For anyone thinking of consolidating their debts, the recent figures from the Bank of England might not make pleasant reading. Their 'Lending to Individuals: August 2008' Statistical Release reveals that the increase in total net lending to individuals was much lower in August (£1.4 billion) than in July (£4 billion).
The problem is, many people need credit more than ever - levels of personal debt are at an all-time high in the UK, and many borrowers are urgently looking for the debt consolidation loans that could help them bring their debts under control once more.
Basically, a debt consolidation loan is a larger loan which lets the borrower pay off their existing unsecured debts all in one go. Rather than, for example, paying something towards an overdraft, two credit card debts, one store card debt and a personal loan, the borrower simply makes one monthly repayment to the lender who gave them the debt consolidation loan. So consolidating debts can make things simpler, helping borrowers stay on top of their debt and avoid the charges (and damage to their credit rating) that many lenders impose for late payments.
Simplicity, however, isn't the only advantage. Debt consolidation loans often come with lower interest rates than other forms of debt (in particular credit & store card debt), especially if the individual consolidates their debts by securing them against property (i.e. through a secured debt consolidation loan or debt consolidation mortgage). In other words, the debt accrues less interest every month, so the borrower can put more money towards the debt itself, rather than towards the interest.
Finally, the third major advantage of a debt consolidation loan is its potential to reduce monthly debt repayments. Anyone's circumstances can change, and the repayment terms that someone agreed to a year ago might no longer be realistic. If they simply can't afford to keep making repayments at that level, a debt consolidation loan can give them a valuable opportunity to think through their finances and arrange to repay the debt more slowly, bringing their monthly debt repayments down to an affordable level.
As with any debt solution, it's important to seek professional advice before committing themselves. A debt adviser can help them do the calculations and figure out how quickly they can realistically repay their consolidation loan - leaving some leeway in their monthly budget for any unexpected expenses that arise. They can also help them assess the impact of any foreseeable changes to their financial situation in the near future, and decide if a debt consolidation loan is actually the best debt solution for them.
Repaying a debt more slowly will, of course, mean that they're in debt for longer and could end up paying more as the debt will accrue interest for longer, although this may be offset by the fact that the debt consolidation loan's interest rate is lower. Whether or not this is a price worth paying is up to the individual - depending on their finances, it could well make more sense to make lower payments reliably (and for longer) than to struggle to keep up with higher payments and end up damaging their credit rating with defaults, late payments, even County Court Judgments (CCJs).
The best way to start tackling a debt problem is to talk to a professional debt adviser who knows how all the different debt solutions work - someone who can look at the individual's situation and help them decide whether they'd be better off with a debt consolidation loan or with an alternative debt solution, such as a debt management plan or IVA (Individual Voluntary Arrangement).
Read more about debt consolidation & IVAs at http://www.debtadvisersdirect.co.uk
Article Source: http://EzineArticles.com/?expert=Melanie_Taylor
Tuesday, October 21, 2008
Offset mortgages explained
An offset mortgage allows a homeowner to reduce the interest on their mortgage by offsetting credit that is held in savings or current accounts against the total mortgage debt.
For example, if the homeowner has a mortgage of £150,000 and savings of £50,000, then they would pay interest on only £100,000.
Advantages of an Offset Mortgage
• Offset mortgages are a good idea for those who can save large amounts of money as it reduces their mortgage repayments.
• Savings normally attract some kind of tax penalty, but if your savings are being used to offset a mortgage then you will not pay any tax on your savings.
• The interest rate payable on a mortgage is normally far higher than what your savings will earn in a current account. For example, the rate of interest your savings will earn in a current account may only be 1%, compared to the interest on your mortgage, which may be 6%. It's a far more efficient to use the money in your savings to pay off the mortgage than it is to leave it in a low interest paying account.
Disadvantages of an Offset Mortgage
• Because this is a relatively new type of mortgage you may find that not as many lenders currently provide this service. The limited amount of lenders currently offering offset mortgages means that there isn't a great deal of choice in the market place.
• Coping with an offset mortgage requires a certain amount of discipline, as the temptation is always there to dip into the savings pot. If you give in to this temptation and splash out on extravagant items then you will no longer have any credit left to offset your mortgage against. This will leave you with an uncompetitive mortgage rate.
Compare mortgages at moneysupermarket.
Our mortgage calculator compares over 8,500 mortgages, offset mortgages and remortgage products.
