Past Articles for January, 2007

Before applying for an individual voluntary arrangement (IVA), people in the north of England have average unsecured debts of £31,000, whereas those in the south have almost £45,000, according to research from Debtmatters.

The report from the company also reveals that those in the north who end up applying for an IVA tend to ask for help sooner than consumers living in the south.

“It’s interesting that people in the south tend to earn more than their northern counterparts, but we are finding they also owe more, have a higher debt threshold and a different perception of what represents a problematic level of debt,” says Michael Shirley, spokesman for the company.

He added that although people in the south have higher mortgage repayments and transport costs, which could explain the differences in debt levels of people applying for an IVA.

Government figures show that in the third quarter of 2006, there were 12,228 IVAs and 15,416 bankruptcies.

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The news comes after the Financial Services Authority (FSA) announced that it is imposing fines of more than £600,000 on GE Capital Bank, which operates cards on behalf of retailers.

PPI is an insurance product that will repay the outstanding debt on a personal loan or other unsecured type of credit if the borrower is unable to repay due to life-changing issue such as ill-health or redundancy.

Compensation claims from consumers sold PPI on store or credit cards will be dependent upon the information they received from in-store service assistants when signing up for the service.

“We are determined to see significantly better practice in PPI sales and will crack down where firms fail to treat their customers fairly,” commented Margaret Cole, director of enforcement at the FSA.

She added that customers “need to know that PPI is almost always optional and should consider whether they need it”.

GE Capital Bank was presented with the fine by the FSA after investigators discovered that some of the key details about payment cover deals on cards were not explained properly to customers.

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According to Yorkshire Bank’s latest Housebuyers report, more than 80 per cent of first-time buyers are considering taking out a 25 year-plus home loan, while only 39 per cent would rule out a mortgage that was five times their income.

The report also reveals that three in ten new starters are so desperate to get onto the property ladder that they are prepared to make an instant offer that is above the asking price.

It follows a warning from the Royal Institution of Chartered Surveyors that first-time buyers are particularly vulnerable to further rises in interest rates, which would lead to unmanageable mortgage repayments.

Gary Lumby, from the bank, commented: “With the average house price nearing £200,000, this year may feel like the last chance saloon for first-time buyers already finding it hard to buy.

“Two rate rises last year did little to slow house prices and it looks unlikely this latest rise will have any significant impact either. Therefore, their fears are the longer they leave it to buy, the harder it will be.”

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Joel Lewis, spokesperson for CCCS, said that if commitments for personal loans, credit cards, store cards come to more than a fifth of a person’s income then they are probably in need of professional help.

He advised those who are overextended to “seekadvice on handling your debts before doing anything else”.

His comments follow a survey by Yorkshire Bank that show the majority of first-time buyers are considering taking out a home loan that is five times their income, prompting debt groups to worry about the level of debt people are taking on and the prospect of growing number of bankruptcies.

Mr Joel said that although most people understand the implications of taking out a mortgage, first-time buyers aged over 30 must consider the implications of borrowing over the longer term.

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Since 2001, there has been a ten per cent fall in the number of adults aged under 35 who own their own home, which brings the overall figure down to 49 per cent, according to Propertyfinder.

The firm said that many who expect to own a house between the ages of 29 and 35 are drastically overestimating their chances, while over three million of today’s over-30s will spend their retirement in rented accommodation.

Chief executive Warren Bright said that although the desire to own a home remains “deeply ingrained in the national psyche”, young adults are likely to remain frustrated.

He commented: “Neither profound social changes in the way we live, move and work, nor high house prices have diminished Britain’s appetite for bricks and mortar.

“But many people’s eyes are bigger than their wallets and they are likely to be disappointed.”

According to property website Rightmove, the average property price in the UK is now £222,859.

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However, once the figures are seasonally adjusted, net lending went up by £400 million, far higher than the recent monthly average of £276 million.

Annualised new borrowing on credit cards fell two per cent to £7,569 million in December, which equates to a decline of £263 million after seasonal adjustment has taken place, the BBA said.

Commenting on the two per cent annual growth in consumer credit, David Dooks, BBA director of statistics, said that it “is low by historical comparison”.

He added: “Although strong Christmas sales have been reported, our December figures suggest that spending was not fuelled by more borrowing on credit cards.”

Recent findings by the BBA show that the value of unsecured loans and overdrafts grew by £4.2 billion last year, while credit card lending fell by £1.8 billion.

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Other underhand methods used by banks to prevent customers pursuing their case include threatening to close accounts, charging for statements and ignoring customer letters, according to Which?

The consumer watchdog also found that some customers have been offered loans or increased overdrafts instead of refunds, thereby increasing the risk of bad debt.

Personal finance campaigner Doug Taylor said: “In an attempt to avoid paying consumers what they are due, we have found that banks are employing increasingly underhand methods to avoid their responsibility to treat their customers fairly and refund the charges.”

He added that that it is vital that the banks’ dirty tricks do not deter people from reclaiming their charges.

Angela Knight, from the British Bankers’ Association, said that although the research could have been useful, Which? has chosen to sensationalise its findings.

“The banking industry handles over seven billion transactions a year and occasionally something will go wrong that’s human nature,” she stated.

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According to CreditExpert, which carried out the study, 51 per cent of Brits say they are always in control of their personal finances and make every penny count, while 41 per cent know they should invest their money but are occasionally careless with their finances.

Some seven per cent admit to being poor at managing their money and tend to use it without thinking about how much they spend.

Managing director Jim Hodgkins commented: “It’s encouraging to see that the majority of Brits claim to be financially savvy and careful with how they spend their money.”

He added that “it pays to keep tabs on your credit status, whatever your financial traits, as your behaviour and any decisions made now can affect your future borrowing power”.

Although these findings paint a generally optimistic picture of Britain’s finances, most experts are agreed that the country’s debt crisis is spiralling out of control, with personal debt now standing at around £1.25 trillion.

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London is not only in the grip of its highest repossession rate in more than ten years, it also has one of the highest rates in the UK, according to research for the Evening Standard.

And there is no sign of the trend reversing any time soon as house prices and borrowing costs continue to rise.

Stuart Jennings, from Fitch, which carried out the study, told the paper: “If, as expected, London prices continue their relentless upward trend, this coupled with the latest round of interest rate rises should see London retain its dubious crown as king of the repossessions castle.”

Vince Cable, the Liberal Democrats’ Treasury spokesman, said more needs to be done by the government to avoid the “disastrous levels” of repossessions in the early 1990s.

Some experts have expressed concern that City bonuses are inflating London house prices, making it increasingly hard for people on lower incomes to afford the cost of a mortgage.

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Beccy Boden Wilks, from National Debtline, has expressed concern that women’s magazines are exerting social pressure to buy new clothes, which could be why more and more women are racking up credit card debt.

Her comments follow findings from the Consumer Credit Counselling Service that showed more women should be going bankrupt if they followed the best advice but are reluctant because of the social stigma.

While almost half of those recommended to declare bankruptcy are single women, two- thirds of those who go down this route are men.

“You might argue that people of this age group, especially women, are more susceptible to social pressure to have all the nice things,” she said.

“There is more consumerist pressure for that age group.”

Accounting firm Wilkins Kennedy has predicted that by 2009, women will account for more than half of all those declaring themselves bankrupt.

This is partly because they are mimicking the lavish lifestyles enjoyed by football players’ wives and girlfriends, the firm said.

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