Past Articles for May, 2008

People looking to take out a mortgage have been advised to get professional advice before taking on the debt.

The Association of Mortgage Intermediaries (AMI) claims that mortgage borrowers will be able to benefit from intermediaries’ ability to identify the most suitable product for their needs.

This advice comes after independent research by NMG found that mortgage borrowers who purchased their loan through an adviser saved an average £962 a year.

AMI director general Chris Cummings said that during times of financial strain it is more important than ever that borrowers make use of solid financial advice.

He said: “Advisers know their clients and use this insight and their knowledge of the market to identify the most suitable and most price competitive products for the client.”

Statistics from the Council of Mortgage Lenders show that in the first three months of 2008, 82.5 per cent of first-time buyers relied on an intermediary to find them the best mortgage deal.

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Higher salaries are desired during the credit crunch as people on low incomes attempt to clear debt they have accrued, according to an employment expert.

Peter Reilly, director of HR research and consultancy at the Institute for Employment Studies, explained that stretched household budgets mean employees may prefer more money rather than other benefits.

“People who are on low incomes do want the money because they need to pay their debts,” he said, adding that “giving them gimmicks is neither here nor there”.

While this depends on individual circumstances, it is likely that income levels may be prioritised.

Mortgage holders are among the group of people who may prefer to take the cash rather than benefits in order to help their financial situation, said Mr Reilly.

The Jobsite website explains that it is important for employees to give “serious consideration” when they accept a salary package with added benefits.

It warns against the “hidden costs” of benefits such as share options, which may see their value altered with fluctuations in the stock market or interest rate.

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A financial spring clean has been suggested to people who want become debt free or get the best savings deal.

Kevin Mountford, head of savings and current accounts at price comparison website moneysupermarket.com, warned against consumer apathy when it comes to select loans and other financial products.

“This time of year a spring clean of your finances is just as good as a spring cleaning as anything else,” he commented.

Whether people are borrowing or saving money, taking the time to consider what they are getting with their financial products could pay off for consumers.

“I think people really need to make the effort,” said Mr Mountford.

Research by moneysupermarket.com earlier this year suggested failure to switch to more competitive loans, mortgages and other financial products was costing British consumers some £243 billion.

The site’s managing director, Stuart Glendinning, said “considerable savings” can be made if people take the time to seek out the best deal.

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The impact of debt on mental health should be a priority for financial institutions, it has been suggested.

A spokesperson for mental health charity Mind said banks ought to stick to guidelines outlined by the Money Advice Liaison Group, which offers suggestions on how to treat individuals with debt problems who are experiencing mental health issues.

She explained that this code of practice outlines the appropriate treatment in instances such as missed payments where people suffer from anxiety and depression.

Mind research found that two-thirds of respondents in a survey about problem debt blamed mental health problems for their financial situation.

The spokesperson said that many people become overwhelmed when creditors ring them up all the time and they receive letters from a number of debt collectors.

“Some people will find that they just withdraw from it rather than being able to tackle it because they don’t have the support it takes to face everything that is coming through all at once,” she added.

Mind is currently working with the Financial Services Authority to find solutions to this issue, which may include workshops on debt management and other financial advice.

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Teenagers are looking forward to leaving their debt free days behind and taking on credit card debt, according to a new study.

A group of psychologists, economists and industry experts - called the AXA Financial Task Force - concluded that up to 44 per cent of those aged between 15 and 17 will take on credit card debt as an adult.

Nearly a fifth expect to take out a bank loan at the age of 18, while overdrafts are expected to be a reality for 17 per cent.

However, a study by the group found that the majority of teenagers - 70 per cent - do not have the necessary debt management skills, having failed a weeklong budgeting experiment.

Commenting on the findings, Professor Nick Chater said this inability to budget could be why teenagers are already thinking about taking on credit card debt and other forms of credit.

“These things are seen as the norm so that teenagers think they’re only doing what is typical in expecting to get into debt sooner rather than later,” he added.

Earlier this week, the UK Social Investment Forum noted that 65 per cent of 1,000 young people polled said they plan to make a difference in environmental and social issues through making ethical financial choices.

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Many Britons are taking on extra credit card debt on Saturdays, with new research suggesting consumers typically spend more than £549,000 on these days during their life.

According to the Co-operative Bank, Saturdays see the average British adult spend £175 on food, drink, entertainment, travelling and clothes, with many taking on extra credit card debt to fund their purchases.

Maxine Xodo of the Co-operative Bank warned that Saturday shoppers should consider debt management and budgeting when they splash the cash.

She said many people feel Saturdays are a time for enjoyment, especially since British employees spend longer hours working than most of their European counterparts.

“However, it is important for people to plan ahead with their spending so it doesn’t come as a surprise when their bills come through the door,” Ms Xodo added.

Last month, Abbey claimed that savvy and sensible shopping could save UK households millions a week.

Some £218 million worth of groceries are discarded by consumers every week as they misjudge their needs and food reaches its expiry date.

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People who rely on payday loans on a regular basis could have a more serious debt problem, according to an industry commentator.

Beccy Boden Wilks, spokesperson for National Debtline, warned that taking on such debt could be “symptomatic of a serious underlying debt problem”.

She explained that relying on such short-term, high-interest loans could mean the person is over-committed financially and struggling to become debt free.

People who need to use this form of debt are being advised to look at their budget and debt management plans and see why they have to rely on such loans, the spokesperson suggested.

Warning against the spiral of debt, Ms Boden Wilks said: “If you’re paying it back the following month, you’re basically spending your wages before you’ve got them. And the cycle carries on.”

Since September last year, short-term payday loans have seen uptake increase by some 55.4 per cent, according to research by moneysupermarket.com.

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Many Brits are feeling the burden of large debts hanging over them, according to a debt expert.

A combination of the credit crunch, increasing fuel and utility bill costs and spiralling food prices are all taking their toll on the British consumer, says Andrew Hagger of Moneynet.co.uk.

He adds that lenders are likely to remain cautious as to who they lend to in the current economic climate and consumers will feel their disposable incomes stretched further in the coming months.

Mr Hagger states: “Life is likely to remain uncomfortable for consumers for many months to come with the increased potential of personal debt levels undoubtedly weighing heavily on the minds of UK lenders.”

According to the most recent debt statistics from Credit Action, total UK personal debt at the end of March amounted to £1.43 billion.

This figure has grown by 8.3 per cent in the 12 last months, an increase of £113 billion.

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Consumers are being urged to shop around for better mortgage rates as lenders begin using customer-profiling techniques to offer risky customers a worse deal.

Young people and low-income individuals are deemed to be the highest risk and typically offered variable rate deals around 7.5 per cent, said mform.co.uk.

Older and wealthier customers are likely to get offered a more competitive rate.

Around 116,000 people will be coming to the end of a mortgage agreement each month this year and many of these will be offered an uncompetitive rate, which is why mfoem.co.uk is advising consumers to shop around for a better package.

Marketing and business development director for mform.co.uk Francis Ghiloni said: “The credit crunch has made mortgage availability the major issue and lenders are increasingly taking a tough line with existing borrowers.

“However they can still remortgage elsewhere and should.”

Property website Rightmove has released its May edition of the UK house price index and it claims that the average house price for a newly marketed property is now £242,500, a record high level.

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Bankruptcy is regarded as an easy option for many people who fail to fully consider the impact of such a decision, it has been suggested.

“They don’t want to listen to the implications, they just want to go ahead and do it,” Martin Lord, manager of the Citizen’s Advice Bureau in Northampton, told the Northampton Chronicle.

His announcement follows the revelation that bankruptcy rates have shot up by 20 per cent in Northampton in the first quarter of 2008, as the credit crunch has taken hold.

Mr Lord told the paper that the bankruptcy figures were unsurprising.

“People don’t want to think about it seriously and bankruptcy isn’t the bogeyman it used to be,” he commented.

However, the implications of bankruptcy include having bank accounts frozen and even the possibility of losing your home, warned Mr Lord.

Bankruptcy rates are currently on the rise across the UK. Residents in the north-east have been particularly affected, with rates increasing by up to 34 per cent in the first quarter of 2008.

These figures have grown by three times the UK national average in just three months, the Northern Echo reported.

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