Article Source: http://EzineArticles.com/?expert=Nick_Cox
For example, if the homeowner has a mortgage of £150,000 and savings of £50,000, then they would pay interest on only £100,000.
Advantages of an Offset Mortgage
• Offset mortgages are a good idea for those who can save large amounts of money as it reduces their mortgage repayments.
• Savings normally attract some kind of tax penalty, but if your savings are being used to offset a mortgage then you will not pay any tax on your savings.
• The interest rate payable on a mortgage is normally far higher than what your savings will earn in a current account. For example, the rate of interest your savings will earn in a current account may only be 1%, compared to the interest on your mortgage, which may be 6%. It's a far more efficient to use the money in your savings to pay off the mortgage than it is to leave it in a low interest paying account.
Disadvantages of an Offset Mortgage
• Because this is a relatively new type of mortgage you may find that not as many lenders currently provide this service. The limited amount of lenders currently offering offset mortgages means that there isn't a great deal of choice in the market place.
• Coping with an offset mortgage requires a certain amount of discipline, as the temptation is always there to dip into the savings pot. If you give in to this temptation and splash out on extravagant items then you will no longer have any credit left to offset your mortgage against. This will leave you with an uncompetitive mortgage rate.
Compare mortgages at moneysupermarket.
Our mortgage calculator compares over 8,500 mortgages, offset mortgages and remortgage products.
Article Source: http://EzineArticles.com/?expert=Nick_Cox
Fully Comprehensive Car Insurance
Fully comprehensive car insurance may not cover you for every eventuality a new report is claiming.
Features that used to be standard in virtually all comprehensive insurance, such as third-party liability cover for driving any vehicle, or an extension of cover for short trips overseas, are disappearing. Exclusive analysis for Financial Mail conducted by the British Insurance Brokers' Association found examples where comprehensive cover has been eroded.
Hayley Parsons, chief executive of comparison site gocompare.com, says: 'The importance of comparison sites has meant it is key for insurers to get near the top of the rankings on price and they can do that by slimming down the cover.'
Graeme Trudgill, technical services manager at Biba, says: 'All the advertising is about price. It's no longer focused on providing the right financial protection for the motorist.
'Even if an element of cover remains, the sum insured may be reduced. Many insurers have lowered the limits for loss of items from the car, for accidental damage to the windscreen or for personal accident cover.
'And in some cases, such as an accident involving a younger driver, the compulsory excess charged has increased.'
Trudgill says: 'Think about what features matter to you. Also, how much could you afford to pay in the event of a claim. You may find that paying slightly more than the cheapest premium actually gives you a better value option.'
Despite this cutback insurance premiums are still on the rise. Business information group Datmonitor have confirmed that insurance companies are losing money and as a result will raise their premiums to return to profit.
Figures showing there has been a 20% increase in the past 12 months.
Analysis by management consultant Deloitte has echoed these findings by revealing that premiums have risen by 8.2 per cent in the past 12 months to £488 a year on average.
Catherine Barton (left), insurance partner at Deloitte, says: 'This is the biggest annual rise in premiums we have seen in a long time. Insurers have been releasing money from reserves over the past few years to keep competitive, but this is drying up and premiums are having to rise.'
The Deloitte figures suggest that premium inflation is accelerating. In April, AA Insurance reported a 5.8% annual rise in motor premiums.
Ashton Berkhauer, head of insurance with comparison site uSwitch.com, says: 'The number of people shopping around and not accepting their insurers' renewal has increased.
'Typically, 80% of customers renew with an existing insurer, but we've seen that slip to 65% for some companies.
'Drivers are under increasing financial pressure and so they are becoming more price sensitive than ever before.'
Darren is the author of several articles pertaining to Car Insurance
Article Source: http://EzineArticles.com/?expert=Darren_Darr
Features that used to be standard in virtually all comprehensive insurance, such as third-party liability cover for driving any vehicle, or an extension of cover for short trips overseas, are disappearing. Exclusive analysis for Financial Mail conducted by the British Insurance Brokers' Association found examples where comprehensive cover has been eroded.
Hayley Parsons, chief executive of comparison site gocompare.com, says: 'The importance of comparison sites has meant it is key for insurers to get near the top of the rankings on price and they can do that by slimming down the cover.'
Graeme Trudgill, technical services manager at Biba, says: 'All the advertising is about price. It's no longer focused on providing the right financial protection for the motorist.
'Even if an element of cover remains, the sum insured may be reduced. Many insurers have lowered the limits for loss of items from the car, for accidental damage to the windscreen or for personal accident cover.
'And in some cases, such as an accident involving a younger driver, the compulsory excess charged has increased.'
Trudgill says: 'Think about what features matter to you. Also, how much could you afford to pay in the event of a claim. You may find that paying slightly more than the cheapest premium actually gives you a better value option.'
Despite this cutback insurance premiums are still on the rise. Business information group Datmonitor have confirmed that insurance companies are losing money and as a result will raise their premiums to return to profit.
Figures showing there has been a 20% increase in the past 12 months.
Analysis by management consultant Deloitte has echoed these findings by revealing that premiums have risen by 8.2 per cent in the past 12 months to £488 a year on average.
Catherine Barton (left), insurance partner at Deloitte, says: 'This is the biggest annual rise in premiums we have seen in a long time. Insurers have been releasing money from reserves over the past few years to keep competitive, but this is drying up and premiums are having to rise.'
The Deloitte figures suggest that premium inflation is accelerating. In April, AA Insurance reported a 5.8% annual rise in motor premiums.
Ashton Berkhauer, head of insurance with comparison site uSwitch.com, says: 'The number of people shopping around and not accepting their insurers' renewal has increased.
'Typically, 80% of customers renew with an existing insurer, but we've seen that slip to 65% for some companies.
'Drivers are under increasing financial pressure and so they are becoming more price sensitive than ever before.'
Darren is the author of several articles pertaining to Car Insurance
Article Source: http://EzineArticles.com/?expert=Darren_Darr
Friday, October 10, 2008
Gregory Pennington comments on bank troubles
Responding to recent troubles in the banking world, debt management company Gregory Pennington reminds consumers that a bank's issues do not actually put most people's savings at risk.
"Some may be tempted to keep a close eye on their bank's finances, waiting to withdraw all their money at the first sign of trouble," said a spokesperson for the debt management company. "Of course it's vital to protect your investments, but it's also important to understand the extent of the protection offered to normal savers."
"First of all, troubled banks don't necessarily 'go bust', as some headlines may infer. In the case of Bradford and Bingley, for example, their website informs visitors that 'Bradford & Bingley's branches and savings customers are now part of Abbey and Santander. One of the largest banking groups in the world with more branches in the world than any other international bank.' For their customers, it's 'business as usual'.
"Second," the spokesperson for the debt management company continued, "there's the Financial Services Compensation Scheme (FSCS), the UK's statutory fund of last resort for customers of authorised financial services firms. The FSCS means that the first £35,000 of each customer's savings with a firm are guaranteed – even if the company can no longer repay that money, it would be refunded in full by the FSCS."
Savers with deposits over £35,000 may still receive some of their remaining money, but that would not be guaranteed, and would depend on how the insolvency process plays out.
Naturally, many people with savings of over £35,000 may wish to keep their money with various different banks. Someone with £70,000, for example, could split it equally between two different banks and have the entire sum guaranteed.
"Note, however, that the FSCS compensates people 'per authorised institution' – many banks are in fact subsidiaries of other financial institutions, so someone who split £70,000 between two banks that share the same parent company would be guaranteed only £35,000 of their money if that parent company was declared insolvent."
As a debt management organisation, Gregory Pennington focuses on helping people manage and clear their debts: "In the vast majority of cases, it makes financial sense for borrowers to get out of debt before they start saving, as debts tend to gather much more interest than savings."
The company does, however, also provide advice aimed at helping people stay out of debt in future. "While some people face debt problems because they've financially over-committed themselves over a period of time, others find themselves pushed into debt by a sudden change in circumstances (sickness, for example, or unemployment). Without some 'rainy day' money set aside, it's all too easy to accumulate small debts which grow into large debts as they struggle to fund debt repayments at the same time as keeping up with their normal financial commitments.
"Whether it's a few hundred pounds or many thousands, saving for the future is one of the single most important things an individual can do in order to safeguard their financial stability in the future. Since we advise people to start saving as soon as they've settled their debts, it's worrying to think that the last year's events in the banking industry may have put some people off the idea of saving. Aside from compensating people whose banks run into trouble, the FSCS serves another vital function: giving would-be savers the confidence that comes with knowing their investment is protected."
Further information:
http://www.gregorypennington.com
http://ukpress.google.com/article/ALeqM5i8V8nlh2EGSTle7NIknI7gH1J98A
http://www.sourcewire.com/releases/rel_display.php?relid=LQiLA
"Some may be tempted to keep a close eye on their bank's finances, waiting to withdraw all their money at the first sign of trouble," said a spokesperson for the debt management company. "Of course it's vital to protect your investments, but it's also important to understand the extent of the protection offered to normal savers."
