Past Articles for February, 2008

There is likely to be a growth in the use of higher cost credit around the UK in months to come, one expert has asserted.

According to Chris Tapp from the Credit Action charity, the difficulty consumers will have in gaining credit will lead many to resort to relatively costly sources of borrowing.

In general terms, Mr Tapp has claimed that the rate of borrowing nationwide will slow roughly in line with the anticipated decrease in economic growth.

“Credit is less widely available so what we will see is a certain amount of growth in higher cost credit,” he said.

Mr Tapp’s comments follow the release of data from Credit Action that showed the average British household is already paying out thousands of pounds in interest on an annual basis in their efforts to become debt free.

Meanwhile, figures from Debt Help have indicated that the majority of all credit cards in use across Europe were issued to British consumers.

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Young homebuyers in the UK are being stretched to the absolute limits of their financial capacity, it has been suggested.

Many homebuyers struggle with debt management issues and these problems are particularly acute for first-time property buyers, according to Louise Cumming, head of mortgages at Moneysupermarket.com.

As a result, many people who have only recently been able to get on to the housing ladder are looking to gain a measure of debt management security by opting for a fixed-rate mortgage deal, Ms Cumming has explained.

She said: “There’s absolutely no doubt that people in the first few years of their home-buying lives have to stretch to the absolute maximum of their income.

“If you’re at the edge of your affordability then I would go for a fixed rate.”

Research carried out by Fair Investment recently found that most British homeowners would enter a fixed-rate deal if they were to about to remortgage.

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Millions of UK consumers are planning to switch their credit card debts over the next few months, according to recent research.

Figures from Sainsbury’s Bank show that more than four million people intend to change their credit card provider before the end of June in the hope that they secure a more favourable repayment deal.

In total, as much as £6.68 billion is expected to be switched from one credit card provider to another over the same period as consumers aim to find a solution to their debt management problems.

Sainsbury’s Bank also reports that there are close to five million people who have outstanding credit card debts but are not currently paying any interest on these amounts.

“It’s not surprising that zero per cent balance transfers are popular,” said Donald MacLeod, head of cards at Sainsbury’s Bank.

Earlier this week, MoneyExpert.com reported that the number of credit cards that have a cap on the balance transfer fees they charge are “dwindling dramatically” around the country.

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Lenders around the UK are failing to drop their interest rates in line with the Bank of England’s base rate, one expert has suggested.

According to Paul Dales, UK economist with Capital Economics, the issue of banking groups and other money lenders not trimming their repayment rates is “continuing problem”.

With millions of British consumers struggling to become debt free, Mr Dales has maintained that the bank’s interest rate decisions are being weakened as a way of influencing the overall economy.

“It’s not that monetary policy is now impotent, it’s just maybe a bit less effective than before,” he said.

“That does support the argument that interest rates might have to go quite far below what people think is a neutral level of around 4.75 to five per cent.”

At the beginning of February, the Credit Action charity reported that the typical British household pays almost £3,800 each year in interest on the personal debts.

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The Citizens Advice and YouthNet charity groups are aiming to help young consumers around the country deal with and avoid debt management problems, it has emerged.

Via the internet and mobile phone services, the two organisations are to offer advice and information that should give young Britons a better chance of understanding their own personal finances.

Research is being carried out as part of the recently launched initiative that will aim to make the service more accessible to people aged between 16 and 25, many of whom are already faced with problems relating to debt management.

Part of the purpose of the scheme is also to help young Brits avoid “unscrupulous” money lenders who might ultimately leave them in an unfavourable financial position.

Citizens Advice deals with thousands of debt help requests each week in the UK and the organisation recently called for lenders to do more to help homeowners avoid having their properties repossessed.

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The stamp duties that have to be paid out by homebuyers around the UK are rising at a disproportionately rapid pace and are leaving thousands of people with more money problems to deal with, it has been claimed.

Mortgage borrowers are already taking on a serious debt management burden when they buy a home and the added expense of stamp duty is hurting the pockets of many people around the country, Halifax has suggested.

