Archive for September, 2010

ANXIOUS families have lost their appetite for borrowing, opting to take advantage of rock-bottom interest rates and cut their debts.

Consumer borrowing, which takes in credit cards, overdrafts and personal loans, fell by £120million last month.

It was the biggest drop since November 2009, according to the Bank of England, which was forced to reissue the statistics yesterday after losing track of the total amount we owe.

It initially put the figure at £1,428.6billion but later revealed it was £28bn higher.

The number of mortgages approved by lenders also fell for the fourth month in a row, separate data showed.

ean suggested families go on a spending spree to help boost the economy. His remarks caused a stir as many experts believe consumers’ love affair with living on the never, never coupled with reckless bank lending worsened the financial crisis.

Malcolm Hurlston, chairman of the Consumer Credit Counselling Service, said: “Low interest rates have meant it makes sense to use spare money to repay debt instead of save. But the recession may have transformed people’s attitude towards debt and these figures show there is a new prudence to managing credit.”

Howard Archer, at Global Insight, added: “The drop in mortgage approvals fuels suspicion that house prices will fall by 10% in the next six months.”

WE SAY: With Government spending cuts just around the corner, fuelling fears of huge job losses, it is hardly surprising people are reducing debts where possible.

Source: mirror.co.uk

Dip into your savings to help the economy, says the Bank of England deputy governor. Misers will be horrified; spenders delighted. The BBC is researching how emotions affect how we handle money, but what is known already?

Money is emotional. Being in debt makes you anxious. Scoring a windfall – or bagging a great bargain – is exciting. And shopping? Well, vast swathes of the population dose up on retail therapy – shopping to feel better.

Our relationship with cash, cards and credit is far more complex – and emotional – than simply being a spender or a saver.

"Ask people what emotions are most frequently associated with money, and this is the rank-ordered list: anxiety, depression, anger, helplessness, happiness, excitement, envy, resentment," says psychologist Adrian Furnham, co-creator of the BBC’s Big Money Test, currently under development, which explores the link between personality and money behaviour.

Because even financially astute people have bad money habits.

There are five archetypes, Prof Furnham says, and you may recognise these tendencies in yourself:

·         misers fear becoming penniless, rarely admit to being niggardly, and have trouble enjoying the benefits of their money

·         spenders shop in an often uncontrolled manner, particularly when feeling low – but it’s a short-lived high, often followed by guilt

·         tycoons want to make lots of money, seeing it as a route to power and approval, and believe wealth will make them happy

·         bargain hunters expend a lot of effort on getting things for less to feel superior, and feel angry if expected to pay full price

·         gamblers feel exhilarated when taking chances, and find it hard to stop – even when losing – as a win brings a sense of power.

Brian Capon, who in the 1970s was assistant manager at Midland bank branches in Northamptonshire, says state of mind affects the way people approach financial decisions.

"Someone who has just found the the car or house of their dreams can be so focused on borrowing the cash to buy it that they might not be too bothered about the interest rate they pay or how accurate the information is. Often the focus can be much more on getting the cash rather than whether they can afford to repay it."

In his day, a bank knew its customers’ lives – and money habits – inside out, says Mr Capon, who now works for the British Bankers’ Association.

"The manager or assistant manager used to look through all the credit slips and cheques every day and over a period of time could build up a picture of customers’ spending habits.

"The general feeling was that you shouldn’t spend what you didn’t have and you should save up to buy something you wanted. Because not many people had a bank account or easy access to credit, ‘mood’ spending had to be in cash, so if you didn’t have the cash, you couldn’t spend it."

How times have changed.

The money test – and the Bank of England deputy governor’s call this week to spend savings – comes as Britain’s debt mountain, including mortgages and credit cards, is £1.43tn, close to a record high.

Levels of personal debt started to shoot up in the 1980s when relaxation of the rules made lending and borrowing far easier than ever before. But this hasn’t been matched with success in educating people to manage their money well.

While today’s school pupils have lessons in how to read bank statements and unpick financial abbreviations, Which? money editor James Daley says those schooled before this change in curriculum rarely seek the abundance of advice available – unless they hit crisis point.

Too many people are in denial about their finances, he says, because thinking about it would make them feel bad.

"In Britain we have a tendency to be spenders rather than misers. People get locked into a lifestyle they can’t afford. They should meet somebody who’s been made bankrupt and find out how awful it is."

The government should switch from campaigns patiently explaining what APR means to shock tactics, he says.

"I’m surprised we don’t have public safety films about over-spending and debt like the ones for smoking. That would break through to the older generations."

Open University psychologist Mark Fenton-O’Creevy, another co-designer of the BBC’s money test, says a little knowledge can be a dangerous thing.

"People whose higher education had a financial component are more likely to make mistakes with their investments. They think they know what they’re doing, and make rash choices.

"Think about how people get into financial trouble. A person told their credit card is about to be taken away because of serious debts cheers themselves up with a spending spree while they’ve still got it."

They know this will put further strain on their parlous finances, but shopping is their way of dealing with stress of debt.

He’s involved in the pan-European project xDelia to test whether innovative techniques such as immersive games might help people gain the necessary skills to make better financial decisions.

The aim of the BBC’s money test will be to test the theory that how we manage our emotions – particularly when stressed or in an unpleasant situation – affects how we manage our money.

Because knowing what APR means – or how to work out the best discount, or read a bank statement – is just a part of it.

Source: bbc.co.uk

People who are trying to cut down the debt on their credit cards may be interested to hear that surcharges for using such accounts have been described as unjustified by Which?.

Chief executive of the consumer watchdog Peter Vicary-Smith suggested that fees for using credit cards to pay for items should be "fair and transparent".

However, research by the company showed that the merchant service fee for this type of transaction is typically 0.8 per cent, whereas some firms are charging 3.5 per cent.

"People don’t like card surcharges and it’s no surprise when the costs they pay don’t match those incurred by the retailer," said Mr Vicary-Smith.

In his opinion, "there can be no justification" for the way businesses have pushed up their profit margin in this way.

Last week, the same organisation claimed people without internet access are missing out on the best savings accounts deals and urged banks to introduce web terminals to remedy this situation.

Source: moneynews.co.uk

A new map showing levels of personal insolvency by constituency reveals that Doncaster North, new Labour leader Ed Miliband’s constituency, came sixteenth on a list of insolvency hotspots in England and Wales, according to research by insolvency trade body R3, with 369 new personal insolvencies in 2009. David Cameron’s constituency of Witney is placed at number 322 (with 215 new cases), while Nick Clegg’s constituency, Sheffield Hallam, had the fourth lowest number of new personal insolvencies – with just 95 new cases in 2009.

Torbay on the South West coast tops the list with 470 new personal insolvencies in 2009, followed by Mansfield in Derbyshire with 442 new cases and Weston-Super-Mare near Bristol in third with 424. Torbay also topped the list in 2008 with 383 cases. A decline in tourism and heavy industries are key factors in creating insolvency hotspots in the North East and South West.

The constituency with the lowest levels of personal insolvency was Wimbledon in London with 78 cases, followed by Tooting, Ealing (London) both with 83 and Sheffield Hallam Co with 95 cases. These findings come as personal insolvency reaches record levels with over 134,000 for England and Wales in 2009. R3’s President Steven Law commented:

“Over the course of the last decade, personal insolvencies have increased by 350% and our research also shows that 42% of the British population are currently finding it a struggle financially to get through the month. The map that we have launched today shows where the problem areas lie, but we would expect personal insolvencies to continue to rise right across England and Wales over the next few years.

“In the North East the decline of heavy industries and the consequently higher than average unemployment in the region goes some way to explaining the high insolvency rates. In the South West, productivity and household income are below the UK average, coupled with a reliance on the tourism sector. Public sector cuts are likely to have an impact in future across the country as businesses who rely on those contracts begin to suffer. Our insolvency map also includes advice for MPs to help those of their constituents who are facing financial problems.”

R3 is the trade body for Insolvency Professionals, and is made up of 97% of the UK’s Insolvency Practitioners from all over the UK.

Source: creditman.biz

UK consumers repaid more unsecured debt than they took out in new loans in August, the Bank of England said.

Net consumer credit – which includes credit card borrowing, overdrafts and personal loans – fell by £120m, the biggest drop since November 2009.

The figures come shortly after the Bank’s deputy governor, Charlie Bean, suggested savers go out and spend some of their savings to boost the economy.

The number of mortgages approved for house purchases also dipped slightly.

There were 47,372 home loans approved in August, some 974 fewer than the previous months, the Bank’s figures show. This was the fourth monthly drop in a row.

Cautious

People’s safety-first approach to credit in recent times is clear in the total amount of outstanding debt held by individuals.

This grew sharply in the middle of the last decade as people helped expand the credit bubble. It stood at £1.18 trillion in December 2005, and increased to £1.4tn two years later.

But in the last two or three years, assisted by the credit crunch, that figure has remained relatively static.

In August 2010, it was at £1.43tn, the lowest since February 2008.

Within unsecured lending, credit card lending increased slightly, although it was below the average of the previous six months.

However, this rise was more than cancelled out by the repayment of personal loans and overdrafts.

Some charities have welcomed the austere approach by consumers.

"Credit can be an important tool to smooth the economic peaks and troughs of life, but our experience at National Debtline also shows that people in unmanageable debt are hampered in many areas of their lives, and incur significant costs to society," said Joanna Elson, of the Money Advice Trust.

"It is important that people struggling to repay their debts are given every chance to do so."

Savers hit

Figures from the Building Societies Association (BSA) showed that the financial climate was also affecting savers.

Savings balances held at mutuals decreased by £699m in August, following a decrease of £1bn in July. Excluding interest credited to accounts £1bn was withdrawn in August, compared with £1.3bn in July.

"Households are facing a difficult economic environment which helps explain the withdrawal from savings accounts seen in August," said Brian Morris, head of savings policy at the BSA.

"Consumer prices are outpacing growth in average earnings and unemployment remains elevated. Also, the low Bank rate is making it difficult to attract people who can afford to save when potentially higher, if more risky, returns are possible in the equity markets."

Housing market

The sluggish state of the housing market was also in evidence with the dip in mortgage approvals in August, the Bank’s figures show.

Net mortgage lending was higher than in July, increasing by £1.7bn. The previous six-month average was £700m.

"It is a mixed bag of data, with mortgage lending picking up, but approvals falling again and net credit back in negative territory," said Hetal Mehta, of Daiwa Capital Markets.

"But this does not change the broad picture, that the housing market is in for a period of stagnation for the next nine to 12 months.

"Until there is a substantial recovery in credit extended, the outlook for the housing market is rather gloomy."

Dipping prices have been revealed in recent house price surveys owing to sluggish demand – caused by lenders’ requirements of large deposits – and growing numbers of sellers entering the market.

The number of approvals for those remortgaging increased to 28,042. This was higher than the average of the last six months, but still remains historically low.

Source: bbc.co.uk/news/business/

Debt collection is big business. A staggering 20m cases, worth a total of £12.7bn, were passed to debt collectors last year alone.

Debt collectors typically earn between 10% and 50% of the money collected.

But complaints from distressed victims of these firms have soared. Watchdog the Office of fair Trading (OFT) was swamped with 11,180 complaints last year, compared with 8,961 the previous year. And consumer groups claim this is just the tip of the iceberg.

Marc Gander, from the Consumer action Group, says: ‘The situation is completely out of control. Thousands of people are finding themselves chased by a succession of debt collection agencies for money they never owed in the first place.’

Despite the OFT having new powers to shut down rogue debt collectors, firms are continuing to chase people who’ve never missed a payment in their lives. And there are worrying reports of harassment by firms which are flouting industry rules.

Household names, including utility firms and mobile phone providers, are often at the root of the problem, selling on questionable debts and leaving their customers at the mercy of these debt collection firms.

Money Mail, the OFT and the charity Citizens advice have uncovered shocking evidence of:

• Consumers being threatened with legal action and bailiffs for bogus debts;

• Exasperated consumers being forced to fight these bogus debts for years;

• Household-name companies that initiated the debt failing to intervene and leaving customers at the mercy of collection firms;

• Bungling firms failing to investigate disputed debts before selling the debt to a collection firm;

• Credit records blighted for years as debt is sold from one collection agency to another;

• Consumers being hounded at all times of the day and night;

• Rogue debt collectors hassling neighbours to chase debts.

How the debt collection agencies work

Some collection agencies are departments or subsidiaries of the company that owns the original debt. They typically get involved earlier in the debt collection process and, in theory, have a greater incentive to maintain a good relationship with the customer.

But in many cases, the debt is sold to a third-party firm — which has no such incentive. Typically, they will get paid only if they collect the money, so are effectively incentivised to chase you until you pay up — whether it is a genuine debt or not.

Often, debt will be bought and sold in bundles. The cheaper the package, the less information about the debtor is available and the more work is needed to track down the right person — and the more likely they are to get the wrong one. This debt is often sold on again if the debt collector isn’t successful.

Mr Gander says: ‘It’s like Chinese whispers. Bogus debt is sold on to a debt collection agency which will have some paperwork, but with no direct knowledge of the customer. It becomes increasingly difficult for the customer to challenge these debts.’

Worryingly, Mr Gander claims in some cases when debt is sold on, the collection firm might put a fresh mark on that person’s credit record. This breaches rules from the Information Commissioner dictating that there can be only one default date for a debt. he says: ‘In the worst cases, a black mark on your credit record — which should only last for six years — can be on your record for much longer, even if you didn’t owe the money in the first place.’

What is being done?

Though there are plenty of guidelines which are supposed to protect consumers, critics say they are woolly and not rigorously enforced. Debt collection firms are regulated under the Consumer Credit act and must hold a Consumer Credit licence.

These licences are issued by the OFT, which is also responsible for policing the industry.

Under the guidelines, for example, debt collection firms are not allowed to pursue the debt if it is disputed. They not allowed to contact you at unreasonable times or hassle you constantly. Neither should they make threatening statements, pressurise you into paying in full or in unreasonably large installments, or to sell property or borrow more money to pay off the debt. Firms must also investigate a debt properly when it is disputed.

Crucially, the OFT has no powers to investigate individual complaints and will intervene only if it receives many complaints about the same firm.

The charity Citizens Advice says some debt collectors are clearly breaching regulatory guidelines and industry codes of conduct. a spokesman explains: ‘We see cases amounting to harassment, where people get phone calls several times a day from creditors and debt collection companies acting on behalf of creditors, sometimes in the early hours or late at night and sometimes at work.

‘We also see cases where firms contact neighbours and relatives to try to trace debtors. Besides being in breach of OFT guidelines, this sort of harassment can cause immense additional stress and anxiety to people already overwhelmed by debt problems.’

Source: thisismoney.co.uk

More than four in ten adults in Britain (42%) struggle each month to make it to ‘payday’ (11% on a regular basis and 31% occasionally) and the average day this struggle begins is the 20th day after payday. This is according to research by insolvency trade body R3 and comes against a backdrop of record levels of personal insolvency.

R3′s President Steven Law commented:

"Over the course of the last decade, personal insolvencies have increased by 350% and it is very worrying that over 40% of the British population are finding it a struggle financially to get through the month. This is a huge stress in itself and factors such as inflation associated with basic living costs and potential rises in interest rates will not make this monthly struggle any easier."

The main causes for this struggle have been identified as:

* Credit card payments – cited by 35% by those who often or sometimes struggle to make it to ‘payday’

* Spending on going out or non-essentials – 25% of those who struggle

* Paying off bank loans, ‘big ticket’ purchases, making mortgage repayments – between 15-17% of those who struggle.

R3′s President Steven Law concluded:

"Our addiction to credit cards is still out of control, despite the recession and a ‘tightening up’ of lending criteria. There needs to be a cultural shift in consumer attitude to debt. For too long we have got used to the idea that this is money we are entitled to. Using a credit card is just delaying the inevitable day of payback – the sooner this is tackled and professional advice sought, the smaller the final bill will be for individuals."

Source: freshbusinessthinking.com

Four in ten adults in Britain (almost 19 million people) are worried about their debt, according to research by R3, the insolvency trade body.

The findings show that Londoners are the most likely to be worried, with almost half (49%) saying that they are concerned about their current level of debt. Londoners are followed closely by those living in the North East and North West where forty-four percent of residents are worried about their debts.

For those who worry about their debt, credit cards caused the most concern (51%). Thirty-two percent of those worried about their debts were most concerned by their overdraft, with nineteen percent worried about bank loans and mortgages payments respectively.

Those living in the East of England were the least worried with just under a third (33%) saying that they were concerned with their overall level of debt. However, those in the region who do worry about their levels of debt were the most likely to be worried about credit card debts (63%).

Those concerned about debt in Scotland and the North West follow closely behind, with fifty-nine percent saying that they worry about credit card debt. However, Londoners, who were most concerned about their debts overall were least likely to be worried about this specific form of debt (39%).

R3’s President, Steven Law commented:

“It is alarming, but not surprising that so many people are worried about their debt. The research shows how debt has become a fact of adult life – starting with a student loan and eventually graduating to a mortgage, credit cards and loans.

"However, seeing debt as a way of life can lead to years of worries about financial stability. People who feel that they are struggling with personal debt should seek professional advice on managing their household budget early.”

Source: myintroducer.com

In its latest report, the UK Insolvency Helpline – a personal and business debt consultancy that offers financial advice to individuals and businesses – announced that personal debt in the country is growing at a worrying pace. According to organisation’s statistics, it is credit card debt that contributes greatly to people’s financial problems.

UK Insolvency Helpline urges lenders provide struggling borrowers with more debt relief because a large number of those in financial difficulties are doing their best to repay debts they have accumulated on the credit cards.

Commenting on the findings, Mr. Sorsky, UK Insolvency Helpline councilor, said that most Brits do try not to abuse credit cards; however, few of them succeed to reserve credit cards for emergencies. He also highlighted that people in the UK are now saving less than they used to, which means they do not have extra finances to pay off debt.

This report, published by UK Insolvency Helpline followed the recent survey of European Consumer Finances, which revealed that 32% of European citizens are building up savings.

Source: e1buytoletmortgages.co.uk

25% of Britons say that they’d be unable to live without their overdraft and 18% are constantly overdrawn, research from Groupola.com has revealed.

Just 6% of the 1,184 people questioned by the discount website during September said that they never used their overdraft and only 2% said that they’d actively cancelled it.

The Bank of England revealed yesterday the average overdraft interest rate is now 19.1%, a record high which the central bank said was a result of lenders attempting to increase their profits in the wake of the financial crisis as well as "a reduction in the degree of competition within the banking sector."

Interest rate hikes

Changes to the overdraft fee systems at Lloyds earlier in the year penalised authorised overdraft users though unauthorised overdraft users began paying less for going into the red.

Elsewhere, banks have increased the interest rates their customers pay on their overdrafts, sometimes dramatically.

For example, the interest rate that Barclays Additions Active current account customers now pay on their authorised overdrafts – 18.3% EAR – has almost doubled since March 2009.

It’s evidently a change for the worse that has got through to many consumers: 66% of the respondents to the Groupola survey said they’d worry about an overdraft.

More worryingly, 38% of respondents said they had no idea at all how much interest they were charged.

Getting over the overdraft

Many current accounts are currently offering 0% overdraft facilities, at least for the first year after opening the account, but Brits are notoriously unlikely to

In the past few months, surveys have found that they’re more likely to change their football team allegiance than their primary bank and that, on average, they stick with their current account provider for longer than their longest relationship.

High overdraft rates can also be beaten using a super balance transfer credit card.

They work in a similar way to 0% balance transfer credit cards which allow users to move high-interest credit card balances to the new card and pay them back with zero interest for a limited period.

With a super balance transfer credit card, the user moves a balance to a current account and then pays back the credit card provider back at 0%.

The Virgin Money credit card is a super balance transfer credit card. The 0% rate lasts for fourteen months and there’s a fee of 4%.

After the introductory period any outstanding money balance transfers will attract a 20.9% variable APR. Purchases will be subject to a 16.6% variable APR.

The Play.com credit card has the lowest transfer fee of any super balance transfer credit card, just 1.5% (minimum £3).

However, the card’s 0% rate only lasts for six months and after that time money transfers will also attract a 20.9% variable APR. Purchases will be subject to a 16.9% variable APR.

Source: credit-card-comparison-online.co.uk