thedebtblog.co.uk

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.

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.