Archive for May, 2010

More than five million home owners will be unable to afford a rise in interest rates and will be in danger of being evicted from their homes, charities have warned.

Despite repossessions falling slightly at the start of the year, charities and housing experts warned home owners remained “vulnerable” to a rise in interest rates which would put additional pressure on their finances.

Research suggested as many as one third of home owners would not be able to afford a rise in their household budgets.

Campbell Robb, chief executive of Shelter, said: “Some 5.4million mortgage holders haven’t even thought about how they will pay their mortgage if interest rates go up. We know for a significant number of people, just keeping on top of their current mortgage repayments is a constant struggle.”

While repossessions are lower than originally feared, home owners with tracker mortgages will see their monthly repayments rise if interest rates go up. Many borrowers who have come to the end of their original deal have already seen their costs increase.

Economists also warned of wage freezes, rising debt levels and tight lending conditions.

Some 9,800 people lost their homes during the three months to the end of March, 8 per cent fewer than the previous quarter and 26 per cent below the figure for the same period a year earlier, according to the latest repossession figures published by the Council of Mortgage Lenders.

The number of people in mortgage arrears also dropped, with historically low interest rates helping home owners to keep up with their monthly payments.

The Bank of England has kept interest rates at 0.5 per cent for more than a year, but they are widely predicted to rise next year.

Howard Archer, an economist at Global Insight, said: “Any rise in interest rates would be liable to send a significant number of financially stretched homeowners over the edge.”

And Ed Stansfield, chief property economist at Capital Economics, said: “In truth, the outlook is finely balanced. Many households are struggling to make ends meet.”

Source: telegraph.co.uk

Freelancers and the self-employed have been warned of the dangers of taking out personal loans to fund their businesses.

Responding to the recent statistics revealing that an extra 1.2 million people have become self-employed since the recession started, debt charity the Consumer Credit Counselling Service (CCCS) has concerns over possible resulting financial liability issues.

Given that many new self-employed people have started their own ventures as a result of redundancy, the CCCS is concerned that people with reduced incomes are more likely to suffer debt problems as they struggle to reduce spending in line with earnings.

The charity is now warning self-employed people of the dangers of using the same bank account for personal and business finances.

Geoff Waugh, manager of CCCS’s counselling centre for the self-employed said:

“CCCS regularly sees self-employed people with debt problems who mix their business and personal finances. Many will often take out loans and credit cards to support their businesses during tough times, which can make their situation worse.

“Others will use the same bank account for both business transactions and day to day spending. Keeping your finances separate is essential, as it gives a greater degree of protection.”

Source:  startups.co.uk

New industry regulations for credit cards in the UK are to be introduced by the end of this year. The series of changes to existing card rules will benefit cardholders and also offer those with several cards to their name to deal with their debt in a more flexible and effective way.

The measures, intended to offer a better deal to existing card customers, could help slash hundreds of pounds from credit card bills, are due to come into effect from January 2011.

The new rules force providers to allocate payments to the transactions attracting the highest rate of interest, which in itself could collectively save consumers between GBP300 million and GBP500 million. Another change will be providing cardholders with the right to reject proposed credit limit increases on their existing debt.

Providers will also be obliged to present a range of market information on their statements at the end of the year. This will allow customers to compare their credit cards at the end of each 12-month period, giving them greater choice and flexibility in moving between different cards. These changes are timely given the current economic climate and the worrying levels of personal debt in the UK.

Source:  creditcards.co.uk

The UK’s recovery from recession appears to be continuing with a huge drop in the number of company insolvencies in the first quarter of 2010, according to the Insolvency Service (IS).

However, insolvency practitioner trade body R3 said the results actually mask a large number of corporate insolvencies that have yet to come through the system, with companies that have a turnover under £15m the most affected.

R3 president Steven Law said he had personally seen a 25% increase in the amount of formal insolvency work since the start of the year.

“Many cases remain in the pipeline and will not show up in today’s official figures. We would still expect a spike in the number of insolvencies in the five or six quarters following a recession because many businesses that suffered during the recession find it hard to borrow as lending requirements tighten,” he added.

“Many of them will see ‘green shoots’ but will not be able to fund expansion, especially if interest rates increase. And when a recession ends and assets rise in value, creditors are encouraged to move ahead with more aggressive debt collection.”

According to the IS figures, in the first quarter of 2010 administrations dropped 40.3% year-on-year to 783, which was also a drop of 66 administrations on the last quarter of 2009.

There were 4,082 liquidations in the period, a year-on-year drop of 17.8% and a drop of 375 on the previous quarter.

However, the number of Company Voluntary Arrangements (CVAs) increased year-on-year by 30.8% to 204. Although this was a drop on the previous quarter (219), it was a figure still considerably higher than in the first three quarters of 2009.

The increase in CVAs could suggest that pre-pack administrations are receiving less support from suppliers, forcing insolvent companies to seek other routes in order to continue.

Receiverships also saw a slight increase of 12.7% year-on-year to 356, although they were down on the 397 recorded in the fourth quarter of 2009.

Meanwhile, the Bank of England’s Monetary Policy Committee today (10 May) held interest rates at 0.5% for the 14th consecutive month. The announcement had been dealyed from last Thursday due to the general election.

Source: printweek.com

More than 35,600 people became insolvent in the first three months of the year – equivalent to 566 people a day – with the figure expected to rise higher

The number of people in England and Wales entering into insolvency rose to a new high in the first three months of the year, figures from the Insolvency Service showed today.

A total of 35,682 people became insolvent during the period, equal to 566 people a day. This was the fifth consecutive quarter during which the total has hit a record level, as increasing numbers of consumers struggle to keep up with their debts.

But there was better news on the corporate front, with total company liquidations falling by 4% compared with the previous quarter to 4,196.

Individual insolvencies were up 17.9% on the same quarter last year, and broadly in line with experts’ expectations.

Beneath the headline figure, the number of bankruptcies rose by 7% over the quarter but fell by 10.7% year-on-year to 18,256, while the number of individual voluntary arrangements (IVAs) – where borrowers enter into an agreement with creditors to repay some of their debts – rose by 20.1% over the year to 11,782.

Debt relief orders (DROs), introduced in April last year to allow consumers with debts of less than £15,000 and minimal assets to write off their borrowing without entering into a full-blown bankruptcy, continued to rise with a total of 5,644 individuals opting to use one, a rise of 6% on the last quarter of last year.

In 2009, 134,142 individuals entered into insolvency and figures had been expected to remain high this year, despite recent signs the economy may have turned a corner.

Chris Nutting, director of personal insolvencies at KPMG, said he expected insolvency figures to “go through the roof” in 2010. “There is a time lag of anything up to two or three years, particularly if you consider company owners,” he said.

“The company goes bust in the recession, but the owner will mortgage themselves to the hilt and rob Peter to pay Paul for a while – it is only two to three years after the recession that they will be declared insolvent.”

Nutting said many people were still “living beyond their means” and would have to take drastic action if the new government raised taxes and reduced public sector spending.

Turning to DROs he said: “Of greater concern is the growing number of people who are aged 70 or over who have applied for a DRO. Our data shows that this part of the population has an average debt balance of £9,100, the highest across the age groups.

“If you add these DRO numbers to the bankruptcy and IVA figures it is likely that the number of personal insolvencies in 2010 will break all records.”

He added that research had shown people as young as 19 were also using DROs to address their financial problems.

Figures for corporate insolvencies showed there were 1,314 compulsory liquidations between January and March, down 1.3% on the previous quarter and 14.8% on the same period last year, and 2,768 voluntary liquidations, down 11.4% on the previous quarter and 19.1% on the first quarter of last year.

The number of companies going into administration was down by 40% year-on-year at 783.

However, Malcolm Shierson, partner at Grant Thornton’s Recovery and Reorganisation practice, warned that numbers were likely to start rising again. “We expect to see an increase in administrations now that the general election is over,” he said.

“Whomever forms the next government, UK economic growth will be hampered by projected reductions in public spending and a likely increase in taxes.”

Source: guardian.co.uk

The rate of personal insolvency is unlikely to recede any time soon, a debt expert has said.

Director of Credit Action Chris Tapp indicated that many people are still getting over the “debt binge” they have been involved in over the past ten years or so.

The problems are being made worse by the rising rate of unemployment and the reduction in wages many people have experienced, he suggested.

“When you combine those two things, there is pressure on people’s income on the one hand, and this massive bubble of debt that is still very, very slowly deflating,” Mr Tapp explained.

The expert believes that once the employment rate picks up, some improvements will be seen in terms of personal insolvencies.

According to figures published by the Insolvency Service, there were 35,682 individual insolvencies in England and Wales in the first three months of 2010.

