Past Articles for January, 2008

A warning has been issued over a clause in some mortgage deals that could see British borrowers lose their homes without realising they were at risk.

Certain lenders include an “all monies charge” in their mortgage contracts that mean customers who later take on a personal loan or overdraft could be liable to losing their homes if they fail to pay back the resulting debts, according to a report from Moneynet.co.uk.

With this in mind, the online company has advised British consumers who could find themselves in debt management difficulty to read the small print of any mortgage deal they sign.

Richard Brown, Moneynet.co.uk’s chief executive, said: “It’s shocking that borrowers who believe their additional borrowing is safely separated from their mortgage are actually agreeing to risk the security of their home - something many people would never consider doing.”

Meanwhile, figures from the British Bankers’ Association showed recently that mortgage borrowing rates have weakened considerably during the past six months.

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British borrowers have been urged to switch their loan providers half way through a particular deal if more competitive alternatives are available.

According to uSwitch.com, failing to change loan providers when better deals are available costs people aiming to become debt free a collective total of close to £1.25 billion.

With so many people struggle with debt management problems and personal finance pressures increasing, the price comparison firm has insisted that “every penny counts”.

Mike Naylor, personal finance expert at uSwitch.com, commented: “In such a volatile unsecured personal loan market, five years is a long time to sick with the same provider as rates fluctuate constantly.”

Earlier this week, David Kuo, head of personal finance at Fool.co.uk, advised consumers in the UK to be selfish in their efforts to avoid the impact of an economic slowdown this year.

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Lenders in the UK are on high alert and are extremely concerned about the risks involved with offering deals to potential customer, it has been suggested.

The Royal Institute of Chartered Surveyors (Rics) has claimed that the cautious attitude to lending among financial institutions around the country will lead to a limiting of the amount of credit available to UK consumers.

In response to figures from the British Bankers’ Association showing that the rate of increase in mortgage and consumer borrowing has slowed, Rics maintained that the trend is set to continue throughout 2008 as debt management woes worsen for many households.

“A more sluggish mortgage and housing market is set to continue in the near term, as financial institutions remain on high alert as to lending exposures,” said Oliver Gilmartin, Rics’ senior economist.

“Even the few undeterred by market conditions will to need to find even larger deposits to take their first step on the property ladder.”

A tightening of lending criteria in the UK will make an individual’s debt management history a more important issue for financial services firms nationwide, online mortgage company mform.co.uk suggested recently.

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The recession that many experts believe is in the making in the US is the result of millions of consumer taking on more personal debt than they can cope with, according to one expert.

Neil Smyth from the Taylor Wessing law firm told Creditman recently that subprime mortgage lending and excessive credit card debt is the cause of the problems the US economy is currently facing.

And Mr Smyth has suggested that many of the concerns faced by people in America are reflected in the UK, where debt management issues continue to plague consumers.

He said: “All the ingredients that have forced the US economy to the brink of recession are also prevalent in the UK.”

“Even before this week’s market slump, lenders within the UK subprime market that were used to taking on high-risk debt,” he added.

Accountancy firm KPMG predicted recently that as many as 10,000 people in the UK will enter insolvency by way of a debt solution every month of this year.

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The costs associated with renting property in the UK have been rising at their fastest rate on record in recent months, according to a new report.

A study by Paragon has found that the cost of renting increased by as much as 19 per cent over the course of last year, which for many people could mean further debt management struggles.

The rising costs are being driven by the relative lack of property purchases being made around the country and Paragon has noted that rents increased by around eight per cent in the final quarter of 2007 alone.

Paragon’s managing director for mortgages John Heron commented: “There’s been fall in consumer confidence in recent months, but this appears to be to the benefit of established landlords.”

The extent of the UK’s debt management woes is believed to have contributed to a fall in the pace of growth of mortgage lending activity in recent months, as reported by the British Bankers’ Association this week.

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The pressures of dealing with a heavy debt management burden can lead to a vicious cycle of unwelcome problems, it has been suggested.

A spokesperson for a Citizens Advice bureaux (CAB) in East Cambridgeshire has indicated their concern that debt problems can cause relationships to break down, which in turn can lead to further financial difficulties.

With this in mind, the Citizens Advice’s representative told the Ely Standard that consumers who are struggling with financial problems should seek debt advice from appropriate professionals as soon as they can.

Beverley Howard, manager of the CAB in Ely, commented: “We have seen a record number of people with debts and relationship problems.

“In the last couple of months we have helped clients with over £2 million of debt.”

Last month, the CAB claimed that subprime mortgage lenders are undermining home ownership around the UK.

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Levels of mortgage lending around the UK have been weakened in recent months, the British Bankers’ Association (BBA) has made clear.

According to data complied by the organisaiton, the various pressures on household finances that have been increasing in recent months saw house purchase approval rates reach a “record low” in December.

David Dooks, statistics director for the BBA, said: “Mortgage lending weakened notably in the second half of 2007 as the credit crunch impacted on banks’ ability to lend.

“At the same time, demand for mortgages also softened in the face of increased borrowing costs and lower disposable income.”

Meanwhile, despite billions of pounds being added to the UK’s personal debt mountain every month, the bankers’ association has also described consumer borrowing for December as being “muted”.

The Credit Action charity reports that the UK’s overall debt management burden increases by almost £1 million every five minutes.

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British consumers look likely to start reigning in their spending over the coming weeks and months, according to one expert.

Howard Archer, chief UK and European economist at Global Insight, has suggested that lending criteria is already being tightened and that many borrowers are aiming to reduce their debt management problems as much as possible.

“Rising debt levels, low savings rates, recent higher interest rates and falling equity prices mean that there is an increasing need for many consumers to improve their finances,” said Mr Archer.

“An increasing propensity to save seems likely to significantly dampen consumer spending over the coming months,” he added.

Mr Archer’s comments came in response to the latest data release from the British Bankers Association that showed consumer borrowing to have been “relatively muted” since the so-called credit crunch.

Figures compiled on behalf of the Your Money Matters exhibition recently suggested that the average at which a Briton becomes debt free is 50.

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British consumers have been warned to make sure that they fully understand the details of a mobile phone service contract before they enter into it.

According to Consumer Direct, around 15 per cent of people who complain about their mobile phone providers are concerned about unexpected extra costs, which the organisation is keen to see people avoid.

Many people have been angered by a poor standard of service from their provider, Consumer Direct reports, while others worry that inflated bills could hinder their efforts to become debt free.

“We do always advise that before people get themselves into contracts, they should really understand what they’re getting,” said Frank Shepherd, a spokesperson for Consumer Direct.

“They really need to have a look at how long the contract lasts, what cancellation rights - if any - are available to them; they need to ask a lot of questions.”

Poor mobile phone services are the second most commonly complained about subject among people calling Consumer Direct, behind second-hand car dealers, according to the organisation’s own figures.

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Consumers in the UK need to become more selfish if they are to shield themselves from the potential economic fallout expected by many observers over the course of this year, it has been claimed.

David Kuo, head of personal finance at Fool.co.uk, has insisted that Britons, many of whom are facing serious debt management difficulties, ought to follow the example set by banks and look out for themselves.

When it comes to finding a good mortgage or personal loan deal, it is important for individuals to make sure that they are in the best financial position they can possibly arrive at, Mr Kuo has also made clear.

“The watchword here is ‘be selfish’ - let the government worry about recession and businesses and you have to look after yourself,” he said.

A report from Sainsbury’s Bank recently estimated that close to 18 per cent of all high street spending in the UK over Christmas was funded through credit card debt.

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