Past Articles for October, 2007

British consumers looking to borrow money via a personal loan have been warned that they could face added repayment costs by deciding not to agree a deal online.

According to financial comparison firm uSwitch.com, there is a significant discrepancy between the annual percentage rate (APR) offered on personal loans arranged online and those agreed with a high street lender.

In fact, with debt management problems spiralling out of control for many people across the UK, uSwictch.com is convinced that taking on a personal loan offline could mean paying an “uncompetitive” APR.

“As well as comparing both online and offline rates, consumers need to approach providers that operate ‘personal pricing’ with caution,” a statement from uSwitch.com explains.

“As [offline loan] rates aren’t advertised, this means that customers going into a branch cannot expect to see ‘typical’ APR’s advertised and borrowers are given a ‘personal’ rate.”

Millions of Britons have found it more difficult to become debt free in recent months in the wake of five increases in the cost of borrowing since August of last year.

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The consumer panel established by the Financial Services Authority (FSA) has welcomed a recent review highlighting the important role generic financial advice is set to play for household finances across the UK.

According to the government commissioned Thorseen Review, a freely available support and advisory service will help future generations of British consumers avoid
debt management disaster.

This assertion is backed by the FSA’s consumer panel, which describes a generic advisory service as being a “crucial piece of the jigsaw”, in terms of promoting greater financial awareness around the country.

“A system of providing non sales-related generic advice in financial services will be all the more vital as we move towards personal accounts for pensions from 2012,” said John Howard, chairman of the FSA’s consumer panel.

“Personal Accounts will give people more responsibility for their long term savings, so they will need advice and support to understand the decisions they will be making.”

The average household in the UK has around £8,870 worth of personal loan or credit card debt, according to figures from Credit Action.

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Mortgage borrowers around the UK are feeling the financial squeeze as rises in the base rate of interest continue to have an impact, according to recent research.

Figures compiled by Alliance & Leicester show that saving rates among people struggling to deal with mortgage-related debt management issues are falling.

In addition, many households with outstanding mortgage arrears are aiming to become debt free and as a result are cutting back on their unsecured borrowing levels, the financial services firm reports.

“Families are cutting back on their borrowing and their saving to help ensure they can afford higher mortgage and other household bills,” said Sean Murphy, director of strategic planning at Alliance & Leicester.

“Their family budgets have been under pressure and they have cut their cloth accordingly,” he added.

Earlier this year, the Consumer Credit Counselling Service forecast that British mortgage borrowers would be “on the rack” financially throughout 2007.

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The many millions of text messages sent each day across the UK are costing consumers large sums of money and could be adding to the difficulties of those aiming to become
debt free, new research has suggested.

Flirty text messages have become increasingly common in recent years and Britons now spent around £231 million each month on trying to find love via their mobile phone, according to figures from uSwitch.com.

However, for many people around the country text messages have not only been expensive but heart-breaking as well, with close to six million Britons believed to have been dumped by text.

Steve Weller, head of communications services at uSwitch.com, said: “If you’re a big ‘flexter’ then you should make sure you’re on the right tariff and select a service that has the right amount of texts for you.

“By shopping around you could save up to £113 a year giving you more than enough to cover the cost of that first date.”

Recent research by uSwitch.com showed that typical disposable incomes in the UK are now at their lowest levels for a decade.

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Millions of British credit consumers are dishonest about their debt management problems, according to a recent study.

Figures compiled by Fool.co.uk demonstrate that as many as one in six people around the country has at some point lied about the state of their finances.

In addition, the research from the financial comparison firm found that young people are the most likely to lie about debt management, with almost one in four Britons aged between 18 and 24 admitting to being dishonest about money-related matters.

Psychologist Donna Dawson, commented: “It isn’t surprising that money is such an emotive issue, because how we manage our money is a reflection of how well we’re seen to be coping with life in general.

“We lie about our financial problems in order to save face and to avoid being regarded as greedy, disorganised, naïve or out-of-control - all traits associated with over-spending or financial mismanagement.”

Earlier this year, accountancy firm KPMG forecast that more than 130,000 people in England and Wales would be declared insolvent over the course of 2007.

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Transferring debts to stave off financial disaster can be a “risky business”, according to Rob Kenley, head of credit cards at online comparison website moneysupermarket.com.

However good a person’s credit card deal might be, using money borrowed in this way to pay off mortgage arrears or any other form of debt is very unlikely bring about a stable financial situation for anyone, Mr Kenley makes clear.

“Repaying a mortgage with a credit card is a highly risky business - especially for anyone with a card on a standard interest rate of around 16 per cent and who generally only repays the minimum balance at the end of the month,” he said.

“If people do not have the means to repay their mortgage from their normal monthly income then using a credit card to make repayments could easily lead to defaulting on the outstanding mortgage or the credit card debt.”

Mr Kenley was responding to recent research from the homelessness charity Shelter that showed more than a million UK consumers are taking on credit card debt in order to pay rent or to meet the repayment demands of their mortgage providers.

The UK’s payment association Apacs recently released a guide aimed at encouraging young consumers to use credit cards in a responsible way.

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Demand for secured borrowing deals is likely to keep rising in the UK, according to the market analyst firm Datamonitor.

Despite the spiralling debt management problems faced by millions of British consumers and the so-called credit crunch of recent months, people are expected to continue wanting access to personal loan arrangements.

According to Datamonitor experts, the total amount of money loaned to UK consumers will top £10.2 billion during 2011 and the market for personal loans is expected to grow by close to five per cent on an annual basis, the Press Association reports.

“The US sub-prime mortgage crisis and global credit crunch will affect the market in the short term,” said Maya Imberg, an author on the recent Datamonitor report.

“However, the UK secured personal loans market continues to portray an encouraging future in the long term.”

The UK’s personal debt management mountain is currently worth more than its annual gross domestic product, accountancy firm Grant Thornton revealed recently.

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Young British travellers often find themselves with a debt management headache to deal with when they head back to the UK, it has been suggested.

Tom Griffiths, founder of gapyear.com, explains that people taking time out between school and university to go traveling the world tend to accumulate large amounts of debt because of an instinct to ‘but now, pay later’.

However, Mr Griffiths insists that when these intrepid young Britons return to the UK they are focused on their finances and keen to become debt free.

“When you’re out there, the natural thing is for you to say: ‘I’m going to buy these things now, and pay later,’” he said.

“Unfortunately, when you’re on a long trip, these things can add up. People don’t realise how much it costs just to feed and house themselves.”

A study released by Alliance & Leicester recently showed that millions of people around the UK set off on holiday without having repaid the debt relating to their previous excursion.

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Increases in the cost of borrowing are starting to have a real impact on the activities of consumers across the UK, recent research has suggested.

With millions of British consumers struggling to become debt free, the amounts being lent by mortgage providers have fallen considerably after five rises in the cost of borrowing since August of last year.

The value of home loans fell by 12 per cent from August to September, which is more than double the typical drop for this period, the Council of Mortgage Lenders (CML) has revealed.

A statement from the CML explained: “This easing in the market is another sign of the expected consumer response to the five interest rate rises experienced since August 2006.

“In the coming months, we expect to see monthly lending levels dip below their 2006 levels for the first time this year as rate effects are exacerbated by the recent liquidity problems in the mortgage market.”

More evidence of Britain’s debt management woes was revealed this week with the Shelter charity showing that a million people across the country have used their credit cards to pay rent or to meet mortgage repayment demands.

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Many thousands of British consumers are leaving their debt management troubles behind and jetting off on holiday without having paid for their previous trips, it has emerged.

Figures from Alliance & Leicester show that millions of people across the country are fuelling their holiday expenditure by borrowing heavily and taking months to pay off the resulting debts.

Around 900,000 Britons are yet to pay off the bill for their previous holiday and more than one in five spent a full 12 months repaying debts accrued in an eagerness to get away, a recent study discovered.

“It’s understandable that many of us will want to erase the damp squib of a summer from our minds by treating ourselves and making the most of our time away, however, many holidaymakers run the risk of letting their holiday dreams turn into a potential financial nightmare,” said Ross Dalzell, Alliance & Leicester’s savings manager.

Statistics from Credit Action show that the UK’s debt management burden increases by around £1 million every four minutes.

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