Source: uswitch.com

People are more cautious about borrowing cash, according to the Money Advice Trust, but this does not stop unpredictable events causing problems.

Chief executive of the financial charity Joanna Elson highlighted how individuals can sometimes take on debts that they are able to afford, but then something unexpected happens, such as a death or divorce, which causes them to struggle financially.

But she stressed: “We think the general attitude to debt has changed. People are now more cautious about borrowing and spending and think through the consequences of getting themselves in debt.”

Her comments were made following research by Credit Action, which showed that the total personal debt in the UK reached £1,460 billion in March, up 0.9 per cent compared to the same period last year.

Ms Elson pointed out that there has been a “sharp rise” in the number of individuals calling the Money Advice Trust’s debt helpline and described the effect of the credit crunch as devastating.

Source: moneynews.co.uk

Households which have taken out personal loans owe almost £20,000 to lenders on average, according to new figures released this week.

Credit Action conducted a study which found that households which have made use of an unsecured loan were £18,324 in debt to credit providers at the end of March 2010.

The statistics also revealed that the overall average household debt stood at £8,796 at the same point in time, rising to £57,950 when mortgages were taken into account.

In addition, the debt charity revealed that Britons are paying back an average of £2,692 per year in interest via credit cards, personal loans, overdrafts and motor and finance deals.

The findings of the research suggest that consumer credit lending to individuals increased by 0.4% in the year to the end of March, taking the nationwide total to £222bn.

Worryingly, the study noted that total UK personal debt now stands at £1,460bn, which the charity claims is more than the country’s economy produces in a year.

Established in 1994, Credit Action offers a range of resources, tools and training to help Britons manage their debts more effectively.

Source: compareandsave.com

Ahead of the official insolvency statistics, RSM Tenon Tracker, the real-time insolvency monitor, forecasts the level of personal insolvencies in the first three months of 2010.

Key Statistics:

* Record 14,000 insolvencies in March, 16% higher than the previous monthly record in November 2009
* More than 35,000 personal insolvencies in Q1, 2010, repeating the record levels of the last two quarters
* A 15% increase in personal insolvencies in Q1, 2010 compared to the same period last year
* More than 388 people per day entered into insolvency in Q1, 2010
* East Anglia is the UK’s insolvency hotspot, rising by 30% on the same period in 2009

Mark Sands, Head of Bankruptcy at RSM Tenon, comments on record personal insolvency levels:

A record 14,000 personal insolvencies in March, 16% higher than those in November 2009, the previous record level

“The ‘debt-lag’, where monies owed have piled up over a series of months before insolvency hits, can last from anything between 9-24 months. The record insolvencies for March will partly be a hangover from Christmas, but it is more likely to be due to the ongoing effects of the financial crisis.”

More than 35,000 personal insolvencies in Q1, 2010, 15% higher than Q1, 2009

“Although the glass has started to look half full for the economy, it’s very much been drained of every drop when it comes to individuals’ personal finances. Months of job losses and decreased earnings has taken its toll on the public’s purse strings. We are likely to continue to see record numbers of people look to insolvency into 2011.

“The UK’s debt culture built up over the last decade has intensified the effects of the financial crisis. People need to understand the consequences of taking on debt and be given incentives to rebuild their savings. Advice should be readily available on how to budget, what to do if repayments can’t be made and the insolvency options available if all else fails. We are seeing record levels for the third quarter in a row so advice is crucial to help the many hundreds of thousands people currently suffering financial distress who are on the verge of personal insolvency.”

Individual Voluntary Agreements (IVAs) fell by 16% compared to the previous quarter

“This fall is not indicative of an overall drop in insolvencies. It is the reverse. The economic climate has made it harder for people to make the regular monthly repayments on which the agreement is based. Job losses have forced people to look at different insolvency options.”

Bankruptcies and Debt Relief Orders (DROs) rose by 8% and 6% respectively

“Around half of all personal insolvencies are bankruptcies so this apparently modest 8% increase actually translates to more than 1,300 extra people going bankrupt in the last quarter.

“We expect the popularity of DROs to rise once the debate around the inclusion of pensions is resolved to ensure they are excluded from a person’s total net worth*. To date, this solution has proved more popular and better suited to women who account for 63% of all DROs.”

* DROs were launched in April 2009 to help anyone with total assets of less than £300, surplus monthly income of less than £50 and total liabilities under £15,000. Any pension provision at present included in an individual’s total assets resulting in many people being ineligible for a DRO.

Source: creditman.biz