negative Debt Levels Blight UK Consumers Personal Finances

negative Debt Levels Blight UK Consumers Personal Finances




Debt levels are at an all time high in the UK. The younger generation tend to be feeling the pinch the most, but parents are increasingly being required to bail them out, often at great expense to their own limited mortgage or retirement savings.

It has become almost accepted as a fact of life that graduates will begin their careers with a important level of personal debt. The Association of Investment Trust Companies found that on average students expected to graduate with £7,208 of debt, while parents believed it would be nearer to £9,741, however the real average was found to be currently running at £13,501. Graduates then need to service credit cards, take out a mortgage, then cover the payments, repay university loans, not to mention the pressure to start saving earlier, and save more, for their retirement, whilst the basic state pension increasingly becomes inadequate. The government revealed in June that student debt for 2003-04 was seven times higher than they were in 1994-95 and the Student Loans Company has shown that debts owed to them has risen to more than £13bn.

It is not only students who confront financial difficulties early in life. Consumer Credit Counselling sets – Scotland, has indicated that young adults in general, under the age of 25, now explain more than 10 per cent of the estimated 32,000 people who have fallen into harsh arrears on non-mortgage debts of more than £1 billion.

Malcolm Hurlston, Chairman of the Consumer Credit Counselling sets (CCCS) said, “It is noticeable that young people are accounting for an increasing proportion and the number of them seeking assistance has risen by about 25 per cent over the past two years or so.”

Analysts have been bracing themselves for news of a sharp increase in negative debt levels from the major high street edges following report figures of a 21 per cent increase in bad debts levels at Lloyds TSB. City analysts expect HBOS and Royal Bank of Scotland to declare that bad debt charges have risen by around 20% in their personal banking businesses, and Barclays, HSBC and Alliance & Leicester are all expected to tell a similar tale of rising loan defaults. Citigroup analysts are expecting bad debt charges from its retail banking division to rise about 24% in the first half of this year to £230m, while last year HBOS’s provisions for bad debt rose from £1bn to £1.2bn.

Keith Stevens, of the chartered accountants firm Wilkins Kennedy, said: “Creditors profit by lending money to people and collecting interest, and the longer they can keep that cycle going the better for them. Unless borrowers own character of meaningful value, it’s often not in creditors’ interest to call in their debts.” He also continued that he believed some creditors were increasingly taking a hands-off approach, allowing debtors to pile up large amounts of debt, and then collecting interest and penalty charges for as long as borrowers were able to continue paying. This has rule to an increase in the number of borrowers filing for bankruptcy themselves when before they would have been forced into it earlier by their lenders.

House repossessions have also considerably increased over the past year, with the Council of Mortgage Lenders announcing 4,640 home repossessions during the first half of 2005, compared with 3,070 for the last half of 2004. Government figures show that there has also been an increase in the number of homeowners being taken to court for mortgage arrears.

Some of the major edges and financial service providers have taken the initiative and started to help police the growing negative debt problems with HSBC announcing that it will proportion their complete credit record, of both positive and negative information, on its personal customers with other regulated financial sets companies by the Experian, Equifax and CallCredit credit reference agencies, in efforts to keep tabs on its consumers’ debt.

Michael Geoghegan, Chief Executive of HSBC said: “It is no more in the interests of a customer to borrow more money than they can provide than it is for a bank to lend them the money.” The move has been widely heralded by analysts, as Michael Geoghegan additional, “It is the only way to ensure that lenders properly understand the complete financial exposure of customers before they let them sign up to debt that some simply can’t provide.”

This all comes amidst media pressure for financial firms to become more responsible. One case widely featured in the news concerns a associate who took out the £5,740 loan at 34.9% APR for house improvements, but they were already in arrears on two prior mortgages, and became unable to keep up the loan repayments. Over the time of the 15 year loan term the amount repayable had escalated to £384,000. Attempts by the loan company to nevertheless enforce the huge debt, ultimately had to be fought off by the associate by the law courts.

The associate urged others considering taking out a loan to seek advice and to, “clearly read the small print and ask the questions that perhaps you don’t think about at the time, and just make sure you know exactly what the consequences are should anything go wrong”.

There are currently many supplies of information to help consumers make decisions regarding their finances and debt levels. Financial comparison sites like Moneynet can provide impartial information on loans, mortgages, negative credit, etc, to find the best product for individual circumstances. Consumer help sites like the National Debtline provide free secret and independent advice on how to deal with debt problems, and the Citizens Advice Bureau are there with trained volunteers to help with legal, monetary and other problems, by a free, independent and secret advice service.

The more help and information that is obtainable to consumers and the more responsible the lending agencies become, the safer finance will be for the most unprotected who are looking to borrow money, to prevent them getting into un-repayable levels of debt, however these sets can only be of help if people truly use them.

Malcolm Hurlston of CCCS said, “We are advising about 4,000 people in Scotland and I would calculate that our figures represent only about one in eight of those who need help”.

Financial education is something needs to be provided at an early stage to make people realise the importance of taking on the accountability for their own finances, in addition as highlighting where to access help for when it is required. Budgeting is a subject many school leavers have little functional knowledge of, but one which they desperately need to be made aware of before they start to control their own finances.

Where there is existing advice or help, this must be made obtainable and known to all in order to prevent more people getting too deeply into debt, or falling prey to loan sharks like the recent case of Mark Washington Johnson who has been jailed in Birmingham for nearly four years. Mr Johnson was found guilty of charging up to 8,000 per cent interest on loans, taking Social Security assistance books or National Insurance numbers as “security” for the unauthorised loans and then piling on default charges for missed payments. If we are to prevent this sort of abuse occurring to the weakest members of society then public awareness needs to be raised and the most unprotected people given the assistance best appropriate to understand and control their own money.




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