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Home » Business And Finance Articles » Adverse Debt Levels Blight Uk Consumers Personal Finances

Adverse 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 considerable 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 face financial difficulties early in life. Consumer Credit Counselling Services â€" Scotland ( http://www.cccs.co.uk/ ), has indicated that young adults in general, under the age of 25, now account for more than 10 per cent of the estimated 32,000 people who have fallen into severe arrears on non-mortgage debts of more than £1 billion.

Malcolm Hurlston, Chairman of the Consumer Credit Counselling Services (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 adverse debt levels from the major high street banks 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 ( http://www.wilkinskennedy.com/ ), 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 property of significant 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 lead to an increase in the number of borrowers filing for bankruptcy themselves when previously they would have been forced into it earlier by their lenders.

House repossessions have also significantly 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 banks and financial service providers have taken the initiative and started to help police the growing adverse debt problems with HSBC announcing that it will share their full credit record, of both positive and negative information, on its personal customers with other regulated financial services companies through 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 afford than it is for a bank to lend them the money." The move has been widely heralded by analysts, as Michael Geoghegan added, "It is the only way to ensure that lenders properly understand the full financial exposure of customers before they let them sign up to debt that some simply can't afford."

This all comes amidst media pressure for financial firms to become more responsible. One case widely featured in the news concerns a couple 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 course of the 15 year loan term the amount repayable had escalated to £384,000. Attempts by the loan company to still enforce the huge debt, eventually had to be fought off by the couple through the law courts.

The couple urged others considering taking out a loan to seek advice and to, "obviously 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 sources of information to help consumers make decisions regarding their finances and debt levels. Financial comparison sites like Moneynet ( http://moneynet.co.uk/ ) can provide impartial information on loans, mortgages, adverse credit, etc, to find the best product for individual circumstances. Consumer help sites like the National Debtline ( http://www.nationaldebtline.co.uk/ ) provide free confidential and independent advice on how to deal with debt problems, and the Citizens Advice Bureau ( http://www.citizensadvice.org.uk/ ) are there with trained volunteers to help with legal, monetary and other problems, through a free, independent and confidential advice service.

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

Malcolm Hurlston of CCCS said, "We are advising about 4,000 people in Scotland and I would estimate 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, as well as highlighting where to access help for when it is required. Budgeting is a subject many school leavers have little practical 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 available 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 benefit 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 vulnerable people given the assistance best suited to understand and control their own money.

Released by bigmouthmedia ( http://www.bigmouthmedia.com )

And here is another random article you might be interested in...

Work From Home and Make More Money

Why do you work from home? Hopefully you enjoy what you do and want to enjoy the lifestyle being at home can offer you, however is it because you want to make money so that you can have, be and do more in your life?

When you work from home you have so many advantages over many traditional businesses. You have more flexibility so when you do have to put in the extra hours, at least you're at home and don't have to spend long hours off-site.

However, just because you work from home doesn't mean you shelter yourself from doing what any successful business owner would do. They recognise that their customers feed them.

Who pays you? Your clients do and never forget that. Unfortunately many people do. They take your money and then vanish off the face of the earth. And if you do hear from them you know they are only trying to sell something or business is not going well. The silly thing is, if you look after the hand that feeds you, they will look after you.

Keep in regular contact with your clients, particularly the top 20% (both current and past) who have provided you with the most income.

Still keep in touch with the others via newsletters etc. However the top 20% of very special clients need extra attention.

A monthly "how's things?" call. Find out how life is treating them, without expecting to sell anything.

Send the occasional gift ...a book, tape, movie tickets. Thank them for their business. When special times of the year occur send them a Christmas Hamper, New Year's Calendar, Easter eggs at Easter. Little things which show you care.

When you get referrals, reward the referee with a thank you card or gift.

Do what most people in business don't do. You will be amazed that if you consistently (that is the key word here) make the extra effort, you will continue to get repeat business or more referrals.

My Story

For the past two years, I had engaged the services of two separate property managers to look after our investment properties. The property manager of company no. 1 was never pro-active. The only time he spoke with me was when I initiated contact because I had a query or was unhappy about their services. Company no. 2 was exactly the same except that they kept in touch via a newsletter which really was of no use to me as it didn't mention anything about property management. Mostly the information was about properties being sold.

It was very interesting that both property managers contacted me only when they had been notified by my new property management company that their services were no longer required. In fact, both of them were very upset. They were upset? I'm the one who was paying them, not the other way around. They both wanted to know why I was changing and I certainly told them.

When the new property manager did an inspection on one of the properties, the tenants were home. They told my new property manager that the old company provided very poor service and they were very slow following up any problems they had. I told that to the old company and the manager replied "tenants always say that".

Anyhow the point of this story is to spell out that because people don't say anything, doesn't mean they are happy with your services. Also as a business person you need to be on the ball. Be pro-active, not re-active.

And to do all of this you need to learn how to get organised, manage your time and yourself as effectively as possible. These are not skills most people are born with. They need to be learned. When you work from home it is vital that you circulate in the real world and grow your mind.

The Final Word

There is plenty of business around, however most people spend heaps of time chasing it, take the money and run off to the next person. Yet it would be so much easier to look after what you already have. (And the same applies to your personal life.)