The Times (Bricks & Mortar)
Images courtesy of propertyfinder.com and moat.co.uk.
The evidence is stacking up that the economy is starting to suffer. For 15 years we have enjoyed low inflation, low interest rates and low unemployment whilst watching the value of our homes rise steadily. Despite this, Britons have drifted ever deeper into debt with personal borrowing going up by a staggering £1 million every five minutes. Most have borrowed heavily to climb the property ladder.
In a direct indication of hard times ahead, Mervyn King, the Governor of the Bank of England has stated that rising food and fuel costs are likely to push inflation higher. He also advised that “unwise” lending may mean that banks may fail to pass on interest rate cuts and that in a slowing economy there will be fewer jobs. In a year where 45,000 repossessions have been predicted, here are some pointers on how to stay in control of your finances:
Most at risk are the 1.4 million households coming off their discount fixed rate mortgages this year. Payments will go up, meaning that those that have overstretched themselves could struggle. Also at risk are those on a downward financial spiral: look for warning signs such as continually having to increase the overdraft and getting a new credit card without paying off the old one.
Check with Revenue & Customs that you haven’t paid too much tax under PAYE. This will be particularly important if you have been made redundant or are employed on short-term contracts. Also check that you are receiving any benefits due to you at direct.gov.uk and that your tax credits are correct at:
Websites such as creditaction.org.uk & moneysavingexpert.co.uk have lots of ways in which you can save money. They will invite you to examine your utilities to check that you are not paying too much; uswitch.com will help you do a price comparison. Get rid of any insurance policies that are surplus to requirements such as PPI (Payment Protection Insurance), mobile phone cover and extended warranties on electrical goods. Visit the money saving expert website for help in setting up a budget.
Explain the situation to your lender. They may be able to offer you a period of lower payments, a payment holiday or even change the terms of your loan. It is not in their interest for your house to be repossessed. For example, if you were to change the mortgage term from 25 to 30 years then you would pay about £44 less per month on a £100,000 loan. Another option is to move to an interest-only mortgage to give yourself some breathing space but remember you have to make arrangements to start repaying the capital as soon as possible.
If your existing lender will not help you then you could always change to get a better deal or more favourable terms. This is going to be a lot more difficult in the current climate however, as most lenders have tightened their lending criteria since the credit crunch happened.
If you are facing a repayment crisis on your mortgage you should always be looking to stay on the property ladder. The first aim should be to sell your current home and downsize, otherwise you could end up frozen out of the market completely like many first time-buyers.
When it comes to debt, honesty is the best policy; honesty to yourself and the people close to you. People in debt are often in denial, so if that sounds like you, don’t bury your head in the sand and underestimate how much you owe. The first step to financial parity is accepting the task ahead. You may be angry, depressed and embarrassed but you must come clean with those around you. Failure to do this will invariably come back to bite you in the backside. There are numerous stories of the person who doesn’t know about their partner’s financial problems until the bailiffs arrive on the doorstep.
Remember, your lender cannot be sympathetic if they don’t know about your situation. Always communicate in writing, keeping copies of letters sent and received. Only make them payment offers that you can realistically afford and keep a budget plan to back this up if necessary. Once you have dealt with your mortgage company write to anyone else that you may have debt with; most will be understanding of your situation as long as you prove that steps are being taken to clear the debt.
If all else has failed and repossession is inevitable, try and sell your house on the open market. The property will fetch more money this way, serving both yours and the mortgage lender’s interests. For advice on coping with debt visit the Consumer Credit Counselling Service at cccs.co.uk or the National Debtline at nationaldebtline.co.uk.