Another twist of the knife for a nation in the red
Debt-advice charities fear last week's rate rise will leave even more Britons in desperate straits
Sunday 14 January 2007
"It only takes a small rise in interest rates to tip another few thousand over the edge."
Even if only half accurate, this gloomy forecast from Rosalind Pearson of the debt-advice charity Citizens Advice, made shortly before last Thursday's surprise base-rate rise to 5.25 per cent, will resonate with many people this weekend.
While an increase in rates won't affect homeowners with a fixed-rate mortgage, it will hit those millions on a variable deal, including tracker loans and standard variable rates (SVRs).
The extra £17 a month that the latest rate rise will add to repayments on a £100,000 mortgage charged at an average SVR of 6.8 per cent doesn't sound like a catalyst for collapse. But this is the third hike in the base rate in less than six months - from 4.5 per cent in August to 5.25 per cent today. Many households will have felt this cumulative impact not just on home-loan repayments but also on credit card bills in the shape of higher annual percentage rates (APRs).
The rate rise will likely hit remortgages and new personal loans, too. The price-comparison website uSwitch.com last month predicted the end of the "sub-6 per cent" personal loan.
For Britons relying on cheap credit to consolidate expensive debts, pay off the bill for Christmas, plan this year's family holiday or just make ends meet, the increase in the cost of borrowing will be another blow to their personal finances.
Debt-advice charities such as Citizens Advice and the Consumer Credit Counselling Service (CCCS) report an alarming increase in the number of people contacting them.
"Since 2 January, we've received more than 1,000 calls a day to our helplines," says Frances Walker of the CCCS. "Between July and September last year, our most up-to-date figures, the average debt for our clients was £31,000 - an increase of more than £2,200 on 2005."
Over at Citizens Advice, staff estimate that they currently receive 5,000 new debt-related cases every week. "It's increasing all the time," says Ms Pearson. "Last year, there were 1.4 million debt cases in the UK."
Many callers to both organisations have reached a point where mis-management of their finances threatens to engulf their lives. Such indebtedness afflicts all social strata, from overstretched low-income families, to students, to overreaching high earners who invest in buy-to-let properties.
A string of missed repay-ments on mortgages, credit cards, overdrafts or personal loans can lead to spiralling debt; for many, the threat of losing their home is real.
There is much evidence from recent surveys underlining the scale of the problem. In its Housing and Mortgage Market forecasts for 2007-08, the Council of Mortgage Lenders warns that home loan "arrears ... are likely to start rising again [after a fall last year] in 2007 following the recent rises in interest rates".
An estimated 105,000 borrowers in the UK were in arrears of more than three months on their mortgage in 2006; the predicted figure for 2007 is 130,000.
Property repossessions this year are expected to stay the same, at around 15,000.
But it's not just mortgage repayments that are causing concern. A survey from the CBI business group last week revealed that many of its members expect the number of borrowers in arrears on their personal loans to carry on rising.
As for credit cards, Bank of England figures show that £738m of debt was written off between July and September last year - up from £628m in the same period in 2005.
Research by accountants and financial advisers Grant Thornton suggests that there will be 30,000 personal insolvencies by the end of March - a third of these down to excessive Christmas spending.
In the three months to the end of September last year, the Government's Insolvency Service reported 27,644 people in the UK either bankrupt or under an individual voluntary arrangement (or IVA, a separate plan that lets borrowers write off up to 60 per cent of their debt). This was more than 50 per cent up on the figure for 2005.
The reasons why so many Britons are getting into debt are hard to pin down. Banks - which had to write off an estimated £1.37bn in bad debts last year - blame the rise of unregulated firms that encourage indebted consumers to take out IVAs.
Consumer rights groups such as Which? put it down to greedy banks and lax rules governing who they can lend to. Nor, say many financial advisers, should individuals' own responsibility for their problems be overlooked.
But there is evidence that the financial services sector itself is a contributor to the problem. The Financial Services Authority, the industry regulator, revealed last week that many people are at risk of being given "unsuitable" advice by mortgage advisers. This can lead them to take on too much debt.
The following guidelines should prove useful for anyone who is finding it difficult to meet their financial commitments, or who is concerned that they could be stepping outside their personal financial comfort zone.
* Always let your creditors know as soon as you start having problems; you would be surprised at how flexible many will be.
* Don't pay for any advice about resolving your debts. Both the CCCS and Citizens Advice will help you work out repayment plans free of charge, and show you how to manage your money better in the future.
* Think carefully before consolidating all your outstanding debts into one large loan. If the period over which you will be paying this back is excessively long, it is likely that the total interest paid will be well over the odds; this is often the trade-off for giving you easier repayments in the short term. And if you secure all your debts against your home, you could lose it.
* Always pay essential bills first: for most people, these will be their mortgage or rent, council tax and heating. Lose control of these, and you'll slide further down the slope.
- 1 Reader dilemma: 'Our son is 34 with an IQ of 85, and spends all his time in his room. What will happen to him when we're no longer here?'
- 2 Tunisia hotel attack: Locals form 'human shield' to protect hotel from gunman Seifeddine Rezgui
- 3 Russian officials ban yoga because it's too much like a religious cult
- 4 German ethics council calls for incest between siblings to be legalised by Government
- 5 Ginger Pride festival to take place next summer, organisers say 'time of bullying gingers is over'
The moment a Queen's Guard soldier lost it and drew his gun at annoying tourist
Greece crisis: The wider lesson is that it’s time to abandon this failed experiment in currencies
'I wish the BBC would stop calling it Islamic State' – David Cameron unleashes frustration at broadcaster
Pentagon accuses Russia of 'playing with fire' over nuclear threats towards Nato
They are neither a 'state' nor 'Islamic': Why we shouldn't call them Isis, Isil or IS
Greece crisis: IMF was pushed around by Angela Merkel and Nicholas Sarkozy – and now it is being humiliated
iJobs Money & Business
£40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...
£22500 - £27000 per annum + OTE £45K: SThree: Since our inception in 1986, STh...
Negotiable: Recruitment Genius: This extremely successful and well-established...
Competitive with monthly bonus: Guru Careers: We are seeking an experienced FX...
Day In a Page
Dating back to the 19th century, this four-bedroom home needs modernising. Spanning three storeys, the red-brick house has a fireplace, a small terrace and a cellar.
Just outside of Cambridge, this single-storey home offers three double bedrooms, a living room with vaulted timber ceiling and ladder steps that lead to a mezzanine study area.
This six-bedroom Georgian home is on three floors with open fireplaces, a two oven Aga, an annexe, and cottage gardens with outbuildings and a car barn.
A former coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, an attached office, kennels and an outbuilding that's currently used as a gym.
Located beside an impressive Victorian viaduct, this four-bedroom home has an open-plan living area that is glazed on two sides, with skylights and high ceilings.
A former furniture workshop, this three-bedroom home has high ceilings and painted brick walls, in a village setting only fifteen miles from the coast.
This five-bedroom stone townhouse features a pine staircase and an Inglenuk fireplace, double doors from the lounge give access to an enclosed courtyard.
This five-bedroom, detached home blends traditional and modern design; the sleek kitchen features a gas hob and oven set within an exposed chimney breast.
Moored in Chelsea's Cheyne Walk, this houseboat offers two double bedrooms and a teak deck that's ideal for al-fresco dining.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.
This six-bedroom home is set amongst three acres of grounds. Currently a large family home, Clift Hill has potential to make a B&B or countryside retreat, subject to change of use permissions.
This Grade II-listed three-bedroom home is situated on a private road, just a short walk from the sandy beaches of Frinton-on-Sea.
Less than five miles from Malmesbury, this four-bedroom cottage comes with equestrian facilities and gardens that extend to approximately three acres.
Spanning three storeys, this late-Victorian five-bedroom farmhouse is a spacious family home with a modern interior and B&B potential.
With an original church arch, this triplex one-bedroom church conversion has a light, spacious, feel and comes with a secure off-street parking space.
This recently-refurbished three-bedroom home has bi-folding doors that lead out to a decked seating area - ideal for alfresco dining this summer.
Well-located for coastal walks and popular restaurants, this detached four-bedroom home offers views over farmland, to the Solent, the Purbecks and Bournemouth.
If you love high ceilings, school conversions like this one are bang on the money. This two-bedroom flat is minutes from Burgess Park and the foodie haven at Borough Market.
Set within a church conversion in Bermondsey, this two-bedroom maisonette combines existing features, such as original arches and brickwork, with a contemporary finish.
In the pretty market town of Bungay, this grade II-listed Mill House is arranged over four floors, offering four bedrooms and three reception areas.
This four-bedroom Edwardian home offers a combination of original features and contemporary design after a renovation by the current owners.
This four-bedroom home offers a vaulted ceiling in a breakfast room that's ideal for summer entertaining with doors that open to the patio and garden.
On the market for the first time in more than 50 years, this six-bedroom home is a project with vast potential - spread over three floors of living space.
This five-bedroom home comes with a range of outbuildings including a large barn which could be converted into a self-contained granny-flat or rental.
Surrounded by rolling countryside, this four-bedroom barn conversion comes with a self-contained, one-bedroom annexe that could serve as an office or a holiday let.
Located near Harrogate town centre, this five-bedroom Victorian terrace is arranged over three storeys while a current study serves as an optional sixth bedroom.
A ground-floor flat in a country house, located a mile from Sway; this two-bedroom home would make an ideal weekend retreat on the edge of the New Forest.
On a popular residential lane in Caterham on the Hill, this four-bedroom family home offers a secluded garden and a convenient location for local schools and public transport.
Just a short walk from Westerham green, this three-bedroom cottage has a light kitchen with exposed brickwork and double doors that lead to a south-facing garden.
In a prime spot opposite the River Thames, this one-bedroom flat has an 18sq ft reception room with glass doors that open out to a private terrace.
Set in the hills above Llanwrda Village, west Wales, this 18th-century three-bedroom farmhouse has holiday-let potential from a separate barn conversion and annexe.
This charming end-of-terrace townhouse is arranged over three floors, with two double bedrooms and a private courtyard garden located at the rear of the property.
Located in the University area, this semi-detached five-bedroom home is arranged over three floors - there's even a rear garden and off-road parking too.
Only a few minutes' drive from the charming town of Marlow, this two-bedroom home sits on the private riverside estate of Harleyford.
This detached four-bedroom home in Middleyard is arranged over two floors, with features that include a wood-burning stove and bespoke oak staircase.
In a row of eight detached Georgian residences, this five-bedroom home offers views of The Sound, Mount Edgcumbe and Cornwall from its impressive veranda and full-length balcony.
If you love cooking for friends this two-bedroom flat - complete with views of the iconic Battersea Power Station and an open-plan kitchen/dining area - will go down a treat.
Located above Grasmere village, this five-bedroom home is arranged over three floors and offers countryside views across Grasmere Lake towards Silver Howe.
This four-bedroom detached home comes with a double carport, useful workshop, garden and two walkways that offer views of the adjacent countryside.
With space for an equestrian business, a greenhouse for growing your own veg, a wine store and a gym; this five-bedroom home has all the ingredients for a country retreat.
The decked roof terrace of this two-bedroom flat is perfect for summer drinks while large windows and ample storage space make for a light and spacious interior.
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
Surrounded by approximately 15 acres of grounds, this six-bedroom grade II-listed home has been extensively refurbished yet retains many period features.
This four-bedroom home comes with a two-bedroom cottage and commercial office, with planning to extend, in a stunning courtyard setting.
In a pretty Norfolk village, this four-bedroom family home is surrounded by landscaped gardens, with even a self-contained annex for guests.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
This five-bedroom home is arranged over three floors of a converted Victorian hospital, offering spectacular views of the Pentland Hills - only three miles from the city centre.
This four-bedroom detached home comes with grounds that span to approximately 2.5 acres, as well as two large patio areas and a double garage.
This four-bedroom cottage is a Grade II-listed town house, well-located for the thriving market town of Nailsworth.
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.