Financial information services firm Markit has released its monthly Household Finance Index, which shows that British households are seeing their finances decline more rapidly now than when the recession was at its peak.
Markit surveys over 2,000 households each month, gathering data on things like spending, savings, debt, job security, availability of and requirement for credit, and perceptions of inflation.
The latest report indicates that the spending power of UK households has fallen for 3 consecutive months, and is now at its lowest ebb since the first survey was undertaken in February 2009. Between July and August this year, nearly 40% of households saw their finances deteriorate. Less than 6% said their financial situation had improved.
Just 9% of respondents said they had been able to increase their savings, and 34% said their savings had dropped. 22% said their levels of debt had risen, compared with 17% who reported a reduction in the amount of money they owed. 24% believe their property has dropped in value, whilst 7% think their house is worth more now. In this climate, 50% of people are less willing to make a major purchase now than in the past.
Tim Moore, senior economist at Markit, said: “With a global economic slowdown and an escalating eurozone debt crisis lapping on the shores, it was unsurprising to see households’ appetite for major purchases reverting to its lowest since the start of the year.” He added that take-home pay had dropped more sharply in August than in any of the previous 9 months, and said the increasing cost of living had compounded the fall in disposable incomes.
If you are experiencing a deterioration in the state of your finances, don’t let things get out of control. Get debt advice from one of our specialists today.
For many people, the chances of getting a foot on the property ladder any time soon appear to be slim to none. However, there is a glimmer of hope for first time buyers, as ‘Rent to Buy’ schemes emerge. One building society in particular that has launched just such a scheme is the Saffron Building Society, which operates in the South of the country.
This particular scheme allows people to borrow if they can show that they have a record of paying rent, on time, for as little as 12 months. For Saffron Building Society, this would, in many cases, be proof enough that the borrower ids capable of making monthly mortgage repayments. In addition, the borrower would have to be able to place just a 5% deposit on the mortgage.
The arrangement would mean that someone who paid rent of £1,000 per month and was able to put down the 5% deposit would be able to buy property worth up to £155,000.
Many would-be first time buyers are unable to proceed with the purchase of property due to poor credit history. Although the borrower will still be subjected to credit checks, this scheme adopts a much more manual approach rather than the usual, automated system where you’ll be declined if there are any blemishes on your credit history.
Broker, John Charcol, has been quoted as saying:
“The common sense way affordability is calculated for this mortgage will be a breath of fresh air to any first-time buyer who has suffered from the ‘computer says no’ approach adopted by too many of the major lenders.”
Many households are paying rents equal to or more than they would pay on monthly mortgage repayments. Credit history and large deposits are the main factors keeping many people from making their way on to the property ladder. Schemes such as this make the property market far more accessible to first time buyers and will be welcomed with open arms by many people looking for alternatives to paying ‘dead rent’.
In this economic climate, many of us are faced with debts, far greater than we’ve ever experienced. The total UK personal debt currently stands at around the £1.5bn mark. The average household debt is approximately £16,500 (excluding mortgages) and it is estimated that 346,000 loan accounts are in arrears. However, even with these grim figures, credit companies are still more than happy to offer credit to anyone, it would seem.
Most of us will recognise the situation all too well; you’re weighed down with the day’s shopping and just about to pay for your goods at the till. Just before you hand over the cash, the cashier offers you a discount on all of your purchases if you sign up for a store card. “It’ll only take a second”. How could you possibly resist such an offer?
However this offer may sound at the time, you should always be wary; unless you are extremely careful with your money, store cards can come back and sting you in the future. In the UK, store cards have an APR of anything up to a staggering 30%.
Many store cards offer an interest free period, usually between 30-55 days. In this time you should aim to clear your balance and reap the full benefit of the discount you made when signing up. If there is a balance on your card after this period, be prepared for the interest to stack up.
With credit being offered left, right and centre, it is easy for debt to spiral out of control. What is being sold as a ‘convenience’ could actually end up putting you firmly in the red.
If you do take a store card, or any other credit card for that matter, make it your priority to make payments on time to avoid substantial late payment charges. Also, refrain from making the minimum payments. Pay as much as you can each month to clear the balance as quickly as possible.
An Individual Voluntary Arrangement (IVA) is a government-endorsed solution for people whose monthly debt repayments and living costs exceed their income, allowing them to pay a manageable amount. IVAs are normally chosen by people who are unable to cope with unsecured debts they have taken out, such as personal loans or credit cards.
