If You Cannot Afford Your Borrowings There Is Always Help At Hand
There are a number of different organisations that can be of use when you are struggling with debts, ranging from professional debt management companies, insolvency practitioners right through to charitable debt advice organisations.
The thing to remember when choosing a debt advice organization is that you will get what you pay for, so if you are unwilling to pay any money, don’t expect to get a great service compared to those that are able to shell out some money to get some professional advice.
If you want to use a “free” debt advice service, then consider the Citizens Advice Bureau or the Consumer Credit Councelling Service. Both will give you solid advice, but they may not be able to help you with all matters concerning your borrowings depending on what the issues are.
If you want to seek professional advice, we highly recommend the guys at Help Me Get Out Of Debt, they are a small firm that specialise in finding professional debt advisors in your area that will help you with your problems.
Interest Rate Predictions Thursday February 5th 2009
Today is the bank base rate announcement, which means for many there could be even lower interest rates. With the bank base rate already at an all time low of 1.5%, many out there believe it will be reduced further.
I read on interesting article about Bank of England interest rates predictions that predicts that the base rate will come down a further 0.5% today, bringing it down to 1%. This would see the cost of borrowing £100,000 fall to £1,000 a year or £83.34 a month, quite amazing.
According to an article in The Times there seems to be a split amongst the members of the Monetary Policy Committee, some in favour of a big cut today, even talk of bringing the base rate to zero, whilst others believe that the rate of interest is not the problem anymore, and the bank should instead look at other ways of improving the situation.
The other measures being discussed were quantitative measures, whereby the Bank of England would buy up illiquid assets from the commercial banks, thus making them more liquid and injecting cash into the system. There seems to be a lot of support for this quantitative easing, some of the MPC members believing it to be of more use to the wider economy than interest rate reductions.
It does beg the question, if the Bank of England buys up assets from the banks and therefore injects cash into the system, what does the Bank of England get out of it? Or is this another example of the government being taken for a ride by the idiots that run the banks in this country?
UK Economy Officially In Recession
It has been made official today with figures released by the Office for National Statistics that the UK Economy has now had two consecutive quarters of negative growth in the Gross Domestic Product. This is probably the worst kept secret of the last few months, few if any commentators expected anything but gloomy news.
The worst hit areas of the economy were the manufacturing sector, which had a fall of 4.6% on the previous quarter, and thus demonstrating that the financial crisis has led to a wide reaching recession that has spread severely into the manufacturing sector.
The only sector that saw any improvement on the previous quarter’s results was the agricultural sector which saw an increase in productivity of 0.1% compared to a 0.4% decrease in the previous quarter. However, this is not exactly a large enough sector that this small amount of good news will have any wider reaching impact on the economy.
Many commentators have been predicting for a while that this recession would be over by christmas 2009, however my opinion, having seen the sharp decline in the figures, is that this recession will be with us well into 2010 and possibly into 2011. If there is any way that this recession could be made less severe, it would involve the current government borrowing heavily and spending lots of money in an attempt to stimulate the economy. A plan that I feel is somewhat flawed, when you consider that this economic downturn has been caused by the lack of cheap credit, or in some cases any credit being made available, causing consumers, and subsequently businesses to reign in their spending.
Northern Rock Splash The Cash
It was reported today in The Mail that Northern Rock, the Newcastle based bank has announced a bonus scheme for it’s workers, as a way of rewarding them for the hard work they have done in helping the bank achieve it’s target of repaying part of its bail out loan from the government.
The amount of money being paid out in bonuses is said to be around £9million pounds, or roughly equivalent to just over £2,000 to each of it’s 4,400 workers. This figure is going to be slighlty out because there is also a larger seven figure bonus pool that will be used to reward the senior executives of the company with much larger bonuses than the non-senior execs and ordinary workers of the bank.
It is reported that the bank will pay out a total of £50million over the next three years in proposed bonuses for its workers. I have no objection to this as long as the money is paid out of profits the bank has made on it’s ordinary trading activities, such as mortgages and loans, however if this money is paid for out of government (taxpayers) money lent to the bank to help it out then I do have a problem.
I still find it a bit difficult to take that a public company is being so profligate with it’s money whilst the rest of the country is going through a very tough economic period, with so many already having been made redundant and the risk of more to come in the coming months.
Bad Credit Debt Consolidation Advice
With the economic slowdown hitting many families hard in terms of their employment prospects or chance of redundancy, there may be many more people than usual who’s credit record goes from good to bad.
There’s a common statistic that most families in Britain are three paycheques short of bankruptcy - that is, if they didn’t have a paycheque for three months, they would find themselves bankrupt, due to the fact that they would have depleted all their savings and used up what little available credit they had available on living expenses alone.
This is sypmtomatic of the culture we live in today, whereby people spend more than they have, running up large debts, and not leaving themselves any kind of safety net. And it’s those that suddenly come across a financial “pebble in the road” so to speak, that tend to become “bad credit” risks.
Fear not though, there are plenty of lenders out there who are still willing to lend, however, the cost of borrowing with bad credit has risen substantially, and the terms the lenders are prepared to lend on have become far more punitive on the part of the borrower.
Here is some simple advice for those who now have bad credit and wish to consolidate their debts:
Be prepared to secure the debts
Lenders will not want to roll up a bunch of unsecured credit card, overdraft and personal loan debt that has gone bad, into another (albeit more expensive) personal loan that is not secured on any assets. Lenders will want some kind of security (your house), and so it is best to consider firstly a debt consolidation loan, secured against the property and lastly a remortgage, such that you pay off the existing mortgage and borrow the extra amount needed to repay the bad debts.
Consider a debt management plan
As you already have bad credit, you may be able to save a lot of money by putting yourself onto a debt management plan with your creditors. You can either set this up yourself, simply draw up a monthly budget showing what you can realistically afford to pay back each month, send copies of this to each creditor and they should agree to reduce interest and accept smaller payments.
Alternatively, you can use a service like the Consumer Credit Counselling Service, who will do all the negotiation with your creditors and ensure that the interest and charges are stopped, setup the debt management plan and administer it for you, so that all you need do is pay them one payment each month, which they distribute to your creditors proportionately.
Don’t panic
Yes it can be very stressful going through financial difficulties (I’ve been through them myself), but take a step backward and ask yourself this question - has anyone died as a result of this? The answer is (usually) no, so it’s not really that bad a situation to be in when you consider that things could be far worse, the problem is that in this country we have an in built fear of being in debt and most of all, not being able to repay it. But think of this, the chances are the lenders shouldn’t have lent you so much money in the first place, so don’t be too hard on yourself.
How To Remortgage
As a former mortgage advisor, who dealt with many remortgages during my time advising clients, I am well placed to offer some general guidance on this topic.
Step 1
Check when your current discount period comes to an end, this will be stated in your illustration, mortgage offer and the paperwork sent to you by your lender when your mortgage was first taken out. It may well be stated on your annual statement - usually issued in January.
What you are checking for is that your discount period (the initial lower rate, either fixed, tracker, discount or otherwise) is not about to come to an end next week, as this will not be long enough for you to switch lenders. A good rule of thumb to use is to give yourself three months to remortgage, so if your discount period ends 30th April, it’s a good time to start the remortgage process end of January / beginning of February.
Step 2
Find out what your property is worth (www.hometrack.co.uk is a good start) and then compare against what you intend to borrow against it. Currently (Jan 2009) property prices are falling, so you could be in for a nasty surprise - your property could be worth less than your mortgage, in which case you are in negative equity and therefore will not be able to remortgage.
If you are in positive equity, then you will need to workout what loan to value your mortgage will be against the value of your property. To do this, divide your total mortgage outstanding against the value of your property, for example:
£80,000 (total mortgage outstanding) / £100,000 (current property value) x 100 = 80% loan to value
Once you know your loan to value (sometime referred to as LTV ), you will be able to search more accurately for products that will be available to you.
Step 3
You can use various websites to search for the best deals online, however, be wary as some of these are not independent, and only recommend mortgages from a tied panel. Although you may not have to pay a fee to use these services, it can be far more costly scrimping on advice in the long run if you end up paying over the odds on your interest payments. My advice would be to seek a trusted mortgage broker and get them to help you with the remortgage process.
To get good advice, make sure your broker is independent, he/she is obliged to disclose this to you on your first meeting or contact (if by telephone). My recommendation would be to use a fee based broker who is willing to refund any commission they receive from advising and arranging the mortgage to you (usually this is done as an offset against the fees they charge). Don’t think that you have to pay excessive fees, 0.5% is about the max you should be paying, but if possible, find a broker that charges a flat fee for the deal - why should they earn more money just because you are borrowing more money, there’s no extra work involved.