"First of all, troubled banks don't necessarily 'go bust', as some headlines may infer. In the case of Bradford and Bingley, for example, their website informs visitors that 'Bradford & Bingley's branches and savings customers are now part of Abbey and Santander. One of the largest banking groups in the world with more branches in the world than any other international bank.' For their customers, it's 'business as usual'.
"Second," the spokesperson for the debt management company continued, "there's the Financial Services Compensation Scheme (FSCS), the UK's statutory fund of last resort for customers of authorised financial services firms. The FSCS means that the first £35,000 of each customer's savings with a firm are guaranteed – even if the company can no longer repay that money, it would be refunded in full by the FSCS."
Savers with deposits over £35,000 may still receive some of their remaining money, but that would not be guaranteed, and would depend on how the insolvency process plays out.
Naturally, many people with savings of over £35,000 may wish to keep their money with various different banks. Someone with £70,000, for example, could split it equally between two different banks and have the entire sum guaranteed.
"Note, however, that the FSCS compensates people 'per authorised institution' – many banks are in fact subsidiaries of other financial institutions, so someone who split £70,000 between two banks that share the same parent company would be guaranteed only £35,000 of their money if that parent company was declared insolvent."
As a debt management organisation, Gregory Pennington focuses on helping people manage and clear their debts: "In the vast majority of cases, it makes financial sense for borrowers to get out of debt before they start saving, as debts tend to gather much more interest than savings."
The company does, however, also provide advice aimed at helping people stay out of debt in future. "While some people face debt problems because they've financially over-committed themselves over a period of time, others find themselves pushed into debt by a sudden change in circumstances (sickness, for example, or unemployment). Without some 'rainy day' money set aside, it's all too easy to accumulate small debts which grow into large debts as they struggle to fund debt repayments at the same time as keeping up with their normal financial commitments.
"Whether it's a few hundred pounds or many thousands, saving for the future is one of the single most important things an individual can do in order to safeguard their financial stability in the future. Since we advise people to start saving as soon as they've settled their debts, it's worrying to think that the last year's events in the banking industry may have put some people off the idea of saving. Aside from compensating people whose banks run into trouble, the FSCS serves another vital function: giving would-be savers the confidence that comes with knowing their investment is protected."
Further information:
http://www.gregorypennington.com
http://ukpress.google.com/article/ALeqM5i8V8nlh2EGSTle7NIknI7gH1J98A
http://www.sourcewire.com/releases/rel_display.php?relid=LQiLA
Tuesday, October 7, 2008
Personal debt & car loans
or most people, choosing a car is a slow, well-thought-out process - and choosing a car loan should be much the same. However, many people simply go with whatever finance deal they are offered at the showroom, even though there may be much better car loans on the market. By planning well and choosing the right loan, you can save yourself a lot of money in the long run.
Here are some tips for choosing the right car loan.
Make a plan
Plan how much you want to borrow, and for how long. Don't be tempted to get a bigger car loan for a more expensive vehicle unless you're sure you can afford it.
Plan your car loan in terms of monthly payments. You need to be sure that your payments are affordable and that you will still be able to afford them if your other costs of living rise. If your car loan payments are going to leave you with very little disposable income, you should probably play it safe and find a cheaper alternative.
Shop around for the best car loan
Taking your time and looking at what's available in the market could well find you a deal with a lower interest rate, which can save you a lot of money. The interest rate you are offered will vary depending on your credit rating, but anyone can save money by taking their time and finding the best deal.
Check the total repayment figure
The interest rate of your car loan and the length of the repayment term will both affect how much you pay in the long run. If you can't find a lower interest rate, is there any way you could repay the car loan more quickly? It might be worth making a few short-term sacrifices if it saves you hundreds of pounds in interest.
Once you've done the calculations, take a good look at that overall figure. If that £2,000 car is going to cost you £3,000, do you really need it that much? Would it make more sense to save £2,000 - and then buy a similar car for £2,000?
Protect yourself
It's impossible to predict what could happen in the next few years - even if you're sure your car loan payments are affordable, redundancy or a personal injury could seriously damage your ability to keep up with repayments.