If you have a mortgage or other secured borrowing such as a debt consolidation loan, the provider has lent you the money on the basis that the value in your property gives them a means of recouping their losses if you stop making repayments. Because mortgages tend to be large sums, providers need a means of offsetting the risk they are taking by lending you the money. Similarly, debt consolidation loans tend to be utilised by those with a poor credit history, so lenders secure the debt to minimise the risk they are exposed to. Therefore, these providers have a legal guarantee which ensures that, in the event you fail to make the agreed payments, they can force you to sell your house in order to repay the loan.
For this reason, it is highly unlikely that these companies would be willing to agree to take reduced payments within the terms of an IVA. Simply put, IVAs are not designed for situations where borrowers are struggling to repay large secured debts.
That doesn’t mean you can’t set up an IVA if you have a mortgage or another secured loan. If you also have various other unsecured debts that you’re having difficulties repaying, we may be able to arrange an IVA that addresses those debts. If you don’t want to lose your home, however, you need to ensure you keep up the monthly repayments on any secured borrowing.
The Public Accounts Committee (PAC) has published a new report which forecasts that student debt will treble over the next four years. Due to the number of universities that have decided to charge the maximum possible tuition fees, total student debt could rise from its current level of £24billion to £70billion by 2015-16.
Contrary to predictions made by the Government, the majority of universities will start charging the maximum fee of £9,000 a year from September.
Students could end up owing an average of £50,000, and this could ruin many people’s chances of getting a mortgage or making pension contributions, according to the PAC. This has led shadow ministers and student representatives to voice their dismay at what could be unmanageable levels of debt for many. The PAC report warns that students will be under increased financial pressure, and that universities themselves could be “at serious financial risk” in “the new funding environment.”
The Committee also estimated that 30% of the student debt that has been amassed by 2015-16 will never be repaid to the publicly-funded Student Loans Company. That means British taxpayers will have to foot the bill for a £21billion shortfall. In other European countries, student loans are granted by private sector banks, repayment starts within 6 months, and there is a 10 year deadline for repayment.
The repayment schedules offered to UK students are generous compared with Europe, and compared with other forms of personal debt available here. Graduates don’t have to start paying off their student loans until they start earning £21,000 or more, and if they don’t repay it fully within 30 years, the debt is written off. The high default rate that has been predicted is likely to be impacted heavily by foreign students and women taking career breaks, according to the PAC.
As with other loans, legal action can be taken if repayments aren’t made when they are due. The SLC can pursue borrowers through the civil courts, but if defaults occur on the scale envisaged in the PAC report, they won’t have any chance of recovering all the money owed to them. Ultimately, that’s going to mean more cuts or higher taxes in the future.
At the end of April 2011, personal debt in the UK amounted to £1,452 billion – the current sum total of personal debt is almost equal to the country’s entire GDP for 2010.
The average household debt stands at £55,854 (or £8,121 if mortgages are excluded) – a property is repossessed every 14 minutes in the UK and landlord possession orders are made 265 times a day. £179 million is paid in interest every 24 hours, and an individual is declared bankrupt or insolvent every 4.36 minutes.
The total amount of lending in April 2011 increased by £1.2 billion (there was a £700 million increase in secured lending and a £500 million increase in consumer credit lending). At the end of April, total secured lending had reached £1,241 billion and total consumer credit stood at £211 billion.
In the past year, £9.5 billion of loans were written off by UK banks and building societies, which is equivalent to £20.71 million every day, and the Citizens Advice Bureau deals with nearly 10,000 people struggling with debt problems daily.
Redundancy is fuelling increasing levels of debt, with 1,384 people made redundant every day and 850,000 unemployed for 12 months or more.
During March, consumer credit advances fell by 7% compared to the previous year, according to the Finance & Leasing Association (FLA). The figure reflects how the UK public remain wary of increasing their levels of debt in the current financial climate.
As the cost of living has increased, consumers have been spending less, which has resulted in a reduction in the amount of money being borrowed. There was a somewhat unexpected 28% drop in store instalment lending (payment plans that allow people to purchase things like sofas and TVs on credit), whilst the amount of money spent on store cards fell by 21%. Money borrowed on credit cards was 8% less than March 2010, but this still remained the largest single area of borrowing, with a total of £2.53bn spent on credit cards.
The number of people taking out unsecured loans fell sharply, and the overall amount of borrowing in this form decreased by 15% to £182 million. Second charge mortgages, through which people can borrow money secured against the value of their property, were down by 11%.
Despite the rising cost of motoring, car finance remained stable compared to last year, with advances totalling £1.72bn.
A recent survey by Nationwide indicated that high levels of unemployment and stagnating salaries have contributed to falling consumer confidence, and the figures released by the FLA fit with this picture. As long as disposable income remains in short supply, cautiousness towards borrowing will persist.
