Past Articles for January, 2007

According to the Royal Institution of Chartered Surveyors (Rics), first-time buyers are far particularly at risk of falling behind with their mortgage repayments as interest rates go up.

This means the chances of first-time buyers’ homes being repossessed is much higher than other property owner groups, such as buy-to-let landlords.

Rics economist David Stubbs told the Guardian: “We believe that those most likely to have their property repossessed are those who have bought their first property in the last few years and stretched themselves very thinly in order to do so.

“Buy-to-let investors by comparison seem well placed to avoid getting behind on their payments.”

Property website Firstrung has criticised Rics for issuing “ill founded and badly researched comments” and asserted that recent first-time buyers are the least likely group to be affected by interest rates.

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One of the aims of the initiative is to prosecute illegitimate lenders that charge extortionate interest rates and use intimidation to ensure repayment.

The scheme, which should be in place by the end of 2008, will see enforcement teams tackling areas where illegal lending is at its worst.

“The pilots in Glasgow and Birmingham have already put some of the worst bullies in Britain behind bars,” said trade and industry minister Ian McCartney.

“Today we send a clear message to loans sharks everywhere in Britain. There is no hiding place. Wherever you are, we will seek you out, prosecute you and make you pay.”

A new report by the Institute for Fiscal Studies has warned that the poorest members of society are still at risk from serious debt because they do not have access to mainstream lending institutions.

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According to the study, the number of low-income households struggling with unsecured debt fell between 1999 and 2004, regardless of whether the house was owned or rented, the Guardian reports.

However, the poorest members of society are still at risk of high-level debt because they do not have access to mainstream credit, making them vulnerable to the advances of loan sharks, according to the Institute for Fiscal Studies.

“Tenants  and lower income households generally  maintain a greater risk of running into difficulties with repayment,” said Richard Disney, who compiled the report.

“High and rising utility bills provide a continued threat to household finances and slowing growth of real incomes may prove a problem for such families.”

In terms of secured debt, the report found that it had risen way above incomes as houseowners increased their mortgages instead of borrowing from unsecured sources.

According to the British Bankers’ Association, loans and overdrafts increased by £4.2 billion in 2006, although there was a 15 per cent fall in value on 2005. Meanwhile, credit card lending fell by £1.8 billion, compared to an increase of £1.6 billion in 2005.

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Beccy Boden Wilks, from National Debtline, said that some young adults who have recently graduated are saddled with substantial or 100 per cent mortgages, meaning their monthly outgoings are likely to be very high.

And those who are unable to get break into the property market have to cope with rental deposits, the cost of furnishing a home, car insurance, as well as university debts, making it one of the most expensive periods in their lives.

“I think that it is harder for young people. If we are talking about people under the age of 30 or 35, you have got a lot more expenses,” she said.

“People of that age have a lot of costs”.

Her comments follow new research that suggests adults in their late twenties and early thirties have to rely on their parents for financial aid.

Karl Elliott of Engage Mutual Insurance, which carried out the study, said that the cost of living and rising house prices means it is increasingly difficult for young adults to acquire financial independence.

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According to the firm, Britons will spend, on average, £1,228 on their credit cards over the first three months of the year, compared to £730 in 2006.

Despite the possibility of severe credit card debt, the figures suggest that cards are becoming an increasingly common way of paying for goods and services, especially among the male population. Morgan Stanley found that men will spend a third more than women.

Patrick Muir, marketing director at the firm, said that people were using cards “sensibly” and with “increased confidence”. He pointed out that credit card spending and repayment figures are rising “in tandem”.

“Cardholders are becoming increasingly clever when it comes to being rewarded for the purchases they make,” he commented.

However, a new survey by advice site IVA.co.uk found that 96 per cent of respondents want the credit card industry to be better regulated, with 71 per cent saying that they think credit card providers are unethical.

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Beccy Boden Wilks, from National Debtline, said that excessive credit card spending at Christmas and rising interest rates had exacerbated the UK’s debt problem.

She was speaking after a study from the Consumer Credit Counselling Service showed that more women ought to be going bankrupt if they followed best advice; instead, many are afraid of the social stigma.

“Some people will have just paid for Christmas on their credit cards and they won’t realise until January or February when the statement comes through how much they have actually spent,” she said.

“Because we have had the increase in interest rates as well, that has just exacerbated the problem. So the whole of the debt advice sector will be feeling it at the moment.”

According to the British Bankers’ Association, credit card borrowing fell by £0.3 billion in December, although the value of loans and overdrafts went up by £0.4 billion.

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Unbiased has followed recent research that people are borrowing half as much as they are saving, by urging people to tackle their debts as soon as possible.

David Elms, chief executive of Unbiased, told easier.com that people need to budget more in order to avoid finding themselves in debt.

He added: “Consumers are beginning to sit up and take notice of the increasing calls to save, however they are compromising these positive steps by continuing to borrow money to accommodate spending habits.

“Until people take responsibility for their debt then the benefits of saving will be diminished.”

Mr Elms continued by saying that it is “disappointing” that consumer trends are not moving in the right direction with regards tackling debts and saving.

Meanwhile, research from Unbiased yesterday suggested that more than a quarter of consumers have broken their financial resolutions by the end of January.

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Northern Rock and Liverpool Victoria have both raised their APRs to above six per cent following this month’s base rate rise by the Bank of England.

The news could spell trouble for consumers seeking to borrow money without landing themselves in overwhelming debt.

Nick White, director of financial services at uSwitch.com, commented: “With inflation currently at the highest level in the UK for 15 years, interest rates at their highest since mid-2001 and another base rate increase anticipated in the very near future, it is likely that personal loan rates will start creeping up across the board, possibly resulting in the death of the sub-six per cent APR loan market over the next few months.”

He added that a consumer with an average credit card balance and average purchase APR of 17.02 per cent would take more than 37 years to repay the debt in full.

Research from unbiased.co.uk suggests that Britons’ savings habits are being “undone” by the current culture of debt.

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Suman Antcliffe, money adviser at Citizens Advice in Burton upon Trent, told the Observer that he has seen money lent to individuals who have little or no chance in repaying their loans.

She said that she has successfully taken several banks to the Financial Ombudsman Service, calling for the debts to be completely written off.

Ms Antcliffe commented: “It’s absolutely appalling.”

She added that Lloyds TSB “is working with us to help our mutual clients. The bank now realises it is not in anyone’s interests to lend money to people who cannot afford to pay it back.”

Lloyds TSB added that any customers experiencing financial difficulties should get in touch as soon as possible so that the “most appropriate solution” for financial difficulties can be arranged.

In related news, recent research from the Debt Counsellors shows that credit cards in general and store cards in particular have been responsible for the majority Britain’s personal debt.

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Research from the Debt Counsellors states that more than 41 per cent of people looking for help with their repayments owe money spent on store cards.

It added that the combined value of transactions made on store, debit charge and credit cards will reach a figure of £639 billion by 2010.

John Porter, senior counsellor with the Debt Counsellors, says: “Store cards can be tempting because of free gift incentives or offers of discounts.

“It is fine to take advantage of these but the balance must be paid off immediately, otherwise excessive interest fees will be incurred.”

He added that the “best advice” might be to avoid store cards completely since store card debts can mount up quickly due to their high interest rates.

A recent poll from advice site IVA.co.uk suggested that 96 per cent of people believe the industry need to be better regulated.

It found that 55 per cent of people do not trust credit card providers, while 71 per cent thought they were unethical.

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