So it often makes sense to consider Payment Protection Insurance (PPI) on your car loan. If at any point you find yourself unable to make payments due to circumstances outside your control, your car loan payments could be made by the insurance company for a pre-agreed period of time.
You could also look into gap insurance, which could - should you have an accident - cover the shortfall between the market value you receive from your (standard) motor insurance claim and the greater amount due under your loan agreement.
Read more about car finance & car loans at http://www.thinkmoney.com
Article Source: http://EzineArticles.com/?expert=Melanie_Taylor
Struggling to meet financial commitments?
National Debtline are claiming that more UK consumers are struggling to meet their financial commitments, as each month more are applying for payday loans.
It warned that the increased number of payday loan applications - which was highlighted by a recent moneysupermarket study - was symptomatic of an underlying problem where people are finding that their outgoings regularly exceed their incomes. Advice offered by the national telephone helpline service informs consumers they should set out a budget to help them manage their financial situation and minimize the effect that items of expenditure such as shopping and household bills, mortgages and personal loan repayments are placing on households every month.
According to the moneysupermarket study, the number of people opting to take out payday loans has increased by 55 per cent since September. The group attributed much of the growth in popularity to inflated demands on personal finances arising from recent energy price hikes and the increases in the average costs of food. Tim Moss, head of loans at the firm, said that the loans were proving a more attractive option than going into an unauthorized overdraft.
Commenting on the findings, Beccy Boden Wilks, spokesperson for National Debtline, said: "If your salary is not lasting until next payday, and therefore need to use this service, then there is obviously a problem. You are spending more than you earn. So if somebody feels the need to use a payday loan on a regular basis, it's probably symptomatic of a serious underlying debt problem. Therefore, you need to set a budget, or [ask] are your current financial commitments too high, or have you overstretched yourself with your mortgage."
She added that for those whose outgoings are exceeding their incomes, seeking independent financial advice may be a prudent option. In doing so, people might be able to identify areas where they can cut back on monthly spending and lessen their reliance on lending. She also advised that people may want to negotiate with their creditors to agree upon an extended payment period with a lower monthly contribution, while extending the length of a mortgage was also identified as a way to reduce the strain on finances. According to Ms Boden Wilks consumers who are struggling with their finances should ask themselves whether or not they can realistically meet their mortgage and credit responsibilities, or whether they should consider talking to their providers to renegotiate terms.
Moneysupermarket's Tim Moss also noted that while payday loans were an effective short-term solution, people who were regularly struggling with monthly payments should sit down and evaluate their finances and identify areas where they can cut back on spending.
Elsewhere, residential property industry commentator the Council of Mortgage Lenders last month identified a growing trend among those looking to get on to the property ladder, with first-time buyers approaching their parents for a loan to cover the costs of a deposit as many mortgage providers withdraw 100 per cent lending packages.
Monday, October 6, 2008
Should I consolidate my debt?
Should I consolidate my debt?
If you have multiple debts that you are struggling to deal with, you may have considered debt consolidation as one option. Debt consolidation is a good way of potentially reducing your monthly payments and simplifying your finances. But as with any debt solution, it comes with its downsides - and it's always worth speaking to a debt adviser to discuss whether another debt solution may be more suited to your situation.
Debt consolidation: how it works
Debt consolidation is a way of combining all your debts into one, and then paying them off in monthly payments to only one creditor, rather than individual payments to all of your creditors. It is essentially another loan that pays off your existing debts -your lender will pay off your debts for you, and you will repay that lender accordingly.
An advantage of debt consolidation loans is that they can be scheduled over a longer period of time than your original debts, making your monthly payments lower. If your original debts included high-APR credit such as credit cards, there's a good chance your overall interest rate will be lower too.
However, be aware that repaying a debt over a longer period of time may result in you paying more money back in the long run, as interest will be added for every month taken to repay the debt.
When should I consider a debt consolidation loan?
* If you have multiple debts that you think will be affordable if you spread them out over a longer period.
* If your debts are currently manageable, but you would like to simplify your monthly finances.
* If you have a number of high-APR loans or credit cards - a debt consolidation loan can reduce your interest rates significantly.
When is a debt consolidation not suitable?
* If your monthly payments will still be a struggle after you have rescheduled them. Particularly if you have debts of over £15,000, you may want to consider an IVA (Individual Voluntary Arrangement) or another debt solution - contact an expert debt adviser for further information.
* If you are considering 'topping up' your debt consolidation loan with money you do not need, i.e. to enable another expensive purchase. Many people are tempted, but doing so will increase your risