Archive for June, 2010

Don’t be fooled by supposed unsecured debts, says Moneywise debt-wizard Mike Thomas. If you own your own home, there’s no such thing.

Yes, you read it right, unsecured debt, as in credit and store card debt, a personal loan, an overdraft or even a catalogue debt, is not unsecured if you own your own home. So am I barking mad in saying there is no such thing?

The answer is simple. Fall behind with say, your credit card payments and through a relatively straightforward and uncomplicated legal process the lender, bank or credit card company can apply to the court to put these debts on your house, a bit like a second mortgage.

“No they can’t” I hear you exclaim, “Because it is unsecured, they would have had to inform me at the time they would put it on the house if I failed to pay!”

Read the small print though, and at the very end of several pages I daresay there will be some reference to it.

So why isn’t it made clear, like when you apply for a mortgage? When you see mortgage adverts in the press, hear them on the radio or see them on the box, they all have the same statement: your home may be repossessed if you do not keep up repayments on your mortgage. Should we not have something similar in bold text on the same sort of advert for any form of unsecured credit?

As far as I’m concerned, the reason companies don’t do this is because if they told the customers what could happen if they default on their payments they wouldn’t sell as many products. So, just tell the punters what they need to know, give them the credit and put the rest in the small print.

A recent report from the debt charity, Citizens Advice, states that since 2000 there has been an astonishing 733% increase in the number of ‘charging order’ applications, which can result in the forced sale of a home through the courts for unsecured debt. At the moment, creditors can apply for a charging order only after a County Court judgement has been issued on the debt.

Or, they can badger the borrower into ‘voluntarily’ agreeing to have the charging order put on their home. This is not always in the borrower’s best interest, so they should seek further advice, because if they subsequently fall into arrears with repayments, the creditor can ask the court for an “order of sale” to force the sale of their home.

But it’s not all bad news if the debt gets secured on your house. In any agreement made under the Consumer Credit Act or where the debt is less than £5,000 in total, even if it’s not covered by the Consumer Credit Act, the interest cannot be added, and so potentially becomes an interest free loan.

Defend yourself

Anyone on the receiving end of an application for a charging order on their home can try to defend it by asking the court not to grant the order.

The grounds for this could include:

•             You have other debts and to grant a charging order would favour this lender in preference to the other firms you owe money.

•             You or a member of your family have a disability or serious illness.

•             You already have a repayment plan in place, which is servicing all your unsecured creditors.

•             You have other debts that are larger and some of your other lenders have frozen interest.

You could also ask the court to enforce payment in other ways, such as an attachment of earnings, which is when any payments would be taken directly from your salary on payday. Alternatively, if your debt is covered by the Consumer Credit Act 1974, which most bank loans and credit cards are, then you can apply for a time order, which can change your monthly payments and extend the length of time you can pay the debt over.

If house prices continue to fall, there is a risk that an increase in charging orders will push many homeowners further into negative equity and more house repossessions will further depress an already ailing housing market.

Under new proposals, the coalition government will look to set a minimum threshold of unsecured debt of £25,000 before a homeowner could lose their home. I would like to see the threshold of unsecured debt better defined before an application for a charging order can even be made.

At the moment, it can be done for a relatively small amount, sometimes even below £1,000.I think a threshold nearer the £10,000 mark would help. More importantly though, why aren’t borrowers made more aware that a missed or non-payment on a credit card debt and the like can result in the debt being dropped on your home which could eventually lead to repossession?

A case of mis-selling debt

I think this a case of mis-selling unsecured credit on a massive scale, don’t you?

In my view borrowers have been far too exposed to the risk of losing their homes to unsecured creditors. Some lenders and debt collection agencies use the threat of a charging order followed by repossession as a tactic to intimidate desperate and vulnerable debtors into making payments they can’t afford.

This is extremely unfair to the individuals concerned, so I welcome the foresight of the coalition government in going some way in addressing this issue.

Source: moneywise.co.uk

Chancellor George Osborne delivered a first Budget he insisted was ‘tough but fair’. But some of the policies are in danger of tipping those on the edge into greater debt, says Mike Thomas.

When I was serving in the Metropolitan Police I often quipped that no matter what happened to the UK economy, the government would always want police officers: our job was always safe. You can imagine how astounded I was when I heard thousands of police officer jobs are on the line as part of the recently announced Budget cutbacks. When this happens we know matters are bad.

The Budget was certainly a tough one and only time will tell whether the measures announced are the right call. I don’t know enough about the economy to make an informed judgment but I do know a bit about consumers and their debts and I am worried.

I help individuals and families restructure their debts and I see the pain caused through debt. My role is to offer guidance and support and provide viable solutions to help resolve those debt issues.  The reduction in disposable income – the money people have left after paying essential living costs – as a result of cuts in pay, benefits and job losses will force many thousands of people into debt crisis. Mark my words, many will freefall into insolvencies or debt management plans.

House repossessions are also likely to rise due to the proposed cut backs on mortgage support currently paid to those on benefits, with the most vulnerable homeowners losing around £140 per month in payments.

Over the past 15 years, morally and socially, through slick marketing and the easy availability of credit, consumers have been encouraged to spend now and pay later.  From this a culture of ‘must have now’ has developed, much like it did in the state too. Now the party has ended and the hangover will last for several years.

I think everyone needs to take a close look at their income and what they are able to spend. Anyone thinking of borrowing money now must make sure they have the means to pay it back. 

As a country we lost that ability to pay back, which is why such drastic measures have been implemented to control the debt. It’s no different for families.

When I’m helping someone re organize their finances, and they are thinking of buying something, I tell them to ask themselves how it is going to be paid for and what is the cheapest way of doing it.

Always remember – if you don’t need it and can’t afford it then don’t buy it!

Most Limited companies have finance directors to run their affairs and if things get tough they prune back with redundancies, buy cheaper raw materials and stop advertising. They have to balance the books to stay profitable or at least stay afloat and it’s a criminal offence for any director of a limited company to trade whilst insolvent.

But isn’t this basically what consumers and the government been doing over the past 15 years or so?

As for those working in the public sector, if they earn more than £21,000 per year then they are not just getting a pay freeze, but a pay cut because with inflation, their salary will buy less over the next two years.

Then there are those who rely on benefits such as tax credits and child benefit. The former will only be available to those earning below £40,000 (joint income) reducing to £30,000 in the year 2011 -12 with the latter is to be frozen for 3 years. Why not make child benefit means tested? Is it fair that footballers like Wayne Rooney and John Terry, earning circa £120,000 per week, can still receive this benefit? Should it not be means tested and given to the poorest families?

In addition, the impact of the VAT increase to 20% – due on the 4 January 2011 – will be to penalise the poorest in society. According to the Centre of Economics and Business Research, the richest 10 per cent spend £1 on VAT for every £25 of their income whilst the poorest 10 per cent spend £1 for every £7 of income. 

What does the future hold for consumers?

I see that the budget measures will slowly squeeze any disposable income from families and individuals and belts will have to be tightened. We are all in this together, however, and the cutbacks will affect the poorest through to the richest in somehow or another.

But there are some positives. Council tax is to be frozen for two years and Housing Benefit is to be pegged to a maximum of just under £21,000 per year, aimed at saving the Country £1.8 billion and in future will be linked to the Consumer Prices Index (CPI) instead of the Retail Prices Index (RPI). The threshold for those paying income tax has increased by £1,000 to  £7,475 and is targeted to be at £10,000 by the end of this parliament.

The Citizens Advice Bureau is currently seeing just under 10,000 new debt cases every day and they will find out after the spending review on 20 October 2010, whether they are to receive a 25% or 33% cut in funding. 

Great, debt help enquiries about to go through the roof and the service helpers are about to get smaller! So, if you happen to have any spare cash, you may want to think about buying shares in a debt management company, as that particular industry is going to be very busy over the next few years.

Source: moneywise.co.uk

England fans out in South Africa will be returning home riddled with debt as well as disappointment, according to new research by money transfer provider, Western Union. A poll of England supporters in South Africa reveals fans forked out an average of £4-5K each to follow the Group stages of the World Cup; equivalent to more than two months’ wages.

Michael Brunskill, a spokesman for the Football Supporters Federation (FSF), whose members out in South Africa were surveyed for the poll, said:

"Being a football fan is a costly business and the FSF always advises fans to plan in advance so we hope that most won’t be returning to the UK too out of pocket. However, with England squad members on an average wage of £125,000 per week, their World Cup performance is bound to raise the question of whether players offered value for money for fans."

Every cloud… Disappointed fans may have scored a saving

Fans’ current debts are likely to have doubled had England progressed beyond Sunday’s game according to the poll – and fewer than half of fans had budgeted for this (44%).

The poll, commissioned by Western Union, reveals most fans would have turned to emergency measures (including friends and family) to get their hands on the extra cash:

·  Nearly one in three (30%) fans would have put the extra expense on credit cards 

·  One in six (18%) would have dipped into their 

·  Nearly one in ten (9%) would have looked for hand-outs from friends and family

The amount of credit card debt written off by financial institutions has continued to rise, a report from the Bank of England has revealed today.

During the first three months of 2010, write-offs increased to £1.25bn, making for the second highest quarterly statistic ever recorded.

The situation has arisen as a result of thousands of people being unable to afford their repayments and declaring themselves financially insolvent. This has led to credit card providers increasing interest rates ever more to recoup their losses, causing further risk of insolvency to those saddled with debts they cannot afford to pay.

In 2009, approximately 10% of all money borrowed on credit cards was written off – a record amount of £4.12bn – even as reports suggest that the recession has led to a greater number of people taking measures to reduce their borrowing and make an increase in how much money they save.

The Bank of England has stated that last year, people deposited £24bn into bank accounts, while only £20bn was taken out in new loans – the first time since 1988 that the amount saved has exceeded the amount freshly borrowed.

Despite this, a ComRes survey conducted on behalf of insolvency experts R3 suggests that an unprecedented 146,948 people will become insolvent across England and Wales during 2010 – an increase of 10% over last year.

Steven Law, the president of R3, warned that this study indicated that the country is "on the brink of a personal insolvency crisis that will take years to work through the system".

"We know there are nearly a million people out there who are struggling with their debt," he stated in light of the report. "While it may be the case that these problems are resolved without help, there is a risk that they might snowball out of control."

Source: claimsfinancial.co.uk

The UK debt charity, the Consumer Credit Counselling Service (CCCS), has seen a dramatic rise in calls from people in rented accommodation seeking help with eviction.

Previously, it was homeowners rather than renters worried about losing their home who were contacting the charity for help with avoiding eviction. CCCS says that this is no longer the case and is receiving more and more calls from private tenants and those living in social housing who are struggling to pay their rent.

Although over half (50.9 percent) of all people who sought help with their debts from CCCS last year lived in rented accommodation and had an average of 5.5 unsecured debts, most had been able to pay their rent in 2009. The charity is warning that this sudden rise in renters seeking help with eviction may lead to increased homelessness and says that rent is a priority debt which should be paid before any non-priority debts.

Laura Carver, CCCS helpline manager says:

"Up until now, almost all of those calling for help in staying in their homes were owners who were struggling to keep up with their mortgages. We have been surprised by the sudden rise in people in rented accommodation phoning us for help with eviction.

"While we have always had more people in rented accommodation calling for help with their debts, they have usually been able to maintain their rent payments. This suggests that the personal finance situation for those in rented accommodation is deteriorating to the extent that they many end up homeless."

Source: myintroducer.com

According to today’s report by price comparison website Uswitch, 52 per cent of mothers who return to work do so because they cannot afford to stay at home bringing up their children. It compares with 22 per cent who return because they want to continue their career.

The report suggested a typical family sees a 34 per cent drop in their net monthly household income during maternity leave, from £3,431 a month to £2,266 a month.

it says many families are not fully prepared for the impact of surviving on a reduced income, with two out of five mothers ending up in debt while on maternity leave, incurring an average debt of £1,329.

Ann Robinson, a director at uSwitch.com, said: “Debt and financial considerations combine to be the biggest motivating factor behind new mothers returning to the workplace.

“Despite women being told that they can ‘have it all’ and can choose whether to be a working or stay-at-home mum, the fact is that most have this choice stripped away from them by the financial realities of modern life.

“Family finances are under more pressure than ever. The high cost of living coupled with the often crippling cost of a mortgage means that many households today need two incomes to get by. Unfortunately, new mothers are often paying the price for this by seeing their choices taken away.”

Research commissioned by R3, the insolvency trade body, reveals that more than four in ten (44%) individuals who freely admit to struggling with their debt have not sought advice because they do not believe that their problem is big enough to need help.

R3 President, Steven Law commented:

“It is worrying that individuals are not seeking professional advice at the first signs of financial difficulty because they don’t think their problems are severe enough.

"While it may be the case that these problems are resolved without help, there is a risk that they might snowball out of control. Professional advice does not mean immediate bankruptcy. It could simply result in advice on budgeting.”

R3 estimates that nearly 1 million people struggling with debt have not sought help, and the research found that close to ten percent (9%) of individuals were reluctant to seek advice because they were afraid of being made bankrupt.

The findings show that the stigma of admitting to debt problems remains as more than one in ten (14%) have not sought help because they are worried about what people would think, with eleven percent concerned about the effect it will have on their families.

Steven Law continued:

“It would seem that many of the individuals who need financial advice are burying their head in the sand. Unfortunately, refusing to acknowledge your financial troubles won’t make them disappear.

"The sad thing is, the longer someone takes to get help the fewer options will be available to them. If individuals leave it too late to seek help, bankruptcy may be their only choice.

“If someone seeks help early they will be able to take stock of their finances and will be on their way to attaining peace of mind. They may also avoid going into a formal insolvency procedure.”

Source: myintroducer.com

The Office of Fair Trading (OFT) has concluded there is no need to cap the interest rates and other charges levied by high-cost credit providers such as doorstep and payday loan lenders.

At the end of a year-long review into a sector that typically targets those on low incomes who cannot access mainstream credit the OFT said that, while it recognised competition between suppliers was less effective than it might be, overall such lending markets worked "reasonably well".

The review looked at pawnbroking, payday loans, home credit and the rent-to-buy market.

One of the more recent entrants to the high-cost credit market – payday loans – has come under fierce criticism from campaign groups and MPs. Some charge interest rates in excess of 2,000%, a factor that prompted the Archbishop of Canterbury, Rowan Williams, to call for "an urgent review" of such rates two years ago. At that time, Debt On Our Doorstep, a coalition of debt charities and credit unions, tabled a motion in parliament calling for an investigation into payday loans.

The OFT said today that it had considered the case for price controls for pawnbroking, payday loans, home credit and rent-to-buy credit and concluded they would not address the problems in the sector. It said such controls could further reduce competition in the sector and lead lenders to recover lost income through increasing charges for late payment and default.

It said, instead, that it was recommending improvements to the way the markets operate, including an industry-wide code of practice and more information about such loans to be published on price comparison websites. Some of these, such as Moneysupermarket.com, actually sell payday loans.

Ray Watson, OFT director of corporate services credit, said: "Our report has found that people who use high-cost credit have limited options and find it difficult to exercise what choice they have to obtain the best deal.

"This means competition between suppliers is less effective than it might be. The recommendations we are making would deliver worthwhile improvements to these markets but more radical approaches, outside the remit of the OFT, need to be examined by the government if the fundamental and long-standing issues of lack of consumer power and limited supply are to be tackled."

Mick McAteer, founder and director of the Financial Inclusion Centre, said he was "deeply disappointed" by the OFT’s findings. "There is no justification for a failure to impose price controls in this sector," he said. "We were hoping to see a cap on charges phased in over three years while social lenders build up their capacity to offer alternative forms of finance."

Social lenders include businesses such as Fair Finance, which offers financial products and services to the financially excluded in London, and credit unions.

The Finance & Leasing Association, the trade association for the asset, consumer and motor finance sectors in the UK, said it agreed with the OFT’s findings on price controls. Head of consumer finance, Fiona Hoyle, said: "They would have adverse unintended consequences for consumers, including for the cost and availability of credit.

"We hope that the government will take careful note of these arguments against price capping when it considers the credit and store card markets."

Commenting on the report, independent consumer body Consumer Focus said that "simply clamping down on high cost lenders will not provide the answer".

"The OFT’s report shows that it would be very hard to boost competition among high-cost lenders and drive a better deal for consumers," said Marie Burton, financial services specialist at Consumer Focus. "It is therefore important that the government considers how it can make sure that lower-cost borrowing, like credit unions, is available to borrowers on low incomes."

A report this week revealed up to 67,000, or 7%, of those struggling with debts say they have already contacted a loan shark or doorstep lender, while a further 13% have considered doing so.

Steven Law, president of R3, the trade body for insolvency professionals that commissioned the research, said: "Going to this source for financial resolution will simply build up a larger store of debt and create more pressure and stress."

Source: guardian.co.uk

The study, examining consumer attitudes in the run up to next week’s Emergency Budget, indicated that 18 per cent of adults are using debt to fund their living costs and 14 per cent are struggling to meet repayments

Part of the problem has been the rising cost of debt, be it a bank overdraft, credit cards or personal loans. Even though the Bank of England rate has been at a historic low of 0.5 per cent for well over a year, the cost of borrowing has been rising over.

The other main worry for consumers, even though the recession officially ended at the start of this year, is job security. Unemployment has steadily crept up beyond 2.5 million over the last two months, and is expected to rise further once the public sector starts to cut workers.

The survey indicated that one in five consumers do not think their job is secure and 49 per cent are experiencing a pay freeze. Though official figures suggest that the great majority are, in effect, suffering from a pay freeze because their wages are not keeping pace with the rising cost of living.

The fear to come from the Budget is that VAT could rise, with 60 per cent saying it was their biggest Budget worry. Nearly as many said they would cut back on spending if the VAT rate was increased by George Osborne, the chancellor.

Separate research from Investec Bank last month suggested that one in three savers have had to tap into their cash reserves during the past six months, to help pay their bills.

Linda McBain, head of Banking at Investec Bank said: “It’s clear that the fallout from the recession is continuing to bite and that millions of savers are withdrawing cash deposits to make ends meet.”

Last month Citizens Advice, the leading debt charity, said that it had handled 2.37 million separate debt cases in the 12 months to the end of March, a 23 per cent increase on the year before.

One area that saw the biggest increase was fuel debts. In total the charity dealt with 110,000 cases where someone could not afford to pay their gas or electricity bill – nearly as many people who could not afford to pay their mortgage.

Ann Robinson, Director of Consumer Policy at uSwitch.com, said: “Consumers are working hard to stay afloat but are in for a tough time. Short-term debt solutions may be an easy way to fund the cost of living but they can lead to severe debt issues if not managed properly. Rather than continuing to plug the hole by borrowing, consumers need to work harder to strip down their essential bills to the bare minimum. This is crunch time for UK households.”

source: telegpraph.co.uk