Archive for November, 2009

Consumer borrowing – excluding mortgages – recorded its biggest month-on-month fall since Bank of England records began in 1993.

This adds further evidence to the likely trend of people paying off loans rather than saving more during a time of low interest rates.

Unsecured loans fell by £713m in October compared with September.

But the number of mortgages approved for house purchases rose for the 11th month in a row in October.

The number of homeowners remortgaging remains subdued.

Debts repaid

Borrowing on credit cards rose by £134m in October compared with September, but was more than offset by the record fall of £713m in other forms of consumer credit such as bank loans, loans for cars, and hire purchase agreements.

It was the fourth month in a row that people repaid more than they took out in non-mortgage borrowing.

The total stock of outstanding unsecured loans stood at £228bn – a similar level to January 2008.

Separate figures from the Building Societies Association (BSA) showed that there was a net outflow of savers’ funds for the eighth consecutive month.

“There is little incentive for people to increase savings whilst the Bank rate remains at its current low level, and many may opt to repay debt instead,” said BSA director general Adrian Coles.

“Building societies and other deposit-takers are also facing heightened competition from institutions with a government guarantee, which is creating further distortions in the savings market.”

Howard Archer, chief UK and European economist at IHS Global Insight, said: “The record, and fourth, successive net repayment in consumer credit in October is clearly the consequence of many consumers’ desire to reduce their debt, low demand for credit and a lack of availability of unsecured credit from banks.”

Mortgage lift

The Bank of England data showed that mortgage approvals for house purchases rose to 57,345 in October, up by about 1,000 from the previous month and 18% higher than a year ago.

New mortgage lending has risen steadily since the depth of the credit crisis last November, but remortgaging remains subdued – having fallen slightly again.

“Significantly, net secured lending rose by a little over £3bn in the three months to October compared with just £443m in the previous three-month period,” said Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors.

“While this is still way down on the level of lending seen at the height of the boom in the market, it does suggest that that there is now a little more give from lenders.”

Source: http://news.bbc.co.uk/1/hi/business/8385899.stm

A Supreme Court judgement has struck a major blow to the hopes of millions of bank customers seeking billions of pounds of overdraft charge refunds.

The court has overturned earlier court rulings that allowed the Office of Fair Trading to investigate the fairness of charges for unauthorised overdrafts.

The decision follows more than two years of test case litigation.

At stake is an estimated £2.6bn of annual income for the banks, which had appealed against earlier rulings.

Seven banks and one building society wanted the court to overturn two previous rulings that would let the OFT investigate their overdraft fees.

In a three-day appeal in the House of Lords in June, the banks argued they would receive a “deluge of litigation” if the decision was made against them.

Historic claims

All new claims against banks were effectively suspended in July 2007 when the OFT and the banks agreed to stage the test case to see if the overdraft charges were legal or not.

The OFT has previously said that even if it lost, it would still try to use other powers, perhaps by instigating a full competition commission enquiry, to attack overdraft fees.

The Supreme Court’s president Lord Phillips said that bank customers agreed to pay overdraft charges as part of the price of having a current account, so they fell outside the scope of the appropriate regulations.

But Lord Phillips added that this was not the end of the matter as the OFT could still try to scrutinise bank charges under other parts of the regulations.

“This will not close the door on the OFT’s investigations and may well not resolve the myriad cases that are currently stayed [put on hold] in which customers have challenged the relevant charges,” he told the court.

A loan shark who made almost £3m by charging clients up to 2,437% interest has been jailed for five years.

John Kiely, 36, of Chapel-en-le-Frith, Derbyshire, was convicted of blackmail and illegal money lending at Manchester Minshull Street Crown Court.

Judge Adrian Smith told him: “It is clear to me you are a ruthless individual who has displayed a high degree of criminal sophistication.”

When arrested he estimated 900 clients owed him £800,000 in outstanding loans.

Kiely, who used enforcers to collect debts owed by families on east Manchester housing estates, was found guilty of two counts of blackmail in July.

Mock-Tudor house

He was also found guilty of one count of acquiring criminal property, two counts of concealing, disguising, converting or transferring criminal property, and two counts of unlawfully failing to give notice of a change in circumstances.

At an earlier hearing Kiely also admitted five counts of illegal money lending.

The court heard Kiely’s profits of £2.9m, made between 2003 and his arrest last year, had enabled him to pay cash for a £868,650 mock-Tudor seven-bedroom house, complete with turret.

Donna Ockerby, 45, claimed she was left fearing for her life and was forced to move to a secret location to escape him.

She borrowed £300 to pay for her wedding dress in January 2007 because she was “absolutely desperate”, the jury heard.

During evidence, she told a jury she was forced to move house because she was so frightened of the man she knew as “Johnny Boy Kiely”.

Mrs Ockerby said she faced aggressive demands for money and a concrete block was thrown at her window after a debt collector called.

Kiely was convicted of two counts of blackmail for his actions towards her.

Prosecutor Ben Mills said Kiely, who has a conviction for assault, began working as an illegal loan shark in 2003, and started the unlicensed money lending company Project Finance UK Ltd two years later because it was more tax-efficient.

‘Untold misery’

He said Kiely had set up Millennium Finance Ltd last year, by falsely obtaining a licence from the Office of Fair Trading (OFT).

New rules now mean that anyone applying to run a money-lending firm would be subject to more detailed checks.

Tony Quigley, head of the north west Trading Standards illegal money lending team, said: “Kiely showed contempt for the people he lent money to.

“This wasn’t a community service, it was the sort of criminal activity that we are working hard to put a stop to.”

Mrs Ockerby, speaking after the case, said she believed Kiely “was capable of anything” and warned others to think twice before borrowing money from loan sharks.

“These people prey on people’s misfortune. If anyone wants to go through the horror that I have been through, then so be it, but their lives will be wrecked, ” she said.

Consumer minister Kevin Brennan said: “Thugs like Kiely who prey on vulnerable people cause untold misery within communities.”

Around 24pc of people admitted they had credit card, overdraft or loan debts that they did not disclose, with the average person owing £4,096 through secret borrowing, according to insurer Axa.

A third of people said they hid their debt because they were embarrassed about it, while 23pc said they worried about how their friends or family would react.

One in five people said they hid their debt because it had got out of control, and 14pc admitted they simply did not realise how much debt they had.

Women are slightly more likely to hide their debts than men, but men owe just over £500 more than women at an average of £4,273.

Four out of 10 people said they also lied about the state of their finances, with money the third most likely thing that people lie about after the number of sexual partners they have had and how much they have spent on something.

Axa spokeswoman Alison Green said: “There are over 12 million people in the UK today hiding their debt and financial concerns from their partners and family. Be that through embarrassment, fear or, in some cases, ignorance.

“The important thing is for people to take control of their finances and get the help and the support they need. The first step of which is taking stock of their debt and sharing this with the people in their lives.”

Source: http://www.telegraph.co.uk/finance/personalfinance/borrowing/6579751/Quarter-of-people-hide-debt-from-family.html

Almost half of people seeking advice on debt from Citizens Advice Scotland have gone without food or fuel to pay what they owe, the organisation has said.

It published seven reports which it said illustrated the “miserable realities” of life for people in debt.

The reports suggested that lone parents, elderly people, young people and the sick and disabled were hardest hit by debt.

Citizens Advice Scotland (Cas) called on MSPs to take action over the issue.

Cas said that its clients aged over 60 had the highest average level of debt, owing an average of £26,010, an increase of almost 50% in the past two years.

More than one third of Cas clients said they were ill or disabled and two in five said they were in debt because they were ill.

Lone parents had an average debt of £19 for every £1 they earned, up from £14 five years ago.

The average level of debt for 16-24-year olds has almost doubled since 2004, the organisation said.

Two in five of those people surveyed said they had to go without food or fuel to pay debts, and one third said they have had to borrow money from family or friends.

About a quarter of those asked said they had to take out a loan in order to pay off another loan.

CAS, the umbrella body for citizens advice bureaux around Scotland, said creditors were being more aggressive in pursuing debtors.

It called for politicians to help people who are in debt by creating stricter regulation of lenders, offering more affordable sources of credit and providing a budget to create good-quality debt advice groups.

‘Broken economy’

Kaliani Lyle, Cas chief executive, said: “What these figures reveal is a picture of real misery for many people. Large numbers of our population are struggling just to get by.

“We need action in the long term to fix our broken economy, so that people are never again in this position.

“But in addition to that we need action in the short term as well, to help these people who are suffering the misery of debt today.”

A debate on the issue will take place in the Scottish Parliament later on Thursday.

The seven reports are based on the results of a survey of 275 people who came to Cas with a debt enquiry in December 2008.

Many credit cards already carry an APR interest rate of more than 20per cent on outstanding balances, however it seems this figure could now climb to 30per cent and more. In future cardholders may be expected to pay an annual fee of £25 simply for the right to have an account.

The banks are also expected to take a tough line that will involve turning away customers who are not considered profitable.

There is already evidence that tens of thousands of people who use their cards rarely and pay off their bill each month are having their accounts closed. While, many people, particularly younger adults, will find it increasingly difficult to get a credit card.

Banks are set to hit millions of credit card customers with annual fees and higher interest rates amid claims they must find ways to raise more cash.

Experts at PricewaterhouseCoopers claim the moves will be necessary to cope with a ‘dramatic’ 50per cent increase in bad debts on credit cards to almost £5billion.

PwC has highlighted a personal debt timebomb where it predicts as many as 1,000 people a day will find it necessary to seek help because they cannot cover repayments.

Against this background, PwC suggests banks will look at new ways to make money.

The nation currently owes just over £54billion in outstanding balances on their credit cards.

The PwC study called ‘Precious Plastic’ suggests that the total amount of bad debt that will have to be written off is likely to jump 50per cent by the end of 2010 to reach almost £5billion.

The study warns that the recession with its increasing unemployment and pay-freezes means millions of people will struggle to repay their credit card and other debt.

It said the impact could already be seen with recent figures showing record number of individuals are going bust.

PwC said: ‘The potential increase in write-offs is dramatic. Levels of write-off of this magnitude have never been experienced by the UK industry before.’

As a result, it says the banks and other credit card suppliers will looking at new ways to make money and to limit their exposure to customers who do not have an A1 credit history.

‘Credit will become more expensive as lenders attempt to claw back revenue lost as a result of economic and regulatory pressures,’ it said.

‘This will be felt through increased APRs, an introduction of fee-based lending, or both.’

This will come a shock to many given the fact the Bank of England base rate is expected to be held at an historic low of 0.5per cent until well into 2010.

While it will also anger many people who feel that ordinary families and businesses are being forced to foot the bill for a financial crisis created by the boardrooms of the High Street banks.

PwC’s consumer research found that less than an quarter of the public believe the cost of credit will increase in the next 12 months.

But, it said: ‘In contrast to the survey results, PwC believes that the cost of borrowing is likely to rise for all but a small minority, indicating a significant consumer expectation gap.

‘The initial effect on consumers of current market conditions will be a reduction in the availability of credit and an increase in its cost.’

In future, credit card firms will concentrate on people who generate big profits.

Those who use their cards frequently and carry a manageable balance, that generates big charges and interest rate bills.

PwC said: ‘This reduction in the availability of credit, and the resulting gap between demand and supply, will be felt across the population, with consumer groups such as younger people with limited credit history …being hit the hardest.’

Figures published last week show there were 35,242 personal insolvencies between July and the end of Sepember in England and Wales, which was up 28per cent on a year ago.

The total was the highest since records began in 1960 as the country’s economic woes, including rising unemployment, continued to take their toll.

PwC said: ‘Personal insolvencies now have a run rate of more than 120,000 per annum.

In addition to these reported insolvencies, PwC estimates there will be between 100,000 and 150,000 Debt Management Plans this year.

Taking these combined debt solutions into account suggests that, on average, around 1,000 people are seeking some form of formal debt rescheduling every working day.

‘In the short to medium-term, bad debt levels will almost certainly continue to rise as consumers’ inability to repay debt increases.

‘Although the first signs of economic recovery are beginning to emerge, bad debt trails macroeconomic factors such as GDP and unemployment.

Therefore, PwC expects high levels of debt defaults and write-offs to characterise the UK consumer finance market for at least the next couple of years.’

Personal insolvencies have heated up during the summer months with unprecedented highs in July and August 2009 contributing to the record quarterly figures released last week by the Insolvency Service.

Figures for July were 29% higher than the same time in 2008, while August saw a rise of 32% according to independent analysis by leading personal insolvency specialist Tenon Recovery. September levels were also up on previous years, although not to such a large extent.

Mark Sands, Director of Personal Insolvency at Tenon Recovery, said:

There is normally a fall in the level of personal insolvencies during August, however this hasnt happened in 2009. Instead of holidays taking priority, people have been staying in the UK to try and address their financial problems or go through the insolvency process, meaning we have seen levels soar by a third in July and August.

Levels did drop off in September, but they are still way up on previous years and this is an indication of things to come. We have already exceeded the annual record for personal insolvencies and if this trend continues we are likely to see levels exceed 130,000 by the end of the year.

We expect to see around 150,000 personal insolvencies next year, with record levels set to stay until 2012.

Analysis reveals a dramatic growth in the number of people entering into debt relief orders (DROs), up 128% on the previous quarter. In contrast, the number of people being declared bankrupt has dropped slightly in comparison to last quarters figures, down 2.8%. Individual Voluntary Arrangements rose slightly, by 1.3%.

Statistics from Tenon Tracker show that 55% of people entering personal insolvency are male, while the average age of those entering into personal insolvency is 42. However, 62% of people entering into a DRO are women, compared to 40% of those declared bankrupt and 44% of people entering into an IVA.

Mark Sands added:

There is far less stigma and distress associated with Debt Relief Orders than other forms of personal insolvency, which explains the considerable increase in their use.

The rise in their popularity also suggests that more people are being proactive in confronting their financial problems and addressing their debt levels before they exceed 15,000.

Although bankruptcies and IVAs are slightly down on last quarters totals, both have risen considerably compared to 2008 figures. I expect these levels to rise over the course of the next few months as many people find their financial limits stretched to the maximum, particularly over the busy Christmas period.

Bad credit card debts may reach as much as 9% of all outstanding balances by the end of next year, an accountancy firm has said.

“Bad debts in the sector have reached historic highs,” according to PricewaterhouseCoopers (PwC). The figure stands at about 6% now.

This comes despite a “cooling passion” for credit cards, with borrowing down 3% to £64bn in the past year.

The number of credit cards in circulation has fallen by 8%, it said.

‘Junk mail’

The past year has been a “tipping point” for the willingness of people to take on more unsecured debt, PwC said in the latest edition of its annual report “Precious Plastic”.

Total consumer debt including mortgages stayed the same at just under £1.5 trillion.

Within that, unsecured lending via credit cards, bank loans and hire purchase agreements was largely unchanged at £230bn.

But the stock of debt outstanding just on credit cards fell.

PwC pointed out that this new declining trend reflected not only consumer choice, but the decision of card companies to restrict new lending to customers who are more creditworthy.

“The recent announcement by one major issuer that they would not generally seek to acquire new credit card customers without those same customers also holding a current account with them is in stark contrast to the time when credit card issuers accounted for one in every four pieces of junk mail that made it through our letterboxes,” PwC said.

Bad debts

Card companies wrote off £3.2bn because of bad debts last year.

PwC predicted that these losses would rise dramatically to levels never seen before in the UK as a result of rising unemployment, short-time working, and pay freezes and pay cuts.

The accountancy firm forecast that as bad debts rose, the borrowing rates on cards would also go up, and monthly or annual fees would become a standard feature as lenders sought to increase their revenue.

“At the higher end of the market customers will pay for access to premium benefits and at the lower end more marginal customers will be expected to pay for even a standard credit card,” the firm said.

Paul Rodford of Card Payments, the UK cards association, said the easy availability of credit cards would disappear.

“Consumers are going to be faced with the unhappy prospect of a marked reduction in the availability of credit, a reduction in choice of products and an overall increase in charges with both increased interest rates and an expansion of annual and other fees,” he said.

Unfair terms

All aspects of banking have been coming under intense regulatory scrutiny.

Last month, the government published proposals to ban some unfair terms in credit card agreements.

It wants to stop card companies putting up interest rates on existing debts and to stop them raising spending limits without agreement.

It also wants them to ensure that monthly repayments are used to pay off the most expensive debts first, and it wants to raise the size of minimum monthly repayments to speed up debt repayment.

PwC’s report warned that while UK consumers were now borrowing less than before the financial crisis, debt levels in the UK remained high compared with the rest of Europe.

Each UK household has total average debt of about £60,000, made up of about £50,000 of secured debt and £10,000 of unsecured debt, PwC said.

Insolvency experts have warned that the number of people being declared insolvent will surpass 130,000 this year.

Deloitte’s Contentious Insolvency Group predicted that the number of people filing for personal insolvency in the third quarter would exceed 30,000 for the second successive quarter.

Tenon Recovery, the personal insolvency specialist, has said personal insolvencies will reach 130,000 for the year as a whole.

The predictions come as Joe Swash, the I’m A Celebrity … Get Me Out Of Here! winner, has vowed to settle his tax bill “imminently” after being made bankrupt.

Louise Brittain, a partner at Deloitte, said: “I fully expect that by end of 2009 we will have broken all personal insolvency records, with the total number of petitions likely to exceed the 130,000 mark. This figure is staggering, and unfortunately the end is not in sight.”

Ms Brittain said the insolvencies would be mix of sole traders and consumer credit cases, with creditor petitions also rising.

She added: “Those individuals with high credit card debt and those who have lost or have had to reduce their income will find their mortgage repayments increasingly burdensome, particularly if they are locked into fixed-rate mortgages.”

