Citizens Advice Bureau warns of ‘lifetime debts’
A typical householder seeking help has no realistic hope of paying off debts in their lifetime, according to Citizens Advice (CAB).
The charity said that people turning to advisers for assistance owed an average of £16,971 that would realistically take them 93 years to pay off.
The most common causes of debt were low incomes, over-commitment, illness or disability and job loss, it said.
A new alternative to bankruptcy comes into force in April.
These Debt Relief Orders are aimed at people with debts of less than £15,000 but without much surplus income or assets to their name.
The CAB said that a third of its debt cases would be eligible for the new relief, but called for fair treatment by lenders and creditors, as well as for more government schemes to help those in debt without them having to go to court.
Debt findings
The CAB report studied the finances of 1,407 people in England and Wales who visited the charity for help with debt problems in July 2008.
Similar studies were carried out in 2001 and 2004, and the charity claimed that the latest figures – published on Thursday – revealed a “deepening debt crisis”.
The study found that the average CAB client with debt issues owed two-thirds more than seven years earlier.
More than half had debts on priority bills such as mortgage repayments, rent, fuel bills or council tax. One in 10 had more than 10 credit debts, such as plastic cards, overdrafts or personal loans.
“Low income, combined with irresponsible lending, unreasonable debt collection practices and badly-informed financial decisions are at the root of many of our clients’ debt problems,” said CAB chief executive David Harker.
“For many, there is little prospect of their income increasing or their circumstances changing. The reality is that they are condemned to a lifetime of poverty overshadowed by an inescapable burden of unpayable debt.”
He added that the majority of these people were poorer than the average householder. With the data taken in July, he said that further job losses across the country since then were only adding to debt problems.
The findings suggested there were also distinct problems with housing cost, poverty caused by fuel and water bills, and growing numbers of householders with mortgage or secured loan arrears.
Insolvencies up
The latest figures from the Insolvency Service highlight the toll that has been taken on by companies by the rapid lurch into recession.
The latest figures showed the number of corporate insolvencies rose by 220% in the last three months of 2008, compared with the same period the year before.
But the number of individuals who were declared insolvent stood at 106,544 in England and Wales in 2008, which was roughly the same as in 2007.
A separate survey by credit reference agency Experian’s CreditExpert service, published on Thursday, suggested that one in five people were keeping their money worries secret from their partners.
One in 10 of the 2,000 people asked said they had a secret bank account.
Work At Home Scams On The Increase
Scammers targeting people who want to work from home are using the downturn in the economy as a chance to cash in, the Office of Fair Trading says.
Firms tricking people into thinking they can earn easy money, cost UK victims £70m a year, the OFT estimates.
And it believes that figure is set to increase during the current recession.
The OFT is highlighting the trend as part of Scam Awareness month which looks to stop people being conned and parting with their cash.
Last year 209 people reported misleading home working schemes to the government’s consumer advice body Consumer Direct but the OFT says this figure is the tip of the iceberg.
“Only 2% of people who get taken in by these scams actually report them,” said Mike Haley, Director of Consumer Protection at the OFT.
“Our research shows that over 300,000 people each year are falling victim and it’s on the increase because of the economic climate.
“People are looking for work, for easy opportunities to earn money and these scammers are exploiting that false hope.”
Elizabeth Cork from Norfolk was among those to be taken in by such a scam, after spotting an advert in a national newspaper to earn up to £300 a day at home filling envelopes. It asked for a payment of £35 for a starter pack.
“It wasn’t too much money so I thought it would be a fairly safe thing to do,” Mrs Cork told the BBC.
Initially nothing arrived but after writing to them again, she received an information pack, but no envelopes.
Instead she got instructions to place leaflets – including her contact details – around her village. She was told that when people got in touch, she would then receive £1.70 in return for passing their details to the company.
Sale and Rent Back Schemes Set For Regulation
Sale and rent-back schemes, offered to homeowners who cannot afford their mortgages, are to be regulated by the Financial Services Authority (FSA).
The schemes are widely advertised, and are promoted as a way of swapping a mortgage for an affordable tenancy.
The authorities are worried some people have been tricked into unfair deals.
The FSA will regulate the sale of these schemes from July this year, which will give it the power to ensure they are fair to home owners.
“Unscrupulous companies must not be allowed to prey on people when they are vulnerable with dodgy deals that end up pushing people out of their home,” said the chief secretary to the Treasury, Yvette Cooper.
“The Government is proposing tough new regulation to give vulnerable homeowners better protection when they need it,” she said.
Typically, sale and rent-back schemes involve people selling their homes at a discount to the market price, and then being granted a tenancy by the new owner, for between six and 12 months.
Last month the Office of Fair Trading (OFT) told 16 companies involved in the business to justify the apparently misleading claims they had been making in their adverts.
In an earlier study, published in October 2008, the OFT found numerous pitfalls with the schemes, which had led to some people not even being able to remain in their homes as tenants.
It found that:
• some consumers went into deals that were not the best option for them
• some sale and rent-back firms had mislead customers about the value of their properties or their subsequent security as tenants.
• some firms had imposed large rent increases, or even evicted tenants after a short tenancy period.
• some consumers might be evicted because they could not afford the agreed rent.
The consumers organisation Which? welcomed the FSA’s new role, and said people should avoid going into sale and rent-back schemes until formal regulation begins.
“In the current economic environment, consumers are at significant risk of not getting a fair price for their home and facing the risk of eviction in as little as six months,” said Dominic Lindley of Which?.
This stance was supported by the Council of Mortgage Lenders (CML), which said it had been calling for formal regulation for the past two years.
“Lenders cannot always avoid repossession action through the courts, and sale and leaseback could potentially be a realistic alternative for some people as a last resort,” said the CML’s director general Michael Coogan.
“But basic regulated standards of fair treatment and redress are essential, to avoid vulnerable households being exploited by unscrupulous operators,” he added.
Getting a New Mortgage is Becoming Even Tougher
Getting accepted for a new mortgage has become even tougher in the past month, as banks have continued to rein in their lending to new borrowers.
Figures from the financial information service Moneyfacts show that 64% of all mortgages now require a deposit of at least 25% of the value of the property.
A month ago, 60% of mortgage deals required such a large down payment.
Moneyfacts said the total number of deals on offer had now shrunk by 89% since the start of the credit crunch.
Lenders are expected by the authorities to restrict their lending even more in the coming months, although Bank of England figures revealed recently that mortgage lending in fact picked up slightly in December.
There are now just 10 deals on offer requiring no down payment at all, and from just two lenders.
“They are Northern Bank, which lends in Northern Ireland only, and Tipton & Coseley building society, which only lends in the Midlands and you must have a guarantor,” said Michelle Slade of Moneyfacts.
“The number of people these deals are open to is very limited and the rates are above 7%.
“There are only three fixed 95% deals left on the market, which are available direct from Abbey, Yorkshire Bank and Clydesdale Bank, however with rates at over 7% borrowers would really be paying a premium for having such a small deposit,” she added.
At the other end of the scale, a quarter of the remaining mortgages still on offer to the public need a 40% deposit.
A year ago, even when the credit crunch was already well under way, more than 1,200 deals were still available to borrowers who needed to put down no more than 5%.
The reluctance of lenders to grant mortgages to people whom they once thought of as sound borrowers led to a dramatic shrinkage in the UK property market in 2008.
House prices fell by about 15%, and the volume of sales slumped by 43% according to HM Revenue & Customs.
There are some tentative signs that mortgage lending and house sales, though not prices, may have touched the bottom.
For the past six months surveyors have reported a gentle pick up in enquiries from would-be home buyers.
And the number of mortgages approved by lenders, but not yet spent – traditionally a good indicator of future trends – picked up in December, though only from 27,000 the previous month to 31,000.
Actual sales that month rose too, from 52,000 to 61,000.
But they were still 42% down on the same period in the previous year.
The widespread expectation is that prices will continue falling in the next 12 months, possibly by as much as another 15% to 20%.
