Planet Funds

Britain’s mortgage borrowers could pay more due to the Bank of England’s decision earlier this month to leave interest rates unchanged.

Because the bank failed to implement a .25 percent cut in rates, borrowers may pay an additional £105, according to Ray Boulger, broker for John Charcol. 

Negative news on the economy led many industry experts to predict a rate cut, according to Mr. Boulger, who believes a cut was in order.

Britons could see financial problems due to inflating prices, signaled in part by npower’s decision to increase ticket prices by 17 percent, says the financial expert.  He does point out, however, that the consumer price index has risen only slightly above the two percent target rate, and he expects the global financial situation will cause it to slow.

Mr. Boulger fears that if the monetary policy committee waits too long to reduce the rate, they may be forced to cut the Bank rate more deeply than would have been the case earlier.

Meanwhile, moneysupermarket.com predicts that more borrowers may turn to secured loans.

One-quarter of 16- to 44-year-olds surveyed by uSwitch admitted that they were concerned about paying bills that will come due in the New Year.  The study, funded by the Financial Services Authority (FSA), found that more than 50 percent of them could not say how much they spent during the holiday season.

Britons’ interest payments have soared to a record high £93 billion, an increase of £12.7 billion.  The numbers suggest that many may find themselves unable to manage their debt load as family finances continue to tumble out of control.

Britons have enjoyed easy credit over the past few years.  As lenders start to tighten their standards, however, consumers need to be prepared.

In the past six months, 9.5 million adults spent to the limit on at least one source of credit, according to uSwitch.  Nearly one-quarter report that they can no longer manage their debt.

Credit applications are being rejected, according to research which shows that 38 percent of those who applied for a credit card were denied.

The increase in mortgage interest rates has resulted in higher monthly payments, putting many borrowers in a difficult position.  The average household will pay £3,744 in interest charges, including mortgage interest, an increase of £517 over a year ago, according to uSwitch.

Britons have been able to rely on cheap credit for quite some time, says Mike Naylor of uSwitch.  Although the recent drop in interest rates will help, Mr. Naylor worries that it may have come too late to help those in serious trouble.  He advises people to act immediately to prevent a disaster.

A further interesting finding of the uSwitch survey:  13 percent of those surveyed said they planned to get their financial situation under control, while 26 percent admitted that they will probably book a holiday or take up a new hobby.

High expenditures during the holiday season will lead an estimated 130,000 people to bankruptcy, according to accounting firm KPMG. The figure for 2007 was slightly less than 110,000.

Large credit card charges and increasing mortgage payments are adding to the problem.

KPMG expects that some people will be declared bankrupt, while others will complete Individual Voluntary Arrangements (IVA). People with an IVA repay a part of their debt to credit card companies and banks and are able to start anew with a clear financial record.

Many people currently facing financial disaster will attempt to transfer debt to low-interest credit cards or consolidate their loans. Tighter lending standards, however, may force them into insolvency.

In the past, people have found it very easy to borrow more money by taking out a second mortgage on their homes, obtaining a consolidation loan, or getting another credit card, according to KPMG’s Mark Sands. For many, these tactics have been a life-saver.

Mr. Sands expects that access to these products will be limited in the future. He reports that credit card companies are rejecting nearly half of the applications they receive, an increase of 30 percent from pre-crunch days.

High interest rates and the expiration of fixed-rate mortgages have contributed to peoples’ debt burden, says Mr. Sands. These people are now faced with ballooning payments that add an additional £400 to £1,390 per month on a £150,000 loan.

Dog lovers should be ready to cover the high cost of pet ownership.  More than five million Britons own at least one dog, according to Tesco Pet Insurance, and they need to watch their budget to make certain they can care for them.

A mere twelve percent of pet owners purchase insurance for their pets.  People who do not have insurance could face high fees from their veterinarians, according to the financial services provider. 

Caring for a pet can have a “hefty” price, according to company representative Allan Burns, who says he is concerned by many pet owners’ lack of preparation.

The company is offering a 20 percent discount to customers who purchase insurance for their pets over the internet and a 10 percent discount for those who contact the company over the phone.

Thirty-eight percent of pet owners admitted to Mintel, the marketing research firm, that they were not certain they could afford veterinary treatment for their pets, according to Tesco.

Moneyfacts suggests that some people with large vet bills might find a solution in debt consolidation loans.

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.