The warnings come with unemployment jumping to 2.47m in the three months between June and August, a rise of 88,000 from the three months to May 2009 and of 677,000 from a year earlier.

Separate figures published by the Insolvency Service found almost 300 people a day were declared insolvent during the three months to the end of September.

It said the number of individual insolvencies rose to 27,087 in England and Wales in the third quarter – an 8.8pc increase on the previous three months and 4.6pc more than during the same period a year earlier. There were a record 110,000 personal insolvencies last year.

Mr Swash, the former EastEnders star, who dates former co-Walford star Kara Tointon, had a “tax issue” and a bankruptcy order was made this week. However, the star aims to discuss the matter with the Official Receiver when the payment is settled to reverse the order.

Swash won last year’s series of ITV’s I’m a Celebrity … Get Me Out Of Here and has headed to Australia to work with the team on this year’s show. The actor, who starred as Albert Square’s Micky Miller, can currently be seen appearing with actress Pamela Anderson in Living TV’s Pamela Anderson: At Home With Joe.

Swash’s agent said: “There was a tax issue for which the final payment is imminent and once made discussions will be held with the Official Receiver to seek to reverse the bankruptcy order.

“Everyone has to pay tax and Joe knows he is no exception.”

A record number of people were declared insolvent in England and Wales in the third quarter of 2009, according to figures from the Insolvency Service.

There were 35,242 personal insolvencies, up 28% from the same period last year and an increase of 6.6% on the previous three months.

This extended the record number which was reported earlier this year.

But there was better news for business, with 4,716 company liquidations, down 4.7% quarter-on-quarter.

However, the number of businesses in England and Wales going bust in the third quarter of the year was still 14.6% higher than the same period a year ago.

Issues for individuals

The recession has been driving up the number of personal insolvencies since the end of 2007.

The record numbers are due in part to the number of people who have found themselves out of a job during the recession, but with debts to pay off.

This was coupled with the onset of the credit crunch, which drew back the amount of cheap credit available and meant some were unable to borrow their way out of immediate debt problems. The flat housing market also prevented them selling their homes, or drawing on equity.

There are various different options for insolvency – bankruptcy, individual voluntary arrangements (IVAs) and, since April, Debt Relief Orders (DROs).

The figures show that the bankruptcy option was chosen by 18,347 people, up 6.4% on the same quarter the previous year.

Another 12,390 chose IVAs, up 20.9%, and 4,505 chose DROs, up sharply on the last three months when they were available for the first time.

DROs are a new and cheaper form of insolvency procedure aimed at helping people wipe the slate clean if they have debts of less than £15,000 and few assets.

“These figures are overwhelming, but not surprising, and unfortunately the end is not in sight,” said Louise Brittain, of accountancy firm Deloitte.

People facing spiralling debts are sometimes advised to sign up to a debt management plan, under which a set amount is repaid each month. However, these are not included in these figures.

“The statistics have further highlighted the growing debt problem in this country, but the real worry is that these are not even a true reflection of the actual debt burden in the UK,” said Jessica Bown, of website talkaboutdebt.co.uk.

“Despite more debt management plans being taken out than any other debt solution there is no central system for registering them and they are not even included in the figures, meaning that this is potentially just the tip of the iceberg.”

She added that the stigma attached to debt meant many people did not admit to having money problems.

Strain on business

The figures show that the number of compulsory liquidations of companies in England and Wales stood at 1,301 in the third quarter of the year, down 9.8% on the previous three months and down 12.9% on the same period in 2008.

There were also 3,415 creditors voluntary liquidations, down 2.6% on the previous quarter but up 30.2% on the same three months a year earlier.

However, these figures represent the very end of the process of a business being wound up.

Additionally, there were 1,578 other corporate insolvencies in the three months to September, which denotes the point at which a company is declared insolvent.

This was made up of 410 receiverships, 974 administrations and 194 company voluntary arrangements.

In total this was an increase of 9.3% on the same period a year ago, and a 3.2% increase on the previous three months.

There will be further strain when HM Revenue and Customs (HMRC) starts to apply pressure on businesses which are behind on tax, according to Alan Tomlinson, partner at licensed insolvency practitioners, Tomlinsons.

At present, HMRC was being co-operative in assisting companies that found themselves in difficulty, but this was only a short-term measure, he said.

“There is talk that the recession will technically end in the fourth quarter, but for some companies the recession will really hit home when the Revenue calls in its debts,” he said.

“Margins are still being squeezed and many companies are fighting for survival, with employees often the victims of essential cost cutting.”

Source: http://news.bbc.co.uk/1/hi/business/8346170.stm