thedebtblog.co.uk

This is more bad news for the debt industry, particularly with regards to First Plus offering a large number of it’s secured loans to customers wanting to consolidate their existing debts.

First Plus is the largest provider of secured loans in the UK and is owned by Barclaycard. This hasn’t however stopped the announcement that they will no longer be accepting new loan business from 9th August 2008.

It is common practice to use a secured loan in order to pay off existing unsecured debts. The secured loan is, of course, secured against any equity in the applicants property. The worrying consumer trend associated with debt consolidation loans is that around 60 per cent of people who use a secured loan to pay off debt will then go on to apply for, and use additional means of unsecured credit. Plunging them deeper into debt.

It’s no surprise to me that debt in the UK is at its highest level ever and still rising. Uswitch.com have bullet pointed the main facts and it’s concerns, please see them below;

• Firstplus, the market leader in homeowner loans and best known for its adverts fronted by Carol Vorderman, has confirmed that it will be closed to new business from 9 August 2008 and will make 300 job cuts.
• Firstplus is “market leader” in home loans with 128,000 customers, 430 staff and £4.7 billion in receivables. Today’s news is a huge blow to the personal loans market and another signal that the consumer credit market is quickly drying up.
• Their departure will leave just seven players in the market, down from 18 last year before the credit crunch hit.
• A large proportion of business is sent to them via brokers. Brokers will now struggle to help consumers that need secured loans and consumers will in turn struggle to get hold of cheap consolidation loans as companies continue to tighten their lending criteria. Lenders have reduced the amount of credit on offer to applicants and is undoubtedly harder to come by.
• Having the wrong, or uncompetitive, financial products can mean consumers are wasting money that could be put to better use. Anyone with outstanding debts in need of refinancing onto a cheaper deal needs to act now to secure a competitive loan before rates increase any further.

Your credit rating is basically your personal finance history, whatever accounts and forms of credit you’d had in the past and any missed payments, defaults or notices on those accounts are marked on your credit rating. Finance companies use credit reports to see how individuals manage or fail to manage their bank accounts, credit cards, personal loans, mortgage payments even mobile phones. This helps the lenders to gain a profile of the kind of customers they’re more likely and less likely to lend money to in the future. But can you really protect or make your credit rating better?

First off you should always tell the truth whenever you’re applying for credit. In the end it will only be you that suffers if you cannot afford to make the repayments on a debt. This is the first basic rule of lending, don’t fool yourself - can you really, honestly afford to make the repayments? If you lie on an application form lenders can easily find out and it could be deemed as a fraudulent application which will cause problems for you in the future.

Don’t apply over and over again with different lenders, this will only leave a trail of rejected applications behind you. Each time you make a new application the lender will see on your credit rating how many times you’ve already applied and which lenders you’ve applied to. If you feel that you might be able to get a more competitive quote from another finance company then ask for just that - a quote. Then you can go on to make a formal application. If the finance company say they need to run a credit check to give you a quote then ask them to make sure it will only show up on your credit rating as a quotation search, rather than a credit application search.

Your credit report will also show other people with whom you have joint accounts or any form of joint credit. Obviously these people could be ex-partners that you no longer share a relationship with. Make sure you keep you credit report up to date by telling the credit agencies to remove the people who are not financially connected to you. Lenders may look at the credit ratings of financially connected people on your credit rating and if they have a bad credit rating you coul dbe affected. You can check your credit rating at various web sites including;

www.experian.co.uk

www.equifax.co.uk

www.checkmyfile.com

You should always check your ID, if there is anything suspicious looking like applications you can’t recall then let the agency know. Infact if you find anything in your credit report that you think should not be there then write to the credit agency and ask them to amend it or let you know exactly what it means. For example if you have settled a CCJ then make sure this is showing. You need to ensure the corrections you have made your efforts to clean up your rating are being shown.

The easiest way to keep your credit rating clean is to make your payments every time, on time. Even if the payment is just a few pounds it shows that you are responsible with your finances and can budget correctly. If you think that you might miss a payment in the future then contact the lender immeadiately, burying your head in the sand will not help the problem and things will only get worse.

Almost every edition of lunchtime and evening news headlines on the TV has finance related news these days, the financial markets are plumeting and every month, sometimes every week another bank asks for additional funding.

The first casualties of the credit crunch both in the USA and UK is the mortgaged homeowner.

Here in the UK it started with interest rates being cut to try and encourage consumer spending and bolster the economy. Then house prices stalled and are falling, although they’re still up on 12 months ago.

Next mortgage products were pulled off the high streets by lenders worried about their lack of funding and losses in the adverse mortgage market. Something like 60 per cent of all mortgages available in the UK have been pulled, fixed rate products and 100 per cent mortgages made up the majority of the 60 per cent. This is because most consumers were looking for some certainty and grabbing fixed rates as quickly as possible. The 100 per cent mortgages were pulled because they are too risky an investment for the banks going forward.

Today you’re unlikely to get a mortgage unless you have a deposit saved up and if your deposit is less than 5 per cent you might be restricted in your choice of lenders.

The thing that really irritates me is that around 8 years ago, when I bought my first property, it was standard practice to have a 5 per cent deposit. OK, I admit 100 per cent mortgages were available and infact the housing company from whom I bought my house offered me a 100 per cent mortgage.

However, I knew that a 100 per cent mortgage wasn’t the most sensible way to start off on the property ladder and so after following the advice of my parents I saved up a 5 per cent deposit.

It’s only within the last decade that banks have jumped on the marketing bandwagon and made finance and credit into some sort of superbrand marketplace. People are almost encouraged to use 0 per cent credit cards and low rate loans to basically get what they couldn’t normally afford.

The rise of the internet over the last decade has also contributed to this and it’s made getting finance even easier for everyone; even people who shouldn’t be getting more finance and perhaps shouldn’t have been approved for finance in the first place.

So mortgage rates are increasing and lenders are also increasing the upfront fees on mortgages. Even though the cost of getting a mortgage is increasing but people shouldn’t panic.

The fees can be high, sometimes upto a staggering £5,000, but I think that now the banks are insisting on a 5 per cent deposit it’s only a good thing. Consumers should be thankfull that this is happening again. If only the banks had continued to insist on a minimum deposit, with every mortgage, over the last 10 years, then maybe some of this could have been avoided?

In my opinion, if you cannot afford a 5 per cent deposit then you shouldn’t really be thinking about taking out a mortgage. Similarly, if you don’t have at least 50 per cent of your monthly take home salary left over after your mortgage payment has been made then perhaps you should consider not going for a mortgage at all.

Today in the UK there are more people than ever looking for advice on repaying their mortgages. Are these the people who borrowed way beyond their financial means?

January and February this year have seen record breaking numbers of people asking for professional debt advice about their mortgages. Recent figures reveal that more and more people are concearned enough to get help with their mortgage arrears - so these are people who already have defaults and arrears, let alone the hundreds and possibly thousands of people who are about to default on their mortgage.

There has been a huge 35 per cent jump in mortgage related debt enquiries in the UK, over January and February 2008 compared to 2007. The good news is that people seem to be learning not to continue spending on credit cards as the credit card related issues fell by 9 per cent.

Of 5.7 million issues dealt with in 2007 almost a third of these enquiries were related to debt; a rather worrying trend. As well as mortgages, the ever increasing energy bills and general household bills are huge contributing factors to the 215,000 new debt related enquires taken this January and February.

The combination of huge increases bills like petrol and diesel prices plus rising housing costs has put additional pressure on day to day finances when they are already stretched to the maximum.

The usual Christmas credit card debt enquiries have fallen by 9 per cent in January and Febraury this year compared to last year, however overdraft enquiries are up 7 per cent on the same time period. So it looks like people are just shifting the debts to other forms of credit, it will be interesting to see the number of debt consolidation loans and general unsecured loans taken out and the number applied for in January, February and when we get to the end of March this year. I bet there are lots of people trying to shift debt to unsecured loans, although the credit crunch has lenders tightening their lending criteria, making it more difficult to get accepted for a new loan.

If you are struggling you should tell whoever you owe the debt to as soon as possible if you’re struggling to make repayments.

As many as 6.5 million people have consolidated debts in the last 3 years in order to try and keep in control of their finances. Alarmingly 1.29 million of us have unsecured debts of more than £20,000 - So that’s debts run up on personal loans, credit cards, store cards and overdrafts.

By ‘consolidation’ I mean people that have consolidated all their unsecured debts with 1 bank. This proves that demand for secured loans has increased significantly over the last 6 months. Worryingly, people who are struggling to keep up with their debts often turn to secured loans or homeowner loans in order to pay off unsecured debt with a loan secured on the equity in their home. The problem is something like 60 per cent of people who do this then continue to use credit cards and apply for personal loans, stretching their finances to breaking point.

If you are struggling to keep up with repayments on a number of different debts, perhaps money owed on store cards, credit cards or a loan you should really take action now to take control of your finances.

On one hand it is very good news that people are looking to consolidate their debts and take control of their finances, however on the other hand it is essential that these people do not fall into the false thinking that because they have consolidated their current debts they can suddenly afford to borrow even more. Moving your debts into one place can help you save money.

In the UK I think the average credit interest rate is something like 16.9 per cent, Typical APR, Variable.

Unsecured loan interest rates are much lower at around 9 per cent; secured loans are also lower at around 14 to 15 per cent. This kind of difference in interest rates will make a difference in monthly payments.

I can’t stress enough that debt consolidation should be used as a way of getting your finances under control it should not be used year after year to fund additional spending on credit cards and loans.