Credit unions get a boost

By DAVID BUDWORTH
Updated:

 

Credit unions are set to become more attractive to wider range of savers and borrowers after the Government announced a relaxation in the rules governing them.

From 1 April, credit unions will be allowed to extend loan repayment times - meaning larger credit unions will be able to offer mortgages for the first time.

The rules governing younger savers have also been relaxed. The savings limit for under-18s has been increased to £5,000 from £750.

Credit unions, savings and loans co-operatives, have traditionally been used by people rejected by or wary of the High Street banks. Their big attraction is that they are owned by the members so cash is not siphoned off for profits but ploughed back into schemes. This means they may give better rates than traditional financial institutions. There are currently around 700 credit unions in the UK.

Announcing the revised regulations Economic Secretary Melanie Johnson said: '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.'

Most credit unions can presently only make unsecured loans for two years and secured loans - where your home is used for security - for five years. The revised rules will enable all credit unions to offer unsecured loans for three years and secured loans for seven years - meaning they will be able to offer more flexible repayment arrangements to their members.

Larger credit unions, which meet stricter regulatory requirements, have also seen the rules governing their loans extended. From 1 April they will be able to offer unsecured loans for five years and secured loans for 12 years.

If you want to know more about how to set up a credit union click here.

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