Government Aids Debtors by Raising Forced Bankruptcy Threshold

Those who are in debt and are having trouble coping financially received some relief from the government this month. It has been announced that the level of debt required before a debtor could potentially be forced into bankruptcy is going to be raised significantly. Where previously this threshold was £750, it is now set to be raised all the way to £5,000.

The current £750 limit has been in place since 1986, and over the course of that time its value in real terms has been eroded significantly by nearly 30 years of inflation. According to the Bank of England’s inflation calculator, when it was first introduced it was equivalent to nearly £2,000 in 2013 (the latest year covered by the calculator), which means time has cut the true value of this limit to well under half of what it represented originally.

The president of insolvency trade body R3, Giles Hampton, said that “The rise in the creditor bankruptcy petition threshold is welcome, although £5,000 is far higher than expected.”

Hampton went on to call the previous limit “an entirely inappropriate level” and added that “the protection it offered debtors had been steadily eroded by inflation over the decades.”

According to business minister Jo Swinson, it will be replaced by the new, much higher limit in October of this year. The new £5,000 figure is not only a big increase on the previous figure, but also significantly higher in real terms than the current limit was even at the time of its introduction.

The increase of this threshold will be accompanied by another measure designed to help those in debt, as the maximum amount of debt that a debt relief order can cover will also be increased. Debt relief orders are often considered a more affordable alternative to going bankrupt, and were first introduced in 2009. Since that time, there have been well over 140,000 debt relief orders throughout the UK. They can currently cover debts of up to £15,000. From October, they can include up to £20,000 worth of debt.

Christians Against Poverty chief executive Matt Barlow welcomed this move, saying that over a third of the charity’s customers currently cannot afford bankruptcy fees but have too much debt to utilise debt relief orders. The raised threshold will open them up to more people who are currently struggling.

Barlow pointed out that “We had campaigned for the limit to rise to £30,000, which would have seen more than half of our clients being able to afford this debt solution.” Nonetheless, he recognised that “£20,000 is a good start.”

Borrowers Warned to Prepare for Mortgage Rate Rise

Homeowners with mortgages have been warned by lenders that they should start preparing for a rise in rates. The news follows soon after it was revealed that the number of repossessions fell this past Spring.

However, the concerns that a rise in interest rates might bring up are somewhat mitigated by the quarterly inflation forecast issued by Bank of England governor Mark Carney. This forecast was announced on Wednesday, and contained a statement from Carney saying that future interest rate rises would take place only gradually. The increases would also take into account an assessment of the ability of homeowners to manage.

The Council of Mortgage Lenders (CML) welcomed the news that rate rises would take place “in a series of ‘baby steps'” through which the overall increase would be implemented gradually. They particularly stressed the fact that these steps would reportedly be “matched to a careful assessment of the ability of households to deal with higher borrowing costs” in order to prevent rate rises from putting too much sudden strain on the finances of borrowers.

Nonetheless, the CML still stressed the importance of being prepared for the time when rates do finally rise. According to Paul Smee, the CML’s director general, “rates will rise at some stage, of course, and borrowers should be planning for that now.” Smee added that “any borrower anticipating payment problems should talk to their lender as soon as possible.”

At present, the situation seems to stand in a very positive place. The second quarter of 2014 saw 5,400 properties repossessed because their owners had fallen behind too far with their mortgages. This figure is 1,000 below the number of repossessions that took place in the first quarter of the year. It also represents 2,200 fewer homes being repossessed than in the same period in 2013. Perhaps most encouragingly of all, it is the lowest number of repossessions to take place in a single quarter since 2008 when records began. This fall in the number of repossessions was in line with forecasts that the CML had previously made.

The CML also reported that fewer homeowners are now falling into arrears. At the end of June, 131,400 of mortgage holders were in arrears by at least 2.5% of the total value of the mortage. This is the lowest figure seen since early 2008.

Unfortunately, those who rent their properties do not seem to be in such a strong position. Landlord Possession Claims, the first stage in the tenant eviction process, have been steadily increasing since 2010 according to the Ministry of Justice.

 

 

Church of England Continues to Dabble in Financial Support

Earlier this year, the Church of England hit headlines when the Archbishop of Canterbury spoke out against high-interest payday loans, particularly when given to the poor and vulnerable. Specifically, he vowed to “compete [them] out of existence.” A move into finance might seem unusual for a church, but he advocated that supporting credit unions was a way to help some of the most vulnerable people in difficult times, and therefore insisted that this was the direction the church should take.

 

After an initial flurry of media interest in these surprising and at times controversial comments, things seemed to go quiet. Now, however, it has become clear that this was not because the Church of England had changed its plans or lost interest. Recently, the Church of England website introduced a series of pages providing comprehensive information about credit unions, the services they offer, and why they are an alternative to short-term, high-interest loans that lead many people into debt.

Though the website of a religious body was not, a few months ago, where you would expect to go for financial advice, the information provided is extensive and covers a range of topics based around the issue. This shows that the church remains serious about playing a part in this industry and helping combat personal debt.

Are Credit Unions Really Useful?

Of course, this is now the pertinent question, and the one that decides whether the idea of a Church dabbling in finances is actually likely to succeed. The answer is that, though credit unions are not well-known for many people they could be an extremely useful tool. In particular, they can be useful for the purpose the Archbishop seems most concerned with – averting the need to build up high-interest debts.

A Credit Union will provide many of the same services as banks. They will be run by and for the benefit of the members, with proceeds shared and with the members’ interests put before profit. They also offer loans, which are designed to have reasonable interest rates and to be tailored to match the realistic repayment prospects of the recipient. This makes them a more manageable alternative to the notoriously high rates of payday lenders, and significantly less likely to cause unmanageable debts. With loans below £2000 – the levels that compete with payday lenders – they are considered the best-value option, though above this level they are usually neither better nor worse than standard banks.

UK House Prices Set To Rise Even Further

UK house prices, according to the Halifax’s latest house price survey, have risen by 5.4% in the year to August. This is the highest annual rate since mid 2010. The measure also revealed the average price of a house also went through the £170,000 mark for the first time in half a decade. One thing to note, is that the figures are still very much below the peak of the market in August 2007, when the average price was almost £200,000. The Surveyors explained that housing market activity was up due mostly to an improving economy, low interest rates, and government-backed schemes such as the much-loved Help to Buy. This scheme offers buyers a government-backed loan of up to 20% of the price of the property.

Nationwide reported, earlier this month, said house prices in August were rising at an annual rate of 3.5%, slightly lower than the rate in July. The Nationwide survey gains its figures by comparing the prices in one month with the same month a whole year ago. The Halifax survey, on the other hand, compares a three-month period with the three-month period in the previous year. The Halifax survey has estimated that the average price of a house or flat in the UK is currently £170,231. The last time average house prices were higher than £170,000 was in September 2008.

Mortgage approvals for house purchases, which are often used as an indicator of completed house sales, rose by 10% between the first and second quarters of 2013. In July of this year, there was a landmark 60,600 approvals made. This was the first time the number has exceeded 60,000 since 2008. The rise in market activity, prices, and the Help to Buy scheme, all have increased fears that the UK could be heading for another property bubble. Mark Carney, governor of the Bank of England, said last month that he was “acutely aware” of the risks, and had a “toolkit” of measures he could employ to combat the seemingly unrestrained mortgage lending.

Matthew Pointon, property economist at consultancy Capital Economics, expressed his opinion: “A short-term imbalance between housing demand and the number of homes on the market is driving price increases. But the rise in wholesale interest rates seen over the past few weeks may soon start to feed through to mortgage rates, dampening demand.” Some experts have pointed out signs that mortgage rates may just have bottomed out, with some lenders increasing rates earlier this week.

Personal Insolvencies down 9%

Official statistics from The Insolvency Service show that personal insolvencies have decreased by almost 9% from around the same time period last year.

This was welcome news as the country still struggles to recover from the double –dip recession.

The new data reveal the number of people who have declared themselves bust and made formal agreement with creditors  is at it’ lowest since the financial crash of 2008.

Bankruptcies are also reported to be down 24% since 2011. Bankruptcy differs from insolvency in that it is imposed on a person who cannot pay their bills by a court. Additionally, the debtor’s assets can be sold to cover the cost of whatever they owe. The cost of bankruptcy is around £700 and the debtor is obligated to pay all associated court fees.

The decrease in bankruptcies has been attributed to recently devised Debt Relief Orders. A Debt Relief Order is a cheaper alternative to going bankrupt. This alternative was introduced in 2009 for low income individuals with debts under £15 000.

Debt charities have reported up to 36% increases in the number of Debt Relief Orders they have administered in the last year. This was supported by information from The Insolvency Office which showed since 2011, Debt Relief Orders had increased by 7%.

The Insolvency Office also reported that company liquidations were down 4% from the last year.

The news was not so good for small businesses across the country. The data revealed self- employed workers had more debt compared to other Britons. People who run their own businesses also had more instances of risky unsecure debt.  Nearly a quarter of bankruptcy orders in the third quarter of 2012 were for self – employed workers.

Debt charity StepChange had earlier in the year reported that self-employed people had typically four times as much debt as their peers.  A spokesperson for the charity suggested those who are self-employed “are taking on significant debts in order to invest in their businesses…but that too often the debt burden can become too much to bear”.