Are you considering a Homebuy loan? Or perhaps you already have one, and you’re looking for further information about the company. Either way, we’ve compiled the most important, in-depth information about Homebuy loans for you in this loan guide. 

About – What are Homebuy Loans?

Homebuy is a product that is offered by the Homes and Communities Agency, aiming to make homes more affordable to eligible buyers in the UK.

The new laws for the industry, including Homebuy Loans

The Financial Conduct Authority has enforced new regulations in the lending industry.

Law #1: the loan must have been affordable

Out of the new laws, a lack of affordability checking is one. The Financial Conduct Authority has responsibility for ensuring lenders in the UK are following regulations and as part of this, lenders are supposed to carry out the relevant affordability checks. Lenders must be stringent when they are assessing creditworthiness, and should not be allowing borrowers to sign for loans, with regarding their ability to pay it back.

The law also states that repayments should always be “sustainable”. This aspect of the law means that you should be able to make repayments on time while also being able to adhere to reasonable commitments (eg. such as rent and bill) and the borrower should not need to borrow more money in order to afford the repayments.

The repayments of the loan should always be affordable when other expenses are taken into account, such as rent, bills, food, car.

 Law #2: caps added to interest and charges

The Financial Conduct Authority decided to bring in some price caps on interest and charges , which was developed to prevent debtors from having to deal with excessive charges. These consisted of:

  • A cost cap amounting to 0.8% per day on the value of the loan you have borrowed – this is a combination of all fees and interest charged.
  • A total default fee cap of £15– following a default, interest is allowed to be charged, but it is not permitted to be more than the 0.8% daily cost cap.
  • A complete cost cap of 100% – according to the law, lenders cannot be asked to repay over 100% of the money you have borrowed.

The cost cap limits are relevant to all credit agreements with interest rates of over 100% and that are supposed to be repaid fully or substantially within a one year period.

You should also be aware of other laws, which have applied since 2017. Lenders now have a responsibility to provide borrowers with information on the products they offer, via a price comparison website. The website must also be FCA authorised. In addition to this, borrowers should also receive a summary of what they have borrowed.

Law #3: Continuous Payment Authority – what you need to know

In many cases, loan companies will try to get you to pay back the debt through a Continuous Payment Authority (CPA). With a CPA, the company has the right to take any sum of money they want from your bank.

The new regulations state that, should the CPA fail to be paid on more than two occasions, the lender must not try any more requests to take money from the borrowers account.

There are also other rules relating to the amount of money they can take from your bank account. The lender is no longer allowed to take partial payments. If you have insufficient funds in your account to cover the full value of payment due, they are not allowed to take anything. You can, of course, allow them to take a partial payment, but you must have given them permission prior to them doing this.

What if you are unable to make the next payment to the debt?

By law, lenders must:

  • Give you information on where you will be able to find free independent debt advice
  • Hold off the debt recovery for a certain amount of time that suit the borrower, while an arrangement is set up to pay it back.
  • Giving you ample time to repay the loan, possibly freezing interest, and other charges.

I’ve written more about what to do if you can’t pay back your loan here.

About the author

Scott Nelson

Scott Nelson is a financial services expert, with over 10 years’ experience in the industry, including 6 years in FCA regulated companies. Read more
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