Past Articles for July, 2007

Financial services firm the Alliance Trust reports that real earnings across the country are at their lowest level in a decade, but household spending is yet to be reigned in by millions of families.

Pressure is being put on household finances for a variety of reasons, most notably the increasing repayment levels for mortgage borrowers and the rising council tax rates, Alliance Trust suggests.

“Our objective look at the many financial components facing today’s households remains fairly bleak,” said Shona Dobbie, Head of Alliance Trust Research Centre.

“Homes are still being squeezed by lower real earnings growth at the same time as they face higher mortgage payments and council taxes,” she added.

A report from the Consumer Credit Counselling Service earlier this year predicted that debt management problems would put millions of British homeowners “on the rack” financially throughout 2007.

Share This

YouGov compiled the latest data that shows almost half of all employed Britons fell into the red at some point during the last year, while only 40 per cent of 18 to 24-year-olds were able to avoid using their current account overdraft.

Furthermore, as debt management problems worsen around the country, the figures show that for those who cannot avoid their overdraft, the 20th of each month is the most common day to head into the red.

“It’s no surprise so many people are permanently in the red - with interest rates having risen five times in the past year consumers are no doubt feeling the squeeze,” said Kevin Mountford, head of current accounts at moneysupermarket.com.

“Your overdraft can be a murky place to reside - especially if you are close to the edge of the authorised limit,” he added.

The overall level of Britain’s debt management burden increases by close to £1 million every four minutes, according to figures from Credit Action.

Share This

The average charge for using a credit card outside the UK stands at 2.75 per cent, but recent research from the Post Office shows that a full 47 per cent of British consumers are not aware that holiday spending can mean added fees.

And the issue could lead to people across the country increasing their debt management problems, because ten million Britons have no plan to limit their spending while on holiday, the latest figures indicate.

Head of lending at the Post Office Gary Fitton said: “We are now four times more likely to spend on plastic abroad than ten years ago. It’s shocking not only to see how much people are being penalised to use their cards on holiday, but how few are aware of this.

“We urge holidaymakers to check with their bank or credit card provider whether they will be paying a fee to shop overseas before they go.”

Figures from uSwitch.com recently revealed that millions of consumers in the UK could soon be paying off their credit card debt for decades if they repay at the minimum rate.

Share This

The company reports that while the average amount of personal loan and credit card debt amounts to around £10,000 in the UK, the average consumer is convinced their debt management burden is only half this figure.

Furthermore, the latest study from Mintel found that better off Britons borrow to invest, while people with lower incomes tend to add to their debt management problems to fund living expenses.

“While Brits do seem to have a good grasp of their mortgage borrowing, they are wildly underestimating the amount of money they owe on credit cards and loans,” said Toby Clark, senior finance analyst at Mintel.

“Clearly, it is a lot easier to keep an eye on a single mortgage, than it is to juggle a couple of credit cards, a personal loan, a car loan and maybe even an overdraft as well.”

Howard Archer from Global Insight asserted recently that British credit consumers could face further financial pressures in months to come as a result of a further increase in the cost of borrowing.

Share This

Borrowing money has become a common feature of 21st century British life and while some consumers are able to control their spending, many others find themselves in a cycle of debt that is difficult to stop, Tim Moss from Moneysupermarket.com has suggested.

“Whereas 40 years ago, being in the red was considered a last resort, it seems many of today’s Britons are much more accustomed to taking on debt - although actually being able to control it is another thing,” the personal finance expert commented.

“Debt has certainly become the common curse of modern times,” he added.

Mr Moss’ comments come after both the Consumer Credit Counselling Service and Citizens Advice revealed that their staff are dealing with ever more requests for debt advice.

Meanwhile, accountancy firm KPMG anticipates that more than 130,000 consumers in the UK will enter an Individual Voluntary Arrangement over the course of this year.

Share This

Figures collected by online mortgage firm mform.co.uk show that with close to 14 million Britons aiming to buy a house in the next three years, more than half will take on loans worth three times the annual wage.

In addition, the recent study discovered that more than a quarter of those people aiming to get a foot on the housing ladder during the next three years would be prepared to borrow at least four times their annual earnings.

Francis Ghiloni, from mform.co.uk, said: “The average UK property has increased dramatically in recent years, growing by 8.9 per cent during the past 12 months alone.

“Indeed, we estimate that the average mortgage holder now pays over £7,000 a year on their mortgage, a rise of over £2,000 since 2004.”

Excluding mortgage arrears, the typical household debt management burden in the UK amounts to more than £8,800, Credit Action reports.

Share This

Some of the largest financial services firms in Britain have been cutting their minimum repayment rates in recent months and uSwitch.com is concerned that the changes could lead to consumers taking considerably longer to pay off their credit card debt.

Indeed, the price comparison firm insists that if minimum payment rates are maintained at their current level there will soon be thousands of people paying off their mortgages before their credit card debts.

“Despite the introduction of ‘health warnings’ on credit card statements, the implications of making the minimum repayment each month are still not clear enough to consumers,” said Mike Naylor, personal finance expert at uSwitch.com.

“There is little justification for setting minimum repayments at just two per cent and we believe that it is time that the industry agreed a standard minimum repayment amount of at least three per cent on all credit cards.”

A study by Abbey revealed recently that millions of British consumers are adding to their debt management problems by spending money on what the company called “pointless purchases”.

Share This

The government agency charged with supplying unemployed Britons with their benefit money, Jobcentre Plus, has undergone a series of modernisation initiatives in recent months that have left some of the most vulnerable consumers facing a financial struggle, Citizens Advice insists.

Long delays in payment allocations and a lack of face-to-face services from Jobcentre Plus have left thousands of people out of pocket and facing serious financial problems, according to the nationwide charity.

“Jobcentre Plus failed to ensure there was adequate alternative access to benefit services for claimants who are unable to use the phone, who don’t have access to a landline, or who simply can’t get through,” said Citizens Advice chief executive David Harker.

“We now need to see adequate resources committed to ensuring that all their customers get a service that meets their needs, and we look forward to working with Jobcentre Plus to monitor their progress.”

More than 1.4 million people in the UK approached Citizens Advice about debt over the course of last year, according to the organisation’s own figures.

Share This

Howard Archer, chief UK and European economist for Global Insight, is convinced that the Bank of England will opt to raise the base rate of interest at some point later this year.

Any increase would lead to added financial pressures for credit consumers and mean a rise in repayment rates for homeowners around the country.

Mr Archer said: “Interest rates are still likely to rise to six per cent in the fourth quarter unless there is clear evidence that the 125 basis points rise in interest rates enacted so far is increasingly feeding through to dampen economic activity and contain underlying inflationary pressures.”

The Bank of England decided to raise the cost of borrowing this month for the fifth time since August of last year.

Share This

Figures from the financial services firm show that close to a third of Britons decide to live with their parents while they attend university in an effort to avoid debt management problems when they graduate.

And while millions of consumers across all age groups search for a debt solution, the fear of financial woe is rising among the student population with nine per cent more people opting to cut costs and live with their parents this year compared to last.

Caroline Brady, a spokesperson for Lloyds TSB student banking, said: “Students face higher levels of debt than ever before and whilst it’s essential that they find ways to keep costs to a minimum it is also important that students think carefully about all the options.

“Savvy budgeting skills can really help students to start off on the right foot while they get to grips with managing their own money.”

Meanwhile, it was revealed last month that HSBC is planning to scrap its interest-free graduate banking services later this year.

Share This