In fact, homebuyers in almost 29 per cent of all local authorities now face a stamp duty bill that amounts to more than 20 per cent of the typical annual wage in the area, which represents a significant increase in recent years, according to data from Halifax.

“We call on the government to raise all stamp duty thresholds to account for the rise in house prices over the past decade and to index for house price inflation in the future,” said Martin Ellis, chief economist at Halifax.

A report from Abbey last week claimed that millions of homeowners around the UK are confused about what kind of mortgage deal would best suit their current circumstances.

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MoneyExpert.com has warned UK consumers that they could face significantly high fees for switching their credit card debts from one provider to another.

According to the price comparison firm, the numbers of deals that allow consumers to switch their providers without facing sizable charges are “dwindling dramatically”.

Many people aim to reduce the scale of their debt management problems by changing credit card company but in many cases the process can ultimately prove to be more expensive than sticking with the same firm, MoneyExpert.com maintains.

Furthermore, with a UK consumer switching providers every two seconds, there could be a lot of people facing balance transfer fees they did not expect to be so high.

“Consumers looking to move credit card provider will be in for a nasty shock if they don’t choose a card with a capped balance transfer fee,” said MoneyExpert.com’s chief executive Sean Gardener.

Last week, the financial comparison firm claimed that millions of British consumers have been adding to their personal debts in recent months.

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The level of consumer credit activity around the UK was “subdued” last month, according to the British Bankers’ Association’s (BBA) assessment of its own statistics.

According to the latest data, an additional £400 million was borrowed by consumers around the country in January 2008, which was below the average increase in activity for the previous six months.

With millions of people struggling to become debt free in the UK, the figures from the BBA also showed that softlink=”credit_card_debt”>credit card debt repayments were worth more than the amounts borrowed on plastic during the first month of this year.

The data released by the BBA is based on the business conducted by Britain’s foremost banking groups in recent weeks.

David Brooks, the organisation’s statistics director, commented: “Overall consumer credit remained subdued.”

“Despite strong volumes of retail sales, card transaction volumes were little changed and spending was more than offset by repayments.”

Earlier this month, the UK’s payments association Apacs reported that close to £11.3 billion in credit card debt was accumulated nationwide over the course of December 2007.

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A full-blown recession for the UK’s economy in the coming months is a “remote risk”, according to the assessment of one expert.

Andrew Sentance, a member of the Bank of England’s interest rate setting monetary policy committee, is convinced that the British economy is flexible enough to ensure that its growth will continue.

However, with millions of consumers struggling to become debt free, Mr Sentance has made clear that the country is set to experience a period of “pronounced slowdown”.

“In my judgment an outright recession - in which economic activity falls year-on-year - is a remote risk for the UK economy at present,” he said.

The bank’s analyst went on to admit that uncertainty is likely to remain about how long the slowdown in economic growth last and how badly it will impact British businesses and consumers.

Last week, an economic spokesperson for the Conservatives claimed that the increasing level of voluntary bankruptcy in the UK was the result of poor decision-making by prime minister Gordon Brown during his time as chancellor.

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Mortgage providers are looking to avoid any “additional risks” and have all pulled out of the 125 per cent loan-to-value (LTV) market, according to a new report.

Since the advent of the so-called credit crunch, companies have been increasingly reluctant to enter any kind of arrangement with consumers who are thought to be at risk of letting their debt management issues get out of control and as a result 125 per cent LTV deals have been removed.

Furthermore, very few lenders are still willing to offer mortgage deals that have a LTV rate above 100 per cent and this could leave many would-be first-time buyers unable to enter the housing market, Moneyfacts.co.uk has suggested.

The price comparison firm’s mortgage analyst Denise Harvey remarked: “It seems no one is prepared to stand out from the crowd in the current environment and accept the additional risk a 125 per cent mortgage poses.”

Meanwhile, a recent report from Abbey Mortgages claimed that British homeowners are finding it increasingly difficult to decide what kind of home loan deal would be best for them.

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