, managing director of the NMB Group, which administers the remaining loan portfolio of Consumer Loans, says Mr Stanhope is one of several borrowers who signed up for interest-only deals believing they were paying off the whole debt as they went along.

The problem, says Mr Allen, lies with the brokers who sold the loans, not with the lender, which had no direct contact with borrowers. "The agreement does state that the capital is to be repaid on the date of the last monthly repayment," he says. This view is endorsed by NMB's local trading standards officers. Mr Stanhope could take legal action against the broker who arranged the deal for misleading advice, but this would involve one person's word against another. Trading standards officers believe that if Mr Stanhope's contract had included a TAP, a misunderstanding would have been unlikely.

The Office of Fair Trading says it is aware of the problems attached to variable-rate loans, which are worse if borrowers are "non-status" - high risk. Spokesman Graham Myles says: "You have to be on your toes to recognise all the charges, and whether there are any hidden charges."

The OFT announced last month that it is to conduct a review of the treatment of vulnerable people by the financial services industry, and that this will include problems with non-status loans. Trading standards officers are likely to ask for the review to investigate the rules covering variable- rate loans.

Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
Ben Stiller as Derek Zoolander in the leaked trailer for Zoolander 2
film
Sport
footballArsenal take the Community Shield thanks to a sensational strike from Alex Oxlade-Chamberlain
Arts and Entertainment
Gemma Chan as synth Anita in Humans
film
News
Keeping it friendly: Tom Cruise on ‘The Daily Show’ with Jon Stewart
people
Arts and Entertainment
Ensemble cast: Jamie McCartney with ‘The Great Wall of Vagina’
artBritish artist Jamie McCartney explains a work that is designed to put women's minds at rest
News
Republican Presidential Candidate Donald Trump
people
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: DBA Developer - SQL Server

£30000 - £35000 per annum: Recruitment Genius: This is an exciting opportunity...

Recruitment Genius: Customer Service Administrator

£13000 - £15000 per annum: Recruitment Genius: Are you passionate about custom...

Recruitment Genius: Dialler Administrator

£22000 - £25000 per annum: Recruitment Genius: Main purpose: Under the directi...

Ashdown Group: Contracts Manager - City of London

£35000 - £37000 per annum + benefits : Ashdown Group: Contracts Manager - City...

Day In a Page

Turkey-Kurdish conflict: Obama's deal with Ankara is a betrayal of Syrian Kurds and may not even weaken Isis

US betrayal of old ally brings limited reward

Since the accord, the Turks have only waged war on Kurds while no US bomber has used Incirlik airbase, says Patrick Cockburn
VIPs gather for opening of second Suez Canal - but doubts linger over security

'A gift from Egypt to the rest of the world'

VIPs gather for opening of second Suez Canal - but is it really needed?
Jeremy Corbyn dresses abysmally. That's a great thing because it's genuine

Jeremy Corbyn dresses abysmally. That's a great thing because it's genuine

Fashion editor, Alexander Fury, applauds a man who clearly has more important things on his mind
The male menopause and intimations of mortality

Aches, pains and an inkling of mortality

So the male menopause is real, they say, but what would the Victorians, 'old' at 30, think of that, asks DJ Taylor
Man Booker Prize 2015: Anna Smaill - How can I possibly be on the list with these writers I have idolised?

'How can I possibly be on the list with these writers I have idolised?'

Man Booker Prize nominee Anna Smaill on the rise of Kiwi lit
Bettany Hughes interview: The historian on how Socrates would have solved Greece's problems

Bettany Hughes interview

The historian on how Socrates would have solved Greece's problems
Art of the state: Pyongyang propaganda posters to be exhibited in China

Art of the state

Pyongyang propaganda posters to be exhibited in China
Mildreds and Vanilla Black have given vegetarian food a makeover in new cookbooks

Vegetarian food gets a makeover

Long-time vegetarian Holly Williams tries to recreate some of the inventive recipes in Mildreds and Vanilla Black's new cookbooks
The haunting of Shirley Jackson: Was the gothic author's life really as bleak as her fiction?

The haunting of Shirley Jackson

Was the gothic author's life really as bleak as her fiction?
Bill Granger recipes: Heading off on holiday? Try out our chef's seaside-inspired dishes...

Bill Granger's seaside-inspired recipes

These dishes are so easy to make, our chef is almost embarrassed to call them recipes
Ashes 2015: Tourists are limp, leaderless and distinctly UnAustralian

Tourists are limp, leaderless and distinctly UnAustralian

A woefully out-of-form Michael Clarke embodies his team's fragile Ashes campaign, says Michael Calvin
Blairites be warned, this could be the moment Labour turns into Syriza

Andrew Grice: Inside Westminster

Blairites be warned, this could be the moment Labour turns into Syriza
HMS Victory: The mystery of Britain's worst naval disaster is finally solved - 271 years later

The mystery of Britain's worst naval disaster is finally solved - 271 years later

Exclusive: David Keys reveals the research that finally explains why HMS Victory went down with the loss of 1,100 lives
Survivors of the Nagasaki atomic bomb attack: Japan must not abandon its post-war pacifism

'I saw people so injured you couldn't tell if they were dead or alive'

Nagasaki survivors on why Japan must not abandon its post-war pacifism
Jon Stewart: The voice of Democrats who felt Obama had failed to deliver on his 'Yes We Can' slogan, and the voter he tried hardest to keep onside

The voter Obama tried hardest to keep onside

Outgoing The Daily Show host, Jon Stewart, became the voice of Democrats who felt the President had failed to deliver on his ‘Yes We Can’ slogan. Tim Walker charts the ups and downs of their 10-year relationship on screen