Past Articles for June, 2006

Over the last 12 months, some 3.5 million people have seen their credit applications turned turn.

Within this figure, 1.7 million people were unsuccessful in applying for a credit card, with the same fate befalling 1.5 million loan applicants and 260,700 people seeking mortgage approval.

Matters are made worse by the fact that the average consumer fails to understand how their credit report works.

People in debt who have a history of struggling to meet repayments, or those who have been rejected in the past, could find their credit report hinders them in the future.

Sean Gardner, MoneyExpert.com chief executive, commented: “The days of easy credit are drawing to an end for many people. It is important to understand your credit profile and be realistic about the products that are suitable for you.

“The risk of being declined when you apply for a credit card, loan or mortgage appears to be rising among those applying to the wrong type of lender.”

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The research, carried out by the Learning and Skills Council (LSC), shows that 86 per cent of parents never broach the subject of finances with their offspring due to awkwardness or embarrassment about money matters.

This reluctance to get things out in the open means that younger generations are failing to benefit from an understanding of personal finances that could help them cope better later in their lives.

One in four parents believe that their children would not be better off learning about finances, but more and more young people are finding themselves in debt as they enter adult life.

ClearDebt survey figures for May show that the average amount of unsecured debt for people aged under 25 stood at an alarming £11,764.

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Julia Harris, mortgage analyst at Moneyfacts.co.uk, said that banks were waking up to the fact that while graduates may start with huge debts, they will soon start earning and will want a home in the meantime.

“With the aim of helping graduates buy their first property, a handful of mortgage lenders have launched mortgage products with terms exclusively available to graduates,” said Ms Harris.

“These offer terms to suit the financial situation many graduates find themselves in, namely young people who are likely to be high earners in the future, but with little or no savings for a deposit or set-up fees.”

Student debt levels are mounting and are set to increase even further with the introduction of top-up fees, while rising house prices are also discouraging first-time buyers.

However, mortgage lenders are now offering deals with 100 per cent loan-to-value deals or interest-only initial payments to tempt graduates to take out a mortgage.

With so many lenders now offering a mortgage to graduates in debt, Ms Harris said that people should still be cautious of borrowing beyond their means and should shop around for deals.

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According to the Alliance Trust, inflation has hit the elderly with essentials such as food and drink accounting for twice the proportion of spending than that of the under-30s.

“We have found the eldest householders are still the ones who are suffering the highest inflation rate,” said research centre head Shona Dobbie.

“This is because they spend a far higher proportion of their outlays on basic necessities such as food and drink, housing, electricity and gas and these are among the goods that have been rising in price most steeply.”

In the report, the gap between inflation of the elderly and the young between 2004 and 2006 rose to an average of 53 per cent.

Ms Dobbie said that this increase was “a cause for concern” as pensioners typically had a lower income than other age groups.

Due to the findings on pensioner debt, Ms Dobbie said that it would now be “inappropriate” for pensions to be linked to an average rate of inflation.

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Economics spokesman for the party, Vince Cable, said that personal debt is becoming a key issue for social and economic policy.

“Personal debt problems is becoming a dominating issue in economic and social policy,” claimed the MP.

“Millions of people are struggling to maintain debt service and are being hit by the double whammy of rising unemployment and the warnings that interest rates will rise.”

He was commenting on last week’s figures from the Consumer Credit Counselling Service (CCCS) which showed that the number of young people struggling to manage debt has doubled over recent years.

Mr Cable said that only through a “consensus amongst voluntary organisations that deal with debt and the financial industry on constructive initiatives” can the problem of rising debt be tackled.

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The bank has started offering overdrafts to new students up to £500 greater than other lenders, rising to £2,100.

Other banks only offer £1,000 to first year students, but Halifax could encourage students to borrow more as it offers an interest free overdraft.

Peter Jackson, head of banking and savings at Halifax, stated that the move was in response to the rising cost of living for students.

Yet new research for Parship.com has found that debt levels mean that graduates are returning to live with parents after graduation as they cannot afford to buy or even rent somewhere to live.

With students being given greater opportunities to borrow more by the Halifax, it could mean that even more students will leave university with bigger debt levels and the associated problems.

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Equifax said that the move is to help people face up to their personal debt problems so that they can act, the Mail on Sunday reports.

“People in serious debt often have difficulty in understanding the full extent of the agreements to which they are committed,” Equifax’s Neil Munroe told the newspaper.

“We believe providing free access to credit files, via the debt advice organisations, is a crucial step in their grasping of the problems they must tackle.”

The move follows the report from the Consumer Credit Counselling Service which last week warned that cases of extreme debt had near-doubled over the past two years.

To obtain the report, applicants need to fill in a request form and have a supporting letter from a Citizens Advice Bureau or debt-management charity.

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The guide at MoneyEverything.com is said to allow users to compare cashback options, interest rates and other features that vary between lenders.

“We look at how the individual repays their debts and then make a recommendation,” said Jon Francis, who works at the website.

Several websites allow consumers to compare deals on credit cards but Mr Francis criticised some by saying that they only listed cards by category.

By looking at how people service their debt and their personal needs, the website claimed that it allows people to make a better choice on which card to choose.

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Price comparison website Moneysupermarket.com said that with charges for foreign use and interest rates as high as 17.9 per cent on cards, students travelling after graduation need to be careful with how they use their plastic.

However, Stuart Glendinning, managing director of the website, said: “There are certain steps which travellers can take ahead of their venture to ensure they make the most of the financial products available to them.”

New graduates are unlikely to have built up a credit record, meaning that many would have no option of obtaining the best credit card deals.

While encouraging students to shop around for the best rates, he warned that most credit cards had foreign exchange charges and ATM withdrawal fees that can be “punitive”.

Only through careful money management of credit card debt and other charges can students avoid returning to large debt on return from gap years, Moneysupermarket.com warned.

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Around 4.3 million people between the ages of 25 and 50 fall into this category as they cannot afford to live alone, online dating company Parship.com has claimed.

According to the survey, 40 per cent of single people found it too expensive to get onto the housing ladder and some could not even afford the “unrealistic” rent on one-bedroom flats.

Debt levels were said to have helped force young people back to their parents as over half of those who live at home owe between £10,000 and £20,000, while a fifth owed between £20,000 and £50,000 on credit card debt and loans.

News comes after the Foundation for Credit Counselling last week said that clients aged between 18 and 24 owed an average of £15,079.

Rising debt levels such as these means that owning a property is now a distant dream to many, particularly men, as a quarter of bachelors lived with parents compared to only 15 per cent of single women.

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