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.
Fuel poverty could kill 100,000 vulnerable people over the next 15 years, charity warns
Phoenix Life: Chance of a refund for overcharged policyholders has risen
Simon Read: You're guilty until proven innocent when HMRC sends in the tax credit detectives
Simon Read: That's right, BT, they'd rather pay for a free service
Bank-beating exchange rates on your international payments
- 1 Forget 'The Dress': Here are five of the biggest news stories you might have missed
- 2 The black and blue dress: Makers considering a white and gold version
- 3 Prince Harry leaving the armed forced to pursue conservation projects in Africa
- 4 PornHub turns masturbation into energy in bid to save the planet
New theory could prove how life began and disprove God
Half of Ukip voters say they are prejudiced against people of other races
'Cash for access' scandal: Sir Malcolm Rifkind says 'unrealistic' for MPs to live on £67,000 salary
This is what it's like to be dead, according to a guy who died for a bit
'Jihadi John': CAGE representative storms off Sky News accusing Kay Burley of Islamophobia
Aqsa Mahmood branded a 'disgrace' by her parents after claims she recruited three UK girls flying to Middle East
iJobs Money & Business
£40000 - £50000 per annum + pro rata: SThree: SThree Group have been well esta...
£30000 - £37000 per annum: Recruitment Genius: Established in 1999, a highly r...
£250-£300 Day Rate: Jemma Gent: Are you a qualified accountant with strong exp...
£230 - £260 Day Rate: Jemma Gent: Do you want to stamp your footprint in histo...
Day In a Page
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
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads