thedebtblog.co.uk

If debt management services are correctly administered, they are a necessary and very useful service for people with serious debt problems.

However, not every fee charging debt Management Company is correctly administered. Some companies may have high principles, poor I.T. and administrative systems means they deliver poor service. There are also a small number of companies that are inefficient and blacken the industry as a result.

The first Debt Management Companies in the UK based their debt help programmes on a combination of the formats used by the Citizens Advice Bureau and the County Court’s debt procedures.

Fee charging debt management companies do not try to act similarly to free debt advice companies and sometimes a free debt management service may be better in individual circumstances.

Most debt management companies operate on the basis of helping people who are experiencing debt problems to consolidate their debts into one affordable monthly payment without further borrowing. For the majority of people with debt problems additional borrowing to repay debt is simply not an option available to them anymore because of missed payments and therefore poor credit ratings.

Most fee charging debt management companies try to establish a potential client’s suitability for debt management by completing an income and expenditure report in order to establish a more accurate calculation of month spending patterns and disposable income.

A fact find like an income and expenditure report will demonstrate a client’s total income, essential expenditure deducted from income leaving disposable income. If there is a significant shortfall between the monthly contractual payments the client should make to repay debts, and the disposable income available, a debt management plan or service may be of help.

The first debt management companies started in the UK in early 1994 because of the alarming debt situation developing at the time. The economy at the time was still recovering from the effects of increased interest rates from the 1980’s and early 1990’s. In the 80’s mortgage and loan repayments rose, because of interest rate rises and so many people found themselves with much less disposable income.

Also, as interest rates were rising very rapidly, at a much higher rate than inflation, it was almost impossible to save any cash in order to buy products. Credit was the main way to make a purchase at the time.

This created the ‘buy now pay later’ environment we know today. This environment also created a vicious circle where people became trapped by debt.

Poor financial understanding and poor financial management resulted in many people being unable to maintain payments to their creditors.

Hence the need for debt management services in the UK since the mid 1990’s.

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.