Past Articles for April, 2007

Peter Spencer, chief economic adviser to the Ernst & Young Item, maintains that as the number of people facing debt management trouble increases, the potential impact of an interest rate rise is heightened also.

And with such a rise looking likely next month, Mr Spencer suggests that many credit consumers across Britain could soon find it more difficult to find a long-term debt solution.

Speaking on BBC Radio Five Live, the finance expert said: “We are borrowing to finance our consumption and of course we’re doing that at a time when the economy and everything else, our personal finances, are looking pretty sweet.”

“The worry is what happens to our own finances when things turn sour,” he added.

According to figures released earlier this month by Credit Action, the average household debt management mountain in the UK amounts to £8,793, excluding mortgage arrears.

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While some people might find that a financial restructuring process can help them become debt free, there are a number of different options available and the best course of action is dependant on specific circumstances, suggets Stephen Rose, director of Debt Advice Bureau.

Mr Rose maintains that to some degree a decision over how best to deal with a debt management problem depends also upon the attitude and preference of the indebted individual.

“It all comes down to the circumstances. For some people, just a reanalysis of their budget and where they’re spending their money may be sufficient,” he said.

“For others, you may be looking at a formal arrangement such as bankruptcy or an IVA.”

Thousands of people reportedly approach Debt Advice Bureaux for online requests regarding advice on becoming debt free, the not-for-profit and independent organisation reports.

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Figures from Scottish Widows Bank reveal that over the course of the last ten years, the number of people handing over cash to their children without wanting it returned has fallen six per cent.

In addition, around 40 per cent of university graduates would be unable to make their way on to the first rung of the UK’s housing ladder, were it not for financial help form the so-called “bank of mum and dad”, the latest research suggests.

Richard Clark, head of product development and marketing at Scottish Widows Bank commented: “Even graduates who have been working for several years are forced to borrow money from their friends and family.

“While it’s good to see that people are getting help from their loved ones, some of these loans might be leaving the bank of mum and dad empty.”

Meanwhile, the Bank of England looks likely to increase the pressure on the millions of Brits facing debt management trouble by raising interest rates next month, in light of the most recent inflation level data.

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Around a quarter of Brits have fallen victim to this kind of crime during the last half-decade and costly personal possessions are often never seen again, a Halifax Home Insurance study has demonstrated.

Despite the billions of pounds worth of mobile phones, wallets and jewellery stolen on British streets in the last five years, many seem reluctant to claim money back on their home insurance, with only nine per cent of mugging victims opting to do so, Halifax reports.

Vicky Emmott, senior underwriter at Halifax Home Insurance, said: “People should be discreet with expensive items and where possible keep items safely secured to reduce the risk of theft.

“Householders can protect themselves against the financial costs of theft by ensuring they have adequate home insurance cover that protects them for the loss or theft of items when outside the home.”

Meanwhile, figures from national charity Credit Action show Britain’s personal debt management problems increase to the tune of around £1 million every four minutes.

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Figures from Alliance & Leicester reveal that what are termed the “Friends generation” account for the largest amounts of borrowing and spend the most on interest repayments as they aim to become debt free.

In addition, this sector of British society has become the most likely group to miss repayments on their various credit arrangements and to return the minimum allowed on credit card debt repayments.

“The picture for the under 30s is dominated by student loans,” said Chris Rhodes, director of retail banking at Alliance & Leicester.

“A hangover of student debt is constraining their appetite for other borrowing and delaying their ability to get on the housing ladder.”

Earlier this week, economic spokeperson for the Liberal Democrats Vince Cable MP suggested that the UK’s debt management problems look set to get worse.

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Analysts at the centre have been consulting what they consider to be key indicators of consumer spending habits over the course of the last ten years and make clear that many households have been maintaining lifestyles beyond their financial means.

As a result, many Brits look set to struggle to avoid bankruptcy and find an appropriate debt solution, particularly as interest rate rises begin to bite, experts from the ATRC suggest.

“Debt, in particular, is becoming an ever bigger burden for many households, particularly during a period in which interest rates and the cost of servicing debt is increasing,” a statement from the research centre read.

According to figures from nationwide charity Credit Action, Britain’s total debt management mountain rises by £1 million every four minutes.

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A study by financial services firm Abbey, carried out to coincide with the 20th anniversary of the first airing of The Simpsons on American TV, demonstrates that many of the average Brits’ expenditures have been forced up over the last two decades.

Mortgage payments have increased by 265.7 per cent during this period and the average cost of on-sale beer has risen by around 155 per cent, making a debt solution more difficult to find for many Homer Simpson-like British consumers, Abbey’s research suggests.

Reza Attar-Zadeh, head of savings at Abbey, said: “This research shows the spiraling cost of living.

“As is the case for many Britons, Homer…may well have to ditch the high inflation products - like donuts and beer at Moe’s Tavern.”

Meanwhile, statistics from Saga Personal Finance recently revealed that many British consumers are “drastically” underestimating the costs associated with paying for long-term elderly care.

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A Yorkshire Bank Mortgages survey has revealed that a full 44 per cent of new homebuyers in the UK could be risking debt management ruin by failing to make allowances for added costs such as legal fees or stamp duty.

Furthermore, around 40 per cent of those polled by the financial services provider suggested that any cash they have left after moving house is earmarked for home improvement ideas and not for essential layouts.

Gary Lumby, head of retail at Yorkshire Bank, said: “First-time buyers particularly need to make sure they are aware of the full costs involved with buying their first home and don’t try to over stretch themselves in the first year.

“If interest rates go up again, they could be particularly hard hit if they face larger monthly outgoings and have no leeway.”

A report from the Consumer Credit Counselling Service released recently suggested that millions of British homeowners look set to suffer from debt management concerns throughout 2007.

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Many Brits are taking out housing loans that can often put them at risk of debt management disaster, Merseyside MP Ben Chapman suggested to the prime minister.

Mr Blair said he considered the issue to be of “crucial” importance and argued that to help people facing this kind of debt management problem, more social housing and shared equity schemes need to be made more widely available.

Peter Tutton, social policy officer at Citizens Advice, commented: “Large mortgages can leave people with less room to maneuver if things go wrong.

“[We] are seeing a marked increase in cases where clients have taken on a mortgage but soon afterwards found themselves struggling with the repayments.”

Meanwhile, Brits look set to face more financial pressures following the most recent inflation figures, as a further rise in the cost of borrowing is now widely expected next month.

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The former education spokesman for the Liberal Democrat party Phil Willis MP recently echoed calls from ifs to establish financial education as a distinct part of national curriculum, which can stand alone as an examinable subject area.

Only in this way will young Britons become more financially capable and able to avoid debt management trouble and the need for a debt solution, both Mr Willis and the school of finance suggest.

“Today’s young people face a more complex financial picture…it appears that as we have become more affluent we have abandoned…our senses when it comes to finance,” Mr Willis told the House of Commons recently.

According to figures from accountancy firm KPMG, more than 100,000 people in the UK made an Individual Voluntary Arrangement application during 2006.

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