Charities warn of rising debt

Article 2008-03-18, 09:11:00

Consumer Credit Counselling Service and Citizens Advice Bureau see surge in requests for help regarding debt

The number of people seeking advice because they were struggling with mortgage repayments and other household bills surged in the first two months of this year, and the rising cost of living could force many more people into insolvency, charities warned today.

Citizens Advice said its bureaux in England and Wales had seen a 35% increase in the number of cases involving mortgage arrears, compared with the same period last year.

A survey of 73% of its offices found debt counsellors had dealt with 215,000 new debt cases in January and February alone, many of them involving people struggling to keep up with rising living costs.

As well mortgage arrears, an increasing number of homeowners contacted the charity about problems involving day-to-day costs such as energy, water, telephone and council tax payments.

Meanwhile, the Consumer Credit Counselling Service (CCCS) said it had set up a bankruptcy centre in Birmingham to help the growing number of people finding themselves with too little money to go onto a debt management plan.

The charity said "super-inflationary" rises in basic living costs were making it tougher for people who were in debt, particularly the least well off.

The news comes as the latest inflation figures show a rise in consumer price inflation from 2.2% in January to 2.5% http://www.guardian.co.uk/business/2008/mar/18/economics.interestrates, with rising energy and food costs pushing up the cost of living.

It follows warnings from the Council of Mortgage Lenders that repossessions could rise by 50% this year, as the credit crunch forces lenders to raise interest rates and tighten lending criteria.

Teresa Perchard, director of policy for Citizens Advice, said the sharp increase in the number of mortgage arrears problems was "worrying".

"These latest figures paint a worrying picture, suggesting a significant number of households are struggling to meet their most basic living costs," she said.

"The combination of big increases in household bills, especially fuel, and rising housing costs is putting additional pressure on people's finances when they are already stretched to the limit."

Despite the rise in mortgage-related enquiries, credit and store cards still account for the largest proportion of debt problem, Citizens Advice said, although the number of cases was down 9% on the first two months of last year, reflecting a fall in outstanding balances across the industry.

However, problems relating to overdrafts were up 7% and debt is now the number one issue dealt with by the charity's counsellors.

It said in the 2006/07 financial year it had dealt with 5.7 million new cases, more than 1.7 million of which concerned debt, and advisers are now dealing with more than 6,600 debt problems every working day.

"If people have debt problems they should get help straight away," said Perchard.

"We cannot stress enough the importance of telling your creditors as soon as you have difficulties in paying - they should treat you sympathetically."

As well as giving advice on repaying a debt, a charity like Citizens Advice could also help someone ensure they were claiming the benefits they were entitled to, she added.

Separate research published today by credit reference agency Experian suggested consumers and lenders had already begun to tighten their belts before the credit crunch started to bite late last year.

Figures show the total outstanding balances on UK borrowing rose by 9.24% over the last 12 months, slowing from a 14% rise over the previous year.

The total outstanding debt now stands at £1.1 trillion, up from £1tn this time last year.

However, Experian said the "negligible growth" in credit card balances suggested consumers had taken a "more responsible approach to borrowing".

"The debt data shows that, in the last 12 months, growth in lending has slowed markedly across all key credit products (mortgages, hire purchase, loans, credit cards and overdrafts) compared with the previous 12-month period," Experian said.

"Credit tightening on cards, loans and mortgages was already well established in advance of the credit crunch.

"This cautious and responsible approach has prevented an explosion in credit card usage."

The research suggested that people in Richmond-upon-Thames were the most indebted, with £53,533.16 per head, while the least indebted area was Dumfries, with £12,458.07 per head.

Northern Ireland showed the biggest change in total debt, up 23% in the last 12 months, to £17,921.63 a head.

This was followed by Kensington, Chelsea, Wandsworth, Hammersmith and Wolverhampton.

Don't panic over new loans, mortgage holders told

Article 2008-03-04, 04:22:00

1 in 5 Homeowners concerned about meeting mortgage payments

The Financial Services Authority is today urging 1.4 million mortgage customers looking for new home loans not to panic, amid signs that homeowners are worried about making repayments this year.

Launching a £2m advertising campaign aimed at mortgage customers whose fixed rate or discounted deals are coming to an end, the FSA is trying to help homeowners "stay in control" of their finances.

It has conducted a survey of homeowners' attitudes towards their mortgages and found that one in five mortgage holders are concerned about meeting their repayments in the next 12 months. When the concerned customers were asked how they would meet the costs, a quarter said they had made no plans to address the potential problem.

The advertising campaign - to be run in newspapers, posters and on the radio - follows the FSA's alert in January that more than 1 million homeowners could be at risk of serious financial difficulty and at risk of losing their home in an economic slowdown.

