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Tough measures for tough times

 

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Do you fear the repo man? Statistics say that tens of thousands of us will be doing just that this year if we aren’t doing it already. Double digit rises in utility and food bills – not to mention fuel prices, are taking their toll. Inflation is directly related to the Bank of England base rate of interest, and because it is running high at the moment, it seems unlikely that there will be a rate cut anytime soon. Unfortunately, because of the credit crunch, even cuts in interest rates won’t be necessarily passed onto the borrower by the banks.

All of the above means that now is a particularly bad time to default on your mortgage – or any other loan come to think of it. Because the mortgage market has tightened up so much in the last few months you will need a spotless credit history to have access to the best loan products in the future. The days of banks lending to the so-called “sub-prime” market (people with bad or non-existent credit histories) are well and truly passé. So what do you do if you’re struggling to meet your next mortgage payment? Here are some suggestions:

   

  •  Talk to your lender.  Under the Financial Services Authority’s treating customers fairly initiative they are obliged to work with borrowers who are facing financial hardship.  They may be able to give you a payment holiday or change the terms and conditions of the loan.  Make sure you talk to them before you miss a payment – if you don’t it will count as a black mark against you on your credit record.
  • Talk to the Citizens Advice Bureau for advice on your rights in case your lender decides to get heavy handed.  They offer free legal advice and can be contacted on 08457 040506 or at www.citizensadvice.org.uk.
  • Tighten your belt if necessary by cutting back on luxuries and making sure that you’re getting the best deals on household expenses such as telephone, gas, electric etc.  There are bags of comparison sites out there on the Internet – moneysavingexpert.com would be a very good place to start.
  • Change your mortgage.  Not the easiest of steps in today’s market but worth looking into if you’re struggling.  Changing to an interest-only mortgage could be a short-term solution as the payments will be much smaller.  A long term solution would be to extend the term of your loan or just the act of changing lender could bring down the interest rate and lower the payments.
  • Make sure that you’re getting all the financial help from the government that you are entitled to.  A number of new policies have just been introduced to try and boost the flagging housing market – one of which relates to local councils and housing associations helping people out of mortgage strife by buying a percentage of their house.  If your income has dropped below a certain level you may also be entitled to help with your housing costs and council tax.  For more information see the government website at www.communities.gov.uk/housing.
  • Rent out a room.  This is a tax-efficient way to boost your income as you can earn £4,250 per year in this manner before tax is payable.
  • Selling up and downsizing may be a bitter pill to swallow but it is a good way of licking your financial wounds until times are better.  Getting off the ladder by selling up and then renting is also much more preferable to being repossessed.