Planet Funds

Nearly a million people are having problems making mortgage payments, and an additional 1.8 million say they have encountered difficulties on occasion, according to a Bank of England survey.

Experts expect banks will continue to tighten their lending standards in the face of the global financial crunch and many borrowers’ situation will grow worse.  In the last twelve months, homeowners have seen mortgage payments increase by £3.6 billion as interest rates ballooned. 

The Quarterly Bulletin, published by the Bank of England, reports that many people are being forced to cut expenditures and borrow additional funds.  Nearly 50 percent of those with higher interest rates will reduce spending while 10 percent have extended their mortgages or borrowed an additional sum.  To make their monthly mortgage payment, another 10 percent are working longer hours, either at a second job or overtime. 

The Bank conducted its survey in September, in the early stages of the financial crisis.  The situation has worsened since then.  Although the Bank announced a quarter-point interest rate reduction earlier this month, many lenders are failing to pass that savings on to their customers.

Renters, who typically have lower incomes than homeowners, are finding it even more difficult to repay their debts, according to the survey.  Twenty-eight percent of renters reported problems making payments “at least occasionally.”

The chief economic advisor for the Confederation of British Industry insisted that the nation’s economic fundamentals remain sound and that fears of a recession are exaggerated.  He suggested that the current slowdown appears more dramatic in the face of last year’s strong growth.

Many people are complaining that banks are using belligerent tactics to prey on those in debt, according to the Citizens Advice Bureau (CAB).

Borrowers who entered into an agreed debt repayment plan through a debt counseling charity are being urged to take out expensive loans to ease their debt load.  The BBC verified that banks have been contacting customers again and again to talk them into loans.  Debt advice charities counsel against this move.

Although he said “no” to his bank’s offer of a “managed loan,” one HSBC customer reported that the bank continued to telephone him in an effort to change his mind.  The managed loan draws interest of 13 percent, two times the interest he is currently paying.

The bank has sent many letters to the customer advising him that they can help with his financial difficulties, a claim he does not believe.  HSBC has agreed to a monthly payment amount, but the bank will lend the money only as a managed loan.

The HSBC insists that it is a responsible lender, and offers managed loans to customers only when all other avenues have been exhausted. 

The CAB reports that many people with considerable debt have attempted to set up a repayment schedule but their bank has demanded more than they can pay.  Some bank customers have asked their bank to work with a debt advice agency, yet the bank continues to call and send menacing letters.

Many people who turn to the CAB have attempted to set up arranged payments with their banks.  The bank has seemingly disregarded the customer’s circumstances and asked for payments higher than the customer can afford.

The British Bankers’ Association insists that banks will gladly work with debt advice charities.  According to the CAB, customers continue to receive calls and letters from their banks even after arranging to work with them.

Banks simply negotiate with intermediaries like money advice trusts, according to a spokesperson for the BBA. 

The average Briton carries nearly twice the debt burden today as in 2000, according to PriceWaterhouseCoopers, the international accountancy firm.  A person who with debt of £17,000 seven years ago is likely to owe £30,000 today.

Rising housing prices and high monthly mortgage payments account for the increase in debt, and experts warn that borrowers could see trouble in the future if the global credit crunch continues.