Chris Pond, director of financial capability at the FSA, said: "Economic conditions are getting tougher, putting pressure on family finances."

The campaign outlines a three-point plan for mortgage customers:

• check your budget;

• start planning now;

• get help from your mortgage lender.

Pond said the checklist aimed to set out simple steps in "difficult times".

"And for those who are really struggling, don't panic. Talk to your lender or get free confidential advice," he added.

Some 1.4 million mortgage customers are on two- and three-year deals which are coming up for renewal. They face paying higher rates as mortgage lenders are tightening their criteria and some are stepping back from the market because of difficulties raising finance in the money markets.

In its financial risk outlook in January the FSA admitted to being concerned that borrowers were badly prepared for any worsening in economic conditions.

At the time, it said homeowners may have become too reliant on cheap credit and rising house prices to sustain their levels of spending.

The FSA has warned that a "significant minority" - some 1.04 million people - with large mortgages who had borrowed three and a half times their salaries could be at risk.

The FSA's new campaign is particularly targeting customers whose fixed-rate and other mortgage deals are coming to an end this year, as well as householders looking to move home or remortgage, and customers who think they may struggle to meet mortgage repayments if their circumstances change.

Repossessions rise dramatically

Article 2008-02-08, 09:10:00

Bank rate cuts may be “Too little, too late”.

Properties being repossessed by mortgage lenders leapt by 21% in 2007 to their highest figure since 1999, the Council of Mortgage Lenders (CML) said today.

A total of 27,100 homes were repossessed over the year, up from 22,400 in 2006 and more than three times 2004's figure of 8,200.

Worryingly, the number of borrowers at least three months in arrears on mortgage repayments was also up by 8.6% to 129,800. This follows a 2.8% fall in arrears cases in 2006.

The rise in the number of homeowners struggling with mortgage debts followed three base rate rises in the first half of last year and a tightening in lending criteria caused by the recession in the US and the credit crunch that followed.

Although the repossessions figures are the worst for eight years, and have risen sharply for the third year running, they are better than had been expected by the industry.

The CML said the figures was 10% down on its forecast for the year, and represented fewer than one in 400 of the 11.8m mortgages in the UK.

Arrears figures were also relatively low, it said, with fewer than 0.5% of all mortgages accumulating more than six months of missed payments - around one-seventh of the number in the early 1990s when the level of struggling homeowners reached a record high.

Late last year the CML predicted a 50% jump in repossessions in 2008, but today it said conflicting factors had made it difficult to see what would happen in the year ahead.

Two interest rate cuts since December and expectations of more to come meant the payment shock faced by 1.4m borrowers coming off fixed-rate mortgages this year may not be as bad as previously anticipated.

However, the ongoing credit crunch and slowing economy meant there was "no room for complacency".

The CML's director general, Michael Coogan, said: "Lenders take their responsibilities to borrowers facing repayment difficulties very seriously, and many go to exceptional lengths to provide debt counselling, reschedule payments, extend loan terms, or in some circumstances even allow payment breaks.

"They abandon repossession action right up to the last moment if they can reach a payment solution consistent with both the borrower's and the lender's interests.

"Despite this, the number of repossessions is likely to be higher in 2008 as a result of wider issues in the economy and the mortgage funding markets."

Howard Archer, chief UK economist at Global Insight, said it seemed certain that repossessions would rise "significantly" during 2008.

"The full effect of the marked overall increase in interest rates between August 2006 and July 2007 is still feeding through," he said.

"While the December and February interest rate cuts by the Bank of England will help matters, there is a danger it could be too little for many people.

"This is particularly true if inflationary pressures prevent the Bank cutting interest rates markedly further over the coming months."

Sue Edwards, head of consumer policy at Citizens Advice, said the CML's figures reflected what the charity was seeing around the country.

"Last year, we dealt with over 57,000 problems about mortgage and secured loan arrears - an 11% increase on the previous year," she said.

"The growth we have seen of so called 'mortgage rescue' or 'sale and rent back' schemes targeting people at risk of repossession may also mean the actual figures tend to understate the true scale of the problems faced by borrowers at the margins of affordability."

Edwards said the current safety nets for homeowners on low incomes were "completely inadequate" and the repossession figures showed the system of state support needed to be overhauled.

She added that evidence from visitors to Citizens Advice bureaux was that lenders were increasing problems for struggling borrowers by piling on charges and refusing to negotiate on affordable repayments.

"We want to see all lenders being reasonable when dealing with customers who do get into trouble, and taking court action for possession only as a last resort," she said.

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