House Sales Still Declining Not Reached Rock Bottom Yet
House prices are still falling, despite the base rate cuts by the Bank of England and the measures taken by the government to increase the flow of credit in the UK economy.
According to the RICS Housing Market Survey the average number of sales per surveyor fell from 10.6 to 10.1 in the three months to December 2008, to the lowest level since this statistic was first recorded in 1978.
On some positive news, the level of new buyer enquiries was up for two consecutive months and growing at it’s fastest pace since August 2006. This may be good news from some points of view, but the reality is that a lot of new buyer enquiries may not be able to get the mortgages in place to buy the properties.
The market will eventually bottom out, but this will not be until the cost of financing comes down in line with the Bank of England base rate, and more importantly, the availability of finance increases. I suspect a lot of would be buyers are being savvy and holding out on buying until they feel the market has got to its’ lowest point.
Here are some interesting interest rate predictions for the coming year, and beyond. The effects of interest rates on the overall economy, availability of finance and the housing market is paramount, so it always bodes well to understand where they are going. If like me, you have a tracker mortgage, it’s very useful to know that you may have another two years of low mortgage payments.
Mortgage and borrowing predictions for 2009
I used to work as a mortgage broker until the credit crunch put me out of business, and I often wonder how long the mortgage / credit markets will take to get back to “normal”, or something approaching what they were like pre-credit crunch. I suspect it will be many years before they get back to doing a similar volume of business, but I suspect the quality of business will never return to what it was like before - dreadful!
John Varney of Barclays Bank seems to agree with me, according to an article on the BBC News website, in which he predicts it will be upto two years before lenders resume lending at rates seen prior to the credit crunch.
According to the Bank of England, the mortgage market is still not operating correctly, with banks still refusing to lend to each other. This could prompt further aid from the government, perhaps even setting up a govt owned bank that would hold all the bad debt, in an effort to get banks lending to trust each other again.
There was further bad news reported on the Council of Mortgage Lenders website, where the latest statistics showed a 51% fall in gross lending in November 2008 against the previous years figures. This is quite bad considering that November 2007 was three months into the credit crunch and therefore these figures would most likely have been down on the previous years also.
The CML also predict that the value of UK mortgages taken out in 2009 will be around £145 billion, down from £363 billion in 2007. That’s less than 50% of lending amounts at the peak, which really gives an insight into the scale of the problems facing the UK borrowers.
Bank of England Base Rate Lowered from 2% to 1.5%
The Bank of England announced the new base rate at midday today, a cut of a further 0.5% on last months rate of 2%, brining the new rate down to 1.5%.
This will mean that the UK is now seeing the lowest rate of interest for over three hundred years, and in fact the lowest rate since records began.
This will mean all borrowers on tracker rates will see a monthly reduction in their interest repayments of £41.67 on a typical £100,000 mortgage.
To work out the interest reduction on your mortgage, simply multiply the amount of your mortgage outstanding (the balance) by 0.005, then divide by 12 to give you the monthly reduction.
Maximize The Benefit Of A Debt Consolidation Loan
I worked as a mortgage broker for a number of years until recently and in my time got to see many clients who largely were not very good at handling their money. The recurring theme was that they borrowed a small amount of money, and before they had managed to pay it back, they needed to borrow some more money again, until the time came when they had borrowed from a number of different lenders, and couldn’t really afford the monthly repayments any longer.
In situations like this, I always used to reassure them that they weren’t the only ones, and that it wouldn’t be a problem to sort it out. I knew that I would be able to help them out by putting in place a new mortgage that consolidated their existing debts or rolling all their debts up into a secured loan. So many of these customers were very grateful of the help I was able to give them, and also of the advice I was able to give them about how to make the most of the debt consolidation loan or remortgage I was helping them with.
I suspect the vast majority of them didn’t heed the advice, opting instead to take advantage of the extra money in their pockets each month and spend the money rather than on paying off the debts. The advice I used to give to them was simple - use the extra money that you will save on interest each month to repay the debt, thus repaying the debts quicker, once the debts have been repaid, you can then spend the money (though I did used to advise that planning for their retirement might be a good idea as well).
To see how this works, please use our debt consolidation calculator to see for yourself how much money you save in interest each month by consolidating expensive credit card debt into a much lower interest mortgage or secured loan.