Recently, we posted an overview of the PPI mis-selling scandal, and looked at how the banks are putting millions of pounds aside to compensate customers who were mis-sold these products. Since the FSA and High Court rulings against the banks, there has been a huge surge in the number of companies offering to secure the compensation people are entitled to. By pursuing there claims through these firms, however, consumers could lose as much as £2 billion.
In a press release on Saturday, consumer charity Which? explained that “with an average payout of £2,750 for mis-sold PPI and [claims management companies] taking as standard a 25% cut as their fee, consumers could pay £825 each for something they could easily do themselves.”
Successful claimants could even end up owing money to a claims management company (CMC) – “if the loan is still being repaid, redress often comes in the form of a reduction of the outstanding balance leaving the consumer to pay the CMC’s fee out of their own pocket.”
An investigation carried out by Which? found that only 10 out of the 38 CMCs they contacted offered good advice, and 16 “claimed success rates of 90% or above with little or no evidence.” CMCs are regulated by the Ministry of Justice (MoJ)– since 2007, the MoJ has had to shut down nearly 500 of these companies.
Which? is urging consumers to complain directly to their banks, and has created a free online tool at www.which.co.uk/ppiclaim. Where banks reject a complaint, customers can contact the Financial Ombudsman Service for free, independent help.
Barclays bank is backing the Which? campaign, having expressed a commitment to resolving complaints as promptly as possible.
Earlier this week, British banks abandoned an appeal against measures introduced by the Financial Services Authority (FSA) in 2009 banning the sale of single-premium PPI with loans.
PPI (payment protection insurance) is a product that was sold by lenders alongside various forms of credit. It is designed to protect consumers in the event that they are unable to pay a debt, usually in the event of accident, illness or redundancy.
Whilst some consumers have no doubt benefited from PPI, it is the banks that have profited most. Indeed, the margins the banks have made on PPI have in many cases exceeded what they make in interest on loans, credit cards and mortgages, and this has been reflected in the fact that their sales teams have been receiving serious commission for getting people to take PPI. Unfortunately, many of those people didn’t need PPI, didn’t want it, or had no idea they were paying for it!
The history of the PPI debate dates back to 1998, when consumer magazine Which? suggested that PPI represented poor value for money, due to the cost and the common exclusions (things not covered by a policy).
In early 2005, the FSA announced it would be reviewing the way in which PPI was regulated, and the Citizens Advice Bureau issued a ‘super complaint’ to the Office of Fair Trading (OFT) regarding PPI sales. Towards the end of the year, the FSA published a report identifying problematic selling practices and compliance issues in the PPI market.
In 2006, the FSA fined a number of smaller lenders for mis-selling PPI, and ‘enforcement procedures’ were imposed on 24 firms. Subsequently, the OFT announced that it would refer the matter to the Competition Commission, which it went on to do the following year. Around the same time, a number of large PPI providers were fined by the FSA for unfair treatment of customers.
In 2008, the Competition Commission published 3 papers on the PPI issue, whilst the FSA imposed further fines and introduced ‘comparative tables’ for PPI. Which? carried out new research, finding that as many as 2 million consumers had been paying for policies that they would never be able to claim on, and that 1.3 million incorrectly believed that taking PPI meant their applications for credit would be accepted. Towards the end of 2008, Alliance & Leicester were fined £7 million for mis-selling PPI.
In 2009, the Competition Commission recommended that that firms selling loans shouldn’t be able to sell PPI as a bundled product at the same time. Barclays lodged an objection to this, but in May 2009, the FSA made the ban official.
In October 2010, the British Bankers’ Association sought a judicial review of these measures, and a High Court case began in January 2011. Last month, the High Court ruled against the banks, and they have now announced that they won’t appeal.
On one level, this sounds like good news for consumers – RBS has set aside £850m to compensate people for mis-sold PPI, whilst Barclays has set aside £1bn and Lloyds £3bn. However, banks are already beginning to increase their charges in an effort to balance the books. As things stand, it’s hard to see the public’s faith in the banking system being restored any time soon.
An increasing proportion of consumers across the country are turning to doorstep loans as their money problems worsen, it has been suggested.
Credit has become more difficult to access in recent months and as a result the offers made by short-term loans are gaining in popularity, according to a report from Equifax on behalf of ITV.
Many people with debt problems view such credit deals as the only way to get by but the interest rates are such that a difficult financial situation could very quickly become much worse.
The research found that almost one in three people who are concerned about their ability to gain credit had used doorstep loans.
Neil Munroe, external affairs director for Equifax, said: "We urge people to talk to their lender if they are struggling with repayments in order to avoid trouble further down the line."
Richard Brown, chief executive of moneynet.co.uk, suggested recently that when it comes to being accepted or refused for a loan deal, lenders look solely at the evidence contained in a person’s credit history file.