Past Articles for January, 2007

About 16 million people in the country made a resolution at the start of the year, with two-fifths saying they intended to get out of the red.

However, more than a quarter (27 per cent) fail to stick to these promises by the end of the month, suggesting that consumers are letting their targets slide.

Karen Barrett, marketing director of unbiased.co.uk, commented: “It is encouraging to see how many people intend to get their finances in order in 2007, however it is all too easy to let good intentions go to waste.

“Setting manageable goals and seeking the professional independent advice from an IFA could encourage you to persevere with your resolutions and improve your finances.”

The research also found that about 43 per cent of Britons aim to curb their spending and budget more, while 34 per cent plan to save for a specific purchase such as a car or a holiday.

Meanwhile, news from unbiased.co.uk out today suggests that Britons are spending about half the amount they save each year.

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A study from Money Shop found that 58 per cent have borrowed money from their parents in the last 12 months.

However, only two in five of these people have paid back the full amount, with £275 being the average figure borrowed.

Paul Mildenstein, managing director of Money Shop, commented: “Coming towards the end of the month when money is short can be difficult, especially when something crops up that you need money for.

“People usually have two choices go over their authorised overdraft limit and face the excessive charges banks impose or consult the bank of mum and dad.”

He adds that borrowing money from family, though they are there to help, can lead to arguments in the long-term.

In related news, consumer campaigner Martin Lewis has urged people with bad credit card debts to act promptly in order to avoid ‘debt panic’.

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Consumers are borrowing 49 pence for every pound they save, suggests the data from unbiased.co.uk.

It adds that despite the £31.7 billion put away between July and September last year, consumers are “continuing to rely on borrowed money”.

David Elms, chief executive of unbiased.co.uk, commented: “When we reported on the first quarter of 2006 we saw that UK consumers were borrowing only 18 pence for every pound saved, and there was evidence of a net repayment of debt.

“However 2006 has seen consumers borrowing 54p and 49p for every pound saved throughout the second and third quarters respectively.”

He added that although people recognise the importance of saving, they need to budget to avoid the trap of getting into overwhelming debt.

The news comes as reports from Experian suggest that the take-up rate of IVAs in England and Wales has soared in recent months.

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Rightmove’s warning follows the latest 0.25 per cent hike in the base rate – the third such occurrence since August.

The firm acknowledged that the rate rises were partly in response to rising property prices but cautioned that driving up borrowing costs is a “high risk strategy for the economy”.

Many experts are already worried that the amount of unsecured and secured debt owed by UK consumers will push householders towards bankruptcy.

However, a BoE survey in December found that although the number of people unable make a mortgage payment for over 12 months had increased, most homeowners are actually comfortable with the amount they owe.

According to Rightmove, house prices have risen 0.5 per cent this month, which means the average asking price in England and Wales is now £222,859.

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– most of whom are single women – many chose not to do so because of the social stigma.

This is in contrast with new research by the Bank of England that found people are much more likely to go bankrupt because other people have done so.

Malcolm Hurlston, the chairman of CCCS, said: “‘More than half the people advise to go for bankruptcy fail to go through with the process, missing the best solution to their debt problem.

“We are worried that stigma and cost are causing people – and women in particular – undue distress.”

Two-thirds of people who declare bankruptcy are men, according to the CCCS.

Rather than admit over-spending, many of the CCCS’ clients blamed factors such as illness, divorce, separation and unemployment.

However, around a fifth of those recommended to go bankrupt are so poor they cannot afford the £475 in administration fees and court costs.

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According to Standard Life, there has been a huge shift in attitudes towards financial management since last year, with ‘clearing debts’ and ‘financial security’ both in the top five of the firm’s so-called ‘happiness mantra’.

Ashley Ramsay, from Standard Life Bank, said: “The research shows a really positive shift in attitudes towards financial management.

“Whereas previously it ranked pretty low on people’s agendas, people are recognising that financial security would make them feel happier.”

Despite the optimism found in Standard Life’s research, overspending at Christmas is having an effect on people’s ability to repay their debts at the start of the new year, price comparison site uSwitch has said.

It said that a number of households will have no choice but to default on their mortgage, household bills and council tax this month because of a lack of available funds.

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A study by advice site IVA.co.uk found that 96 per cent of respondents think the credit card industry should be better regulated, while 89 per cent are in favour of additional regulation of banks.

When asked about the issue of trustworthiness, 55 per cent said they did not trust credit card providers at all, although this figure fell to 38 per cent when asked about banks.

And 71 per cent think that credit card providers are unethical, while banks fared little better at 59 per cent.

According to Business Credit Management, the survey also reveals that Britons are putting the blame on the lenders for the UK’s growing debt mountain, with 85 per cent believing it is too easy to get credit.

The Debt Counsellors has said that credit card debt is the chief cause of debt in the country.

A website spokesperson commented: “These findings indicate a growing doubt amongst consumers and confusion as to who to trust, and where to turn for advice.”

The Office of Fair Trading, which was last year forced to cap credit card charges, is currently looking into the issue of bank penalty charges, which many see as punitive and disproportionate.

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Brian Capon, spokesman for the British Bankers’ Association (BBA), said that both sides agreed that any rogue elements in the IVA sector should be driven out.

He said there had been two rounds of talks between banks and IVA firms, and that insolvency services had been brought on board as well.

“We established a lot of common ground between us and the IVA providers at that meeting,” Mr Capon said.

He also commented that IVAs can be very helpful to people in financial difficulties as long as they are “in the right circumstances”, but added that anyone thinking of entering into an IVA should be fully aware of the implications.

According to the government, the IVA take-up rate in England and Wales has soared in recent months and credit reference agency Experian expects the number of IVAs to overtake the number of bankruptcies this year.

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The charity expects debt management advice to increase this year and said that BBA figures which show credit card borrowing to have contracted merely shows that people are borrowing in different ways.

However, David Dooks, BBA director of statistics, said the fact that credit card borrowing fell last year shows that the appetite for consumer credit has “clearly waned”.

Citizens Advice, which dealt with 1.4 million debt problems last year, said that problems with credit cards, store cards, unsecured personal loans, overdrafts and mail order debts were the main reasons people sought help.

However, housing debt, such as problems with mortgages, was up 20 per cent last year, with repossession or the threat of repossession a major problem.

According to the BBA, net mortgage lending rose by £66.8 billion last year, a 20 per cent increase on 2005.

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In a reiteration of its stance on the issue, Which? has said that bank charges should not only be fair but should reflect the true administration costs.

The consumer group, which calculated that bank customers pay £4.7 billion each year in default charges, has issued a so-called Anti-Social Banking Order on current account providers because of the way they treat customers who have unauthorised overdrafts.

Personal finance campaigner for the organisation, Emma Bandey, said that bank charges “should not be, as they seem to be now, an arbitrary figure picked to make the most money out of unsuspecting customers”.

She added: “The legal position is clear; default charges for bank accounts cannot be disproportionate to the cost of administrating the charge.”

Last year, Ian Mullen, head of the British Bankers’ Association told BBC Radio 4’s Money Box programme that banks were not charging customers more than the real costs involved.

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