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.

 

 

Should you Save While in Debt?

Many people who are in the process of paying off debts find themselves facing one particular dilemma. Should they aim to build up some savings for the future at the same time as paying off their debts, or should they focus all their efforts and available funds on clearing what they owe?

When Britons are being urged to save more, it is a difficult decision to make. There are two key factors that need to be considered in order to decide which approach is best.

What Will Leave you Better Off?

The question of which approach will leave you better off is surprisingly easy: you will be better off by focussing all your efforts on repaying your debts. Suppose you have £1,000 and are trying to decide whether to put it into savings or pay off £1,000 worth of debt. Putting it into an ISA will likely get you around 2.75% interest at best. This will earn you something in the region of £27.50 over the course of the year. If a personal loan has a fairly attractive APR of 8%, then leaving that £1000 worth of debt in place will cost you £80 in interest over the course of the year, leaving you more than £50 worse off. In other words, thanks to the fact that loans and credit products almost always have much higher interest rates than savings accounts, you will be better off repaying debts before you think about putting money into savings. Most financial advisers will recommend this approach because it will ultimately leave you with significantly more money.

Unexpected Expenses

On paper this seems simple enough. You stand to gain a lot more from paying off debts than building up savings. However, the danger of some unexpected expense complicates things a great deal. If you put every penny you have into paying off debts, then you might end up in trouble if your car breaks down or your home needs some form of repair. The last thing you want to do when struggling to pay off debt is put yourself in a position where you need to borrow again. If you do not currently have any savings at all but you are earning enough to have money left over after meeting your minimum repayments, then you might want to build up a small amount of savings. This will serve as a buffer to protect you if the unexpected happens. Once you have a little bit “for a rainy day” you can then shift your focus more wholeheartedly onto clearing what you owe.

Can a Debt be Written Off?

In exceptional circumstances, it might be possible for a debt to be partially or fully written off. It is even possible that a creditor might cease all action against you. While this situation is rare, it can seem like a genuine godsend to those who find they are eligible.

Dealing With Debt

It is important to note that having a debt written off is rarely if ever a first option to consider if you are having trouble with debts. As it will only rarely be granted, you should first take every reasonable effort to manage your debts and your financial situation. Contact your creditors and see if they are willing to come to a more manageable repayment arrangement. Seek independent advice and come up with a debt management plan.

Lump Sums

Possibly, the easiest way and most common to get part of a debt that you are struggling to repay written off is to offer a lump sum. Unfortunately, most people who are struggling with debt will be unable to do this. However, for those that are, offering creditors a full and final settlement can be an attractive option.

If you are able to offer a lump sum which represents a reasonable portion of your debt, your creditors may be willing to accept it and write off the rest. It is, in many ways, better for them to accept less money but to get it immediately instead of slowly over a number of years, especially if your circumstances may lead to complications when it comes to repaying the full amount. If your creditors agree, make sure you obtain written evidence that the lump sum is all you will be required to repay.

Simple Write-offs

In very rare circumstances, a company may be willing to write off your debt completely. This will usually only happen if you have very little hope of repaying the debt. Not only will you have to be on a low income for a creditor to agree to this, but you will also have to be in a situation which means your finances are unlikely to improve. Most often, debts are written off for the elderly or people suffering from serious illnesses.

Individual Voluntary Arrangements

Many companies advertise a “government scheme” to help write off part of your debts. This usually refers to Individual Voluntary Arrangements (IVAs). While IVAs are genuine, they are not as simple or pleasant as the adverts would suggest. For several years, every bit of spare income you have will likely be paid towards your debts. You may also be required to sell valuable possessions. However, if you are in a very difficult debt situation this can still have some definite advantages. After the amount you agree when the IVA is taken out has been paid, the remainder of your debt will be written off and you will be debt-free potentially much sooner than you would have been otherwise.

Reasons for a Bad Credit Rating

A bad credit rating can make it harder to take out loans and credit cards. They may mean you cannot take out new sources of credit, or end up with high rates on credit cards and mortgages.

If you have found yourself turned down for credit or been offered higher than expected rates, this is a sign you may have a bad credit rating. There are several things that might cause it, and if any of them apply to you it may be worth taking action to improve your score.

Missed Payments

Missing loan repayments or being late to make them is a key factor in getting a bad credit rating. This doesn’t just apply to loans and credit cards either. Missed or late payments for utility bills can also feature on your credit rating. If you have failed to pay back credit according to the agreement, this will make lenders wary of trusting you with money in the future and hit your credit score.

Even if you are meeting repayments, this does not guarantee your credit score will be left untouched. For example, if you are only managing to make the minimum levels of repayment on a credit card, it might have an effect on your credit score. This is because it could lead lenders to suspect you may be having trouble paying debts back.

Lack of Credit History

Some people think that if they have rarely or never taken out any form of credit in the past, this will give them a good credit score because they have no problems against their name. In fact, this is often not true. If you have no credit history or a very short one, you are an unknown quantity in the eyes of lenders. They cannot judge how reliable you are at making repayments because they have no past information to go on.

Unfortunately, good behaviour doesn’t always mean a good credit rating even if you have taken out debts in the past. If you have a history of taking out small debts such as credit cards and then paying them off on time, this might mean lenders still feel some uncertainty about how you would handle bigger debts. Though it may seem unfair, this may also lead them to see you as an unprofitable customer, as you do not accrue interest on debts.

Bankruptcy and Court Judgements

Another important factor that can hit your credit rating is the kind of financial issue that leaves an official record. If you have ever been bankrupt, this will have a very definite impact on your credit score. The same applies if you have ever entered into an Individual Voluntary Agreement. If a County Court Judgement has been made against you stating that you owe money, once again this will leave a black mark on your credit rating.

Stemming the Rise of Debt

Being in debt is not shameful. Most people experience being in debt at least once in their lives. However, while debt may not be shameful it can become deeply unpleasant. Sometimes the need to meet repayments will lead to building up more debt elsewhere in order to afford the cost of getting by.

If you are in a difficult financial situation and your debts keep going up, there are several things you can do to try and stem the increase.

Don’t Use Credit Cards for Cash Withdrawals

You need money to get by, and if you don’t have enough in the bank it can be tempting to use credit cards to withdraw cash. In fact, this can even look like a necessity. However, using credit cards for cash withdrawals should be avoided. Instead, you should just make the purchases directly with the card whenever possible. This will usually result in a better rate of interest than cash withdrawals.

Talk to Your Bank

Exceeding your overdraft limit, will usually lead to being hit with higher interest rates and additional charges. If you find yourself regularly needing to go over your limit, then try talking to your bank. Many major banks may be willing to increase your overdraft limit, which can avert these added costs and reduce the added burden it places on your debts.

Rearrange Your Debts

Borrowing from one place to pay off another is certainly not always a good idea, but there are times when it makes sense. For example, if you have built up debt on a credit card with a poor interest rate, it may be worth trying to obtain one that offers a better rate. This could help you clear the higher-interest debt on your existing card, as well as making future purchases at the improved rate. However, if you are struggling to meet debt repayments and are tempted to borrow from a higher-interest source, be extremely wary. This will almost always just make things worse further down the line.

Keep Stock of What you Owe

Some people try to wilfully ignore the exact amount they owe, because it is an unpleasant fact they do not want to confront. However, ultimately it is best to know how much you owe, to whom you owe it, and what the interest rates are. This will help you to get a better grasp on your situation, and focus your efforts on paying back higher-interest debts first.

PPI and People in Debt

The PPI scam has uncovered the massive malpractice that the banks and other financial institutions have indulged in with many people making PPI claims to get their money back. If you have been mis-sold a policy, you need to understand about the PPI basics to make a proper claim. The main significant fact you should know in making a PPI complaint is that you should have been mis-sold while taking the policy. Even if you do not have the loan at present, it does not change the fact that you have been mis-sold.

Influence of Financial State on PPI Claims

The financial state you are in will not alter the act of mis- selling any way. Even if you have been bankrupt or taking a debt management plan, you can still make a PPI claim. You should also know that in case you have a debt with the concerned lender in the same account or the debt is related to a past one, the PPI refund you get from the current one can be used to settle the debt. The lender can accomplish this without your acknowledgement, but you can get PPI help if the procedure affects you financially.

Refund Considerations

In case you have purchased a policy before an order relating to the bankrupt state or insolvent state you are in was made, the chances of making a claim is implausible. Irrespective of whether the assets are part of your possessions or they have been discharged, you cannot make a refund.

Making a claim can be done by yourself or with the help of PPI claims companies who specialise in such matters – this would be best if your case or financial affairs are not so straightforward. PPI assistance can be sought from the financial ombudsman services too, but your PPI claims may take some time to be resolved as there are numerous pending cases that are yet to be solved in the PPI fraud.

What to do if you Can’t Repay a Payday Loan

The recent recession drove many families into financial difficulty. In order to make ends meet, many were forced to take out short-term, high-interest loans which they then found they just couldn’t pay back. It may seem like, since you owe the company money, there is little help open to you if you cannot pay it back. In fact, if you are in difficult circumstances and the company seems unsympathetic, there are a number of things you can do to try and improve your situation.

The Problem

Obviously, the main problem with being chased for payday loan repayments you can’t afford is that you are faced with a debt that just keeps mounting up. Not only are you supposed to be paying back this money yet unable to do it, but the high interest rates mean that the debt keeps getting bigger. The problem of paying it back, therefore, seems even more impossible to overcome as time goes on. If you are able to pay back anything, you might find you are barely covering the interest and not even touching the original debt.

On top of this, many people in this situation report that they have experienced overbearing, even bullying tactics from the payday lenders. Excessive contact on home, work and mobile phone numbers along with emails and texts is a common problem. Often, this contains threat-like information about the action they may take if they do not receive their money.

Dealing With These Issues

It is true that you owe these people money. However, this does not give them licence to use whatever tactic they please to retrieve the money. You still have some rights, and there are still laws restricting the lenders. Many of the tactics people struggling with payday loan debts claim to have experienced fall outside these boundaries.

If you are in a difficult financial situation and are unable to reasonably make payments, the payday lender should take this into account. It is a good idea to write to them explaining your situation and proposing a solution such as a more reasonable repayment rate. However, this can seem difficult, and some people have reported that attempts to do so have been simply ignored. For this reason, you might want to use some of the free templates available online. These are customisable letters in the correct format, and they usually encourage lenders to comply by reminding them of your legal rights and the action you can take if those rights are breached. These letters can result in more manageable repayments and sometimes in interest being reduced or frozen, especially if the lender did not take adequate steps to ensure you could repay the loan when they authorised it. Often, this will also serve to stop excessive contact.

If you believe you may be being overcharged for your loan, you should also send a letter requesting they prove the debt to you. If you are correct, they will have to reduce the debt to the appropriate level, and if you are mistaken at least you will know that you are not overpaying.

If you believe the lender you owe money to is operating illegally, it is important you report them to the authorities.

 

Where to Find Personalised Debt Advice

If you’re struggling with debt, there are many things you can do to help make the problem more manageable. Information on many of these things can be found online, and this sort of help might be all you need. However, sometimes you might need to talk to somebody directly and get personal advice about your unique situation. In this case, there are a number of places you can go to get free, impartial, and personalised advice on dealing with debt.

Citizens Advice Bureau

Your local Citizens’ Advice Bureau (CAB), an independent charity, can advise you on dealing with debt as well as a range of other problems such as legal issues. The first CABs opened at the start of the Second World War, and today they are one of the most widespread, readily-available and useful sources of free and impartial advice. You can go to your local Advice Bureau in person and without an appointment, where an advisor will be happy to talk you through your options and rights. Even smaller towns will often have a CAB, either in a full-time dedicated premises or part-time in a local venue such as a town or church hall.

StepChange

Like the Citizens’ Advice Bureau, StepChange is an independent charity devoted to bringing free and impartial advice to those who need it. Unlike the Citizen’s Advice Bureau, they do not have a nationwide network of offices allowing you to seek help in person. On the other hand, they are also more specialised, focussing entirely on debt advice rather than on a range of problems. You can find a selection of highly useful information on their website as well as seeking personalised advice on your specific situation by phone. Their helpline is free to call, including when you call from a mobile. It is open Monday-Friday from 8am-8pm, and 8am-4pm on Saturdays.

National Debtline

National Debtline offers you free advice over the phone, as well as a range of other free services. Their helpline is completely free, and is open from 9am-9pm on weekdays as well as 9.30am-1pm on Saturdays. This allows you to talk directly to an advisor who will give you free advice. There is also a range of information on their website as well as a comprehensive self-help pack. If your circumstances qualify, they can also help you set up a debt management plan or a debt relief order. These services are also free of charge.

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.