Past Articles for October, 2007

The Nationwide Building Society has called on credit card service providers to make clear to their customers how their order of payment systems operate.

In around a year’s time these service providers will be obliged by law to be more transparent with regards to credit card order of payments, but the building society suggests that the delay will make it more difficult for many consumers to clear debt in 2008.

In fact, Nationwide claims that the relative lack of transparency over order of payments adds around £500 million to the UK’s overall credit card debt each year.

Nationwide director Jeremy Wood said: “Most providers apply payments to the cheapest debt first making it more expensive for the consumer and more profitable for themselves.

“What seems like a good deal at first can become unnecessarily costly for cardholders unless they clear their balance in full.”

Earlier this year, the accountancy firm KPMG predicted that debt management problems would see more than 130,000 people declared insolvent around the UK over the course of 2007.

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A range of factors will contribute to seeing repossession rates in the UK rise considerably over the course of next year, according to the Council of Mortgage Lenders (CML).

The council expects to see debt management become increasingly difficult for many homeowners around the country and forecasts that there will be 50 per cent more home repossessions in 2007 than this year.

Moreover, there are likely to be around 25,000 more homeowners falling thee months or more behind on their mortgage loan repayments next year, the council suggests.

Director general of the CML Michael Coogan said: “The housing and mortgage markets are facing their most challenging period since Labour came to power a decade ago.

“Most borrowers will cope, but not everyone will escape unharmed from the effects of a slower market,” he added.

The Consumer Credit Counselling Service claimed earlier this year that homeowners around the UK would be “on the rack” financially throughout 2007.

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As many as one in five British consumers are still paying off credit bills associated with money borrowed last Christmas, according to recent research.

Figures compiled on behalf of the money saving website Savebuckets.com show that more than 40 per cent of people went into the red in order to fund their festive activities last year.

Considerably larger sums of money were borrowed last Christmas than was the case in previous years and during January the majority of people were still aiming to become debt free.

Marc Ames, marketing manager of Savebuckets.com, said: “Many Britons have struggled to pay off their credit card spending from last Christmas.

“With rising costs of living and interest rate hikes curbing spending power this year, it is likely that many will have to make cutbacks this Christmas.”

In late December last year, the Citizens Advice charity called on Britons to begin the new year with a “debt detox”, in light of the rising levels of debt management problems around the country.

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The burden of debt management in the UK will continue to weigh heavy and impact consumer spending in the long-term, according to one expert.

Howard Archer, chief UK and European economist at Global Insight, is convinced that spiralling debt problems and higher interest rates will mean household finances will continue to feel the pressure over the coming months.

In response to figures from the Bank of England demonstrating that credit card borrowing levels increased last month, Mr Archer insisted that debt management will become increasingly important for consumers around the country.

“Going forward, heightened debt levels and higher interest rates mean that there is an increasing need for many consumers to do all that they can to improve their finances,” he said.

“We suspect that this will increasingly weigh down on consumer spending, along with a slowing housing market and muted real disposable income growth,” he added.

Interest rates have been increased five times since August of last year in the UK, putting added pressure on many of the country’s indebted households.

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Mothers around the country can help ensure that they avoid serious debt management problems by drawing up a financial plan, according to the Egg banking firm.

The assertions from Egg come after the company found that new mums in the UK spend a collective total of close to £6 billion each year on items for themselves or for their baby.

Much of this spending is down to the perceived pressure to be a perfect mother, Egg suggests, pointing out that many of the latest “must have” items for mothers can be very expensive.

Alison Wright, chief marketing officer at Egg, said: “Certain life stages, such as having a baby, mean that we occasionally need a cash injection. Financially a new baby can cause havoc because of the combined burden of extra costs and reduced income.

“This is where a little bit of financial planning can go a long way ensuring new mums can enjoy being new mums without having to worry about money matters.”

Figures compiled by Scottish Widows earlier this year suggest that debt management worries have forced millions of mothers around the UK back to work.

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Many of the UK’s young people are facing serious financial difficulties as they begin their adult life, according to recent research.

Figures compiled by the Children’s Mutual show that graduates face an average of around £12,000 worth of debt when they leave university and many of these people hold out little hope of ever becoming debt free.

Moreover, the first rung of the UK’s housing ladder is becoming increasingly out of reach for young Britons, with 40 per cent of teenagers now convinced that without parental help they will be unable to buy their own home.

“Parents are increasingly finding themselves making life-changing decisions to give their children any chance of avoiding financial disaster in early adulthood,” a statement from the Children’s Mutual read.

“And these parents could face a bleak financial future as their children try to make the transition to adult life.”

The UK’s payments association Apacs recently launched a guide aimed at helping young British consumers avoid excessive credit card debt.

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Borrowers across Britain have been warned that they could still be vulnerable to the implications of the so-called credit crunch that is affecting financial markets around the world.

Reflecting on a report from the Bank of England, the comparison firm Fool.co.uk suggests that people whose debts amount to over 55 per cent of their household income could be “in jeopardy”.

In addition, as millions of consumers aim to become debt free, Fool.co.uk warns that those with no savings and two-thirds of their home loan outstanding could be at risk of financial difficulties resulting from the credit crunch.

David Kuo, head of personal finance at Fool.co.uk, said: “Consumers should draw up a statement of affairs immediately to get a useful snapshot of their finances.

“The snapshot will tell, at a glance, whether you fall into one of the ‘at risk’ categories.”

Including mortgage arrears, the debt management burden faced by a typical British household is over £56,000, according to figures from Credit Action.

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Future generations of Britons are likely to face serious debt management pressures if they want to get onto the housing ladder as house prices are expected to outstrip wage increases in years to come.

A new study from the National Housing and Planning Advice Unit claims that unless millions of new homes are built around the country, first-time buyers will be obliged to take on a home loan that is as much as ten times their annual income.

Housing minister Yvette Cooper responded by saying: “This report does provide a further wake-up call to regional assemblies, particularly those in the south, and makes clear they need to raise their ambitions and build the homes the first-time buyers and families need.”

Mortgage borrowers around the country are already facing significant financial and
debt management pressures as a result of five rises in the cost of borrowing since August of last year.

Meanwhile, a recent report from homelessness charity Shelter showed that around one million Britons have used credit card debt to pay off mortgage repayment demands.

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British consumers are missing out on energy deals that could save them sizable sums of money on an annual basis, it has been claimed.

Millions of people are hindered in their efforts to become debt free because of inflated energy bills, but the market is a competitive one, according to Graham Self, director of UKPower.co.uk.

The comparison website’s director insists that fear of the unknown can be a deterrent in this regard and can prevent people from exploring their energy supply options and making significant savings.

“Some people don’t know what is involved [in changing their energy supplier], they wonder if they are going to have o have someone come round to their house to change pipes and wires.

“There is a bit of naivety about how it actually works. It’s not like car insurance, for example, where people automatically shop around.”

A study of the energy sector by the Ofgem watchdog group discovered that around four million UK consumers changed their policy over the course of last year.

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With more an more UK consumers dealing with debt management at an early age, calls have been made to see schools around the country focus more on financial education.

Alastair Mathews, director of policy for the Personal Finance Education Group, insists that young people are aware of the implications of poor financial management, but often lack the skills needed to avoid debt disaster.

Schools around the country are guilty of approaching financial issues in a purely academic way that does not address how debt management can play an important part of adult life, Mr Mathews suggests.

“There’s no doubt that young people now recognise that they’re going to be incurring considerable financial expenditure in the years immediately after they turn 18,” he said.

“Young people are serious and responsible about money anyway, I think they often just lack the knowledge and skills they need to make the best use of it.”

A survey conducted by NatWest and UCAS recently showed that when students leave university they are already laden with an average of more than £12,000 worth of debts.

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