Past Articles for September, 2007

Financial comparison service uSwitch.com has warned that British consumers could face significant repair bills if they fail to cover themselves against boiler breakdown as the winter months approach.

The company is convinced that many people around the country will neglect to insure themselves against this eventuality and will collectively pay close to £64 million to have their heating systems repaired.

Indeed, uSwitch.com suggests that the problem could be particularly widespread given the levels of personal finance and debt management pressure being faced by millions of consumers.

Ann Robinson, director of consumer policy at uSwitch.com, commented: “Household budgets are stretched so tight that it’s very tempting to try to make a quick saving by not bothering to cover things like your boiler.

“Unfortunately this small saving can end up costing you dear - if your boiler packs up this winter you are likely to be facing a £500 bill, plus the misery of trying to get somebody out quickly to sort it out for you.”

Earlier this year, a report from the Consumer Credit Counselling Service suggested that the burden of debt management difficulty is increasingly shifting to more elderly generations in the UK.

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Banking groups in the UK are increasingly shying away from what they deem to be risky borrowers, according to reports.

With so-called bad debt hitting the profits of some of the foremost banks in the country, these organisations are tending to be more reluctant to lend money to individuals with poor credit ratings, the Daily Mail suggests.

Barclaycard is among the groups looking to “crackdown” on potential risks to its capacity to lend money profitably, as part of what the newspaper claims to be a “general squeeze on the availability of high street credit”.

A spokesperson for Barclays is quoted as saying: “We have been going through a review since 2006 and lowered credit limits for 500,000 cardholders where customers are over their limits or where they have become over extended.”

Meanwhile, many borrowers in the UK are facing further debt management pressures as a result of five increases in the base rate of interest since August of last year.

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Debt consolidation is the foremost reason why British consumers take out a loan, one expert has made clear.

A total of more than 40 per cent of people opting to borrow money do so in an effort to reduce their debt management worries, according to Steve Baillie, head of loans at Sainsbury’s Bank.

However, Mr Baillie insists that with debt management problems spiralling out of control for many people around the country, consumers need to consider their options carefully before taking on a loan.

“If you are going down the consolidation route you have to be strict with yourself so that you’re not just deferring the problem for future months and years,” he said.

“Shopping around is the most important thing but it is entirely up to the customer’s own choice.”

Figures released by Credit Action recently show that a total of £214 billion was lent to individuals in the UK during July of this year alone.

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Despite worsening debt management problems faced by millions of UK consumers, one MP has claimed that the country’s personal borrowing levels are affordable.

John McFall, Labour chair of the House of Commons Treasury select committee, insists that the dramatic increase in personal debt seen in recent years is the result of rising aspirations among British consumers.

Indeed, citing recent assertions by the Bank of England’s governor Mervyn King, Mr McFall maintains that the debt management problems among consumers do not present a “systematic risk” to the country.

“There are a number of people, a small percentage, who have unsecured loans and are vulnerable and we have to do something about them; but can we afford the debt at the moment? The answer is yes,” he told BBC Radio Four’s Daily Politics programme.

“People are taking to debt because they want to achieve certain things in their life. They want to be able to have a better house, or a better car, or whatever else it is and the important question for everyone is can they afford that.”

Figures released recently by Citizens Advice showed that record numbers of people are now approaching its staff for debt advice.

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The need for financial understanding has “never been higher”, according to the Open University.

Announcing the third run of its financial education course, the university has said that the knowledge dispensed to those who attend can “better equip” people to deal with debt management and other financial matters.

“Just a quick glimpse at this week’s front pages proves that the need for financial understanding has never been higher,” said Ian Fribbance of the university’s faculty of social sciences.

Mr Fribbance added that it is important for consumers to understand how economic changes “affect them personally”, with debt management arguably one of the key financial situations altered by economic changes.

The university aims to focus on a number of areas through the course, including how economic changes affect personal finance, financial planning and the implications of extending a family in a financial way.

According to its website, the Open University was started in the 1960s.

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Despite a fall in mortgage lending in August, figures are still at “very high levels”, according to the Council of Mortgage Lenders (CML).

Gross mortgage lending for August stood at £32.2 billion in total, a six per cent fall on the July figure of £34.1 billion, but the CML has still characterised this as high and had a warning for the next few months for those taking on debt.

“The events of the past week have shown us how very quickly situations can change,” said CML director general Michael Coogan.

“It makes sense for consumers to continue to plan for rates at or about their current levels for the foreseeable future - we are not out of the woods yet.”

Mr Coogan’s warning suggests that those struggling with debt management could find themselves in need of further debt advice until the current period is negotiated.

The CML statistics arrive in the week when the British Bankers’ Association (BBA) noted a fall in unsecured borrowing levels in August.

Lending on credit cards, overdrafts and loans all fell, according to the BBA.

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The Association of British Credit Unions (Abcul) has welcomed the government’s proposed actions against illegal lenders.

Mark Lyonette, chief executive of credit unions representative Abcul, has called the announcement made earlier in the week by John Hutton “fantastic news”.

The move could see the reduction in lenders that target the sub-prime and non-standard market, who because of a lack of debt advice, turn to such lenders believing they have no other option.

“The government’s latest investment in cracking down on loan sharks will add extra weight to our work promoting safe, affordable financial services,” Mr Lyonette said.

“Our message is that there is no need for people to turn to illegal lenders.”

Mr Lyonette added that credit unions are an example of the “many legitimate alternatives” that exist to loan sharks, with people looking for a debt solution able to seek this elsewhere rather than borrowing more from illegal lenders.

Mr Hutton, secretary of state for business, enterprise and regulatory reform, pledged £3 million to the anti-loan shark action earlier this week.

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Liberal Democrat Treasury spokesman Vince Cable has declared that credit unions play a “crucial role” in helping financially excluded borrowers.

Addressing an event hosted by the Association of British Credit Unions, Mr Cable suggested that sub-prime borrowers, such as those who have experienced bankruptcy, benefit from the existence of credit unions.

“It is clear that credit unions have a crucial role to play in relation to financially excluded and non-standard borrowers,” Mr Cable said, before adding that the government should be looking to remove barriers preventing credit unions’ work.

John Lamidey of Cattles said that while there is plenty of attention on those who are having debt management problems, there is not enough focus on the kind of markets credit unions work with.

Such people - who have in some cases used a debt solution - require “non-standard” products according to Mr Lamidey.

Cattles is a financial services group specialising in lending to the non-standard consumer market, according to the firm’s website.

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Buying a new house and taking on the debt that such a process includes is more daunting than marriage, divorce, or starting a new business for Britain’s 18 to 24-year-olds, according to the latest research.

The AA has revealed that seven per cent of those who buy a new home are concerned about being ripped off by estate agents, which could leave them needing debt advice or further from a debt free life.

Further to this, some 29 per cent are unsatisfied with their new property when they finally move in, according to the research, suggesting the accruing of extra debt may be a waste of time.

“For most people, buying a home will be the most important purchase they make in their lifetime, so it’s really important to get it right and make sure you have no regrets once the contract is signed,” said Janet Pell, head of AA Home Insurance.

Advice on the housebuying process is sought from the internet by almost one in five (18 per cent), while 30 per cent would turn first to an estate agent, according to the AA research.

Last month uSwitch revealed that a number of graduates have had to put off the purchase of a house due to the level of debt they are servicing.

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Credit card debt and unsecured lending both fell in August 2007 while mortgage lending rose, according to the latest figures from the British Bankers’ Association (BBA).

The BBA said that net mortgage lending rose by an underlying £6.1 billion during August, a rise on the £5.8 billion from July and the £5.4 billion average monthly figure.

Meanwhile, credit card borrowing fell by £100 million and loans and overdrafts fell by £300 million, suggesting that debt advice has been taken onboard and that people are attempting to clear debt.

“Banks’ mortgage lending - standing at £550 billion - rose by more than the recent trend, in part reflecting higher remortgaging activity,” said David Dooks, BBA director of statistics.

“Unsecured borrowing fell and there was a further reduction in credit card debt, while customers’ deposits of £520 billion continued to grow in line with the recent pattern.”

According to the BBA, personal deposits grew by £4.4 billion, suggesting that the nation is saving more.

Research last month from Unbiased.co.uk revealed that more than 2.5 million Britons have no idea what their total figure of debt is.

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