Past Articles for September, 2006

Data from One Account reveals that 36 per cent of Britons expect to be saddled with mortgage repayments when they are over 60.

“Paying off a mortgage should not mean that people have to put their life plans on hold,” said Debbie Milsom, from the One Account.

“It is worrying that homeowners perceive that it will take them until they are in their 60s before they pay it off when they should be spending this time preparing financially for their futures.”

This news follows a Liverpool Victoria report which found that adult children now expect to have to support their parents in retirement as bills and debt levels rise.

However, there are ways of debt management which can help negate this prospect.

Ms Milsom urged homeowners to look at their mortgage options and ways of paying it off early and thus help clear debt before retirement.

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In addition, Liverpool Victoria claims that workers are contributing an annual total of £33 billion in unpaid care and assistance, highlighting the need for both parents and children to start planning for the debt burden of retirement.

“The costs of care are also going up and up, so the financial burden can only get heavier,” added Liverpool Victoria’s Nigel Snell.

“This means it is vital for parents and children to plan ahead and try to make regular savings to fund their future care needs.”

He stated that £33 billion was a “staggering sum” and that this is the equivalent of £4,076 per year of care given freely by adult children.

Mr Snell said that good financial planning was the only way for both parents and children to avoid carrying debt due to care costs.

“Planning for the future of the family is something that everyone needs to do, to ensure that elderly parents can have the best possible care, without their children having to put their own lives on hold,” added Mr Snell.

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Around a quarter of parents have not invested the £250 Child Trust Fund (CTF) vouchers given to them, meaning that parents are needlessly adding to their child’s future debt worries.

“It seems you just can’t give money away,” commented Jason Holland, head of communications at F&C Asset Management. “This cash could have been working away at generating tax free returns for kids to help fund the likes of future college fees.”

If the government vouchers are not invested within 12 months of being issued, the government acts on the child’s behalf and invests them into a tax-free account anyway.

However, this comes at the loss of 12 months of interest, parental choice of account and good practice for savings and debt management by the parents.

Mr Holland added that the total amount left without being invested was £87 million, meaning that there is a huge amount of interest to off-set future debt being lost.

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The bureau claims that many suffering from debt are penalised further by private bailiffs who intimidate and harass them whilst charging excessive fees.

“Reports from clients of intimidation, unreasonable demands and excessive charges by bailiffs are commonplace,” said David Harker, chief executive of Citizens Advice. “This sort of behaviour along with excessive fee-charging by bailiffs is driving already vulnerable people deeper into poverty and debt.”

Launch of the ‘Putting bailiffs on the spot’ campaign comes ahead of a BBC1 Whistleblower investigation into bailiffs, which unearthed much of the claims.

Although the government has introduced the Draft Tribunals, Courts and Enforcement Bill, Mr Harker said that it should have included controls of bailiffs.

Baliffs are sent to collect debts on behalf of councils and other organisations, but debt advice or a debt management plan can forestall their arrival.

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According to Fidelity International, a fifth of people never check how their long-term retirement plans are doing, meaning that many could be surprised to suffer debt even if they think they are prepared.

“The problem is not that people are lazy or that reviewing asset allocation is difficult – our research shows that 68 per cent of those surveyed thought it was relatively easy to review and keep track of their savings,” said Simon Fraser, president of institutional business at Fidelity International, stating that many did not know what to do even if they kept track of savings.

Workers are being urged to have proper savings and consider a debt management plan to help them plan for when they retire.

However, as this survey shows, planning for the future to keep out of debt requires active management and continuous updating.

Mr Fraser added that the importance of asset management “cannot be underestimated” and called for more education of consumers as to the importance of savings and managing them.

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Last month there was a £186 million increase in loan and overdraft use on July’s figures, even though credit card lending fell.

Although David Dooks, BBA’s director of statistics, said that this was a “weak increase”, it still shows that people are failing to clear debt and instead are borrowing more.

Even the increase in interest rates last month to 4.75 per cent failed to curb borrowing significantly, even though monthly repayments on linked loans and mortgages would increase.

However, credit card debt did fall in part of a recent trend, though it could be that people are borrowing on their overdrafts and loans instead.

Yet once loans are factored in, Mr Dooks called overall net mortgage lending for August a “new monthly record” showing that Britons’ appetite for credit has yet to cease.

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The Department of Work and Pensions minister said that there were arguments for further funding of credit unions, which can help people get out of the “nightmare spiral” of debt.

“£100 million should reduce the nightmare spiral of debt that those interest rates cause for so many excluded people,” said Mr Plaskitt.

Credit unions are cooperative unions which help people who may not be able to obtain a loan from conventional methods.

This can help many keep out of debt or stay away from loan sharks, but Mr Plaskitt said that there was more that the government could do to help the financially excluded.

“I am absolutely convinced that we can do more than is currently provided. We need to apply a good deal of imagination and innovation to working out the best way of achieving our aspiration of seeing far fewer people excluded and far more included in financial opportunity in its most basic forms,” added Mr Plaskitt.

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The charity says that a third of all working households with occupants under 40 cannot afford a home as prices rise and savings are hit by mounting bills and debt repayments.

“Our analysis points to worrying prospects for those on middle incomes and below,” said Guy Palmer, co-author of the foundation’s Housing and Neighbourhoods Monitor report.

“The most pressing policy challenges concern increasing affordability for first-time buyers and ensuring housing is available for those on low incomes.”

Earlier reports also claim of a worrying trend in lack of affordability as debt eats into disposable incomes, making many first-time buyers reliant on parents for funds for a house.

Even if they do get a home, they could soon lose it without proper debt management as last month the Council for Mortgage Lenders said that repossession figures were the highest for five years.

Although the government responded on BBC Radio Four’s Today programme by saying that it was acting to address the lack of affordable housing, Mr Palmer said that there is more it can do.

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With some credit card applications taking up to six weeks to become approved, Moneysupermarket.com is urging consumers to start creating a debt management plan now.

Richard Mason, a director with the consumer finance website, told This is Money: “People always leave it too late to get their finances sorted out for Christmas. You find most people will put their spending on an existing card and then panic when the bills come in January because people usually always spend more than they planned to.”

Although Christmas is still a distant thought to many, with Harrods’s putting out its festive decorations it highlights how quickly the season can creep up on people.

However, a lack of planning for this means that people leave credit card debt until January, Mr Mason said, which is the busiest period for applications.

With many still paying interest on Christmas debt at Easter, Mr Mason urged consumers to ensure that they plan ahead and take out the best deals now.

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The Consumer Council for Water Midlands (CCWater Midlands) has invited top representatives from water firms to give tips to customers on debt management.

Sir James Perowne, chairman of CCWater Midlands, said: “I’m sure people will find it beneficial to gain an insight into how water companies deal with debt. Most customers feel that there are very few options open to them once they are in debt, but if they contact their water company early, often a way ahead can be found.”

His comments recommend that clients get in touch with firms early on any debt problems they have, something that other experts recommend.

With utility bills soaring along with debt levels, advice could help many to resolve their financial problems and the associated hardships.

Although water firms cannot cut consumers off for failure to pay bills on time, proposals are going through parliament which could see debt-ridden customers having their water rationed.

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