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Citizens Advice Bureau issue the credit crunch survival guide

Household finances have been badly stretched in the past year as the cost of energy has increased by 17% and the cost of food by 12%*. And the credit crunch means that the cost of new mortgages has increased, there are fewer mortgages available to choose from, and they are more difficult to obtain. This is making life harder for the 1.4 million borrowers coming off cheaper, fixed-rate mortgages in 2008.

But there are ways to help yourself and organisations to help you cope if you are struggling, according to the Council of Mortgage Lenders, Citizens Advice and Shelter.

No matter the size of your financial problems there are steps you can take to tackle them, and the CML, Citizens Advice and Shelter have worked together to come up with ten tips to help struggling households get through the tough times.

1. Get talking

If you are worried about your finances your first move should be to start talking: talk to your lender, talk to your partner, and talk to a free, independent debt adviser. The earlier you tell your lender, the more options available to solve the problem. Options that your lender may consider include: extending the term of the mortgage, changing the type of mortgage, deferring interest payments for a short period, and treating the arrears as part of the original debt.

2. Get debt advice

There are many organisations which offer free and independent money advice such as Citizens Advice, Shelter, National Debtline, and the Consumer Credit Counselling Service. Their debt advisers can assess your situation and devise the best course of action for you.

3. Plan ahead

If you are coming to the end of a fixed-rate mortgage in the near future start planning ahead for higher repayments and researching the best deals in the market now.

4. Don’t bury your head in the sand

Ignoring your debt problems will only make them worse. Positive action will help you find ways to solve them.

5. Pay your priority debts first

A mortgage is a priority debt as if you don’t pay this you could lose your home. Debt advisers can help you plan your budget and pay your priority debts first.

6. Pay what you can each month

If you can’t afford your full mortgage repayments, you should talk to your lender and still pay what you can afford.

7. Open all your post

Don’t ignore letters or telephone calls from your lender; if you are not sure what they mean ask your lender or a debt adviser. Open all mail that is addressed ‘to the occupiers’; if you are a tenant this is how the mortgage lender will contact you if the landlord has a payment problem.

8. Facing possession proceedings? Don’t panic

Always attend the court hearings yourself. Court proceedings do not mean that you will automatically lose your home. The court process acts as a final check to make sure repossession is the last resort. Some courts have advice desks which can provide last minute assistance.

9. Don’t abandon your property

If you are struggling with mortgage repayments you may be tempted to send the keys to your lender or abandon your property. Don’t do this without advice. You could still be responsible for the debt on the property and may be pursued for it years later.

10. Take care with “mortgage rescue”

Selling your home and renting it back might seem like a quick fix to your debt problems. But, many of these schemes offer very little security. They are also not regulated so you will not have access to the same protections as a mortgage holder.

CML Director General, Michael Coogan, said: “The first step for anyone struggling to pay their mortgage is to contact their lender and get advice. There are a range of options your lender can consider to help reduce or reschedule your payments for a period of time while you get back on your feet. 

“Lenders will treat you fairly and use repossession only as a last resort. If you take positive action to contact your lender, pay what you can, and show up to court and make your case, you are more likely to reach an agreement your lender that allows you to stay in your home. But you cannot just walk away and assume you are no longer responsible for the mortgage.”

Citizens Advice Chief Executive, David Harker said: “We would urge anyone who is falling behind with payments on a mortgage or secured loan to speak to their lender and seek free, confidential, independent advice straight away.

“Getting advice, even at a late stage, can help the majority of people come to a workable agreement with their mortgage lender and can make all the difference between saving or losing their home.”

Adam Sampson, Chief Executive of Shelter said: “Getting advice quickly is crucial in helping struggling homeowners keep a roof over their head. At Shelter we often see people when it’s too late, but the loss of their home could have been prevented if they had sought our help early on.

Standard and Poor a UK credit agency say that increasing numbers of people in the UK are trying to get out of paying their credit card debts by taking out Individual Voluntary Arrangements, more commonly known by the initials IVA’s.

When a credit card customer tries to get out of paying their credit card debt it’s called a ‘charge-off’ - which is repayments and interest that the credit card company think they will not be able to recover. The number of Charge-offs rose from 6.6 per cent at the end of March 2008, to 6.9 per cent by the end of June 2008.

The credit card industry had seen a sharp rise in IVA applications back in 2005 as debt management companies began springing up all over the UK. These companies began advertising heavily promising to write off huge percentages of debts for their customers. As such credit card companies in the UK have had 3 years head start on mortgage and loan companies now feeling the strain of the credit crunch.

Since 2005 credit card interest rates have risen and the lenders have tightened their lending criteria making it more diffcult for non credit worthy customers to open an account.

Even though there is now great public awareness of the credit crunch and managing finances it looks like UK consumers are continuing to spend on their credit cards. June 2008 saw a growth rate on credit card spending of 7.1 per cent, the highest growth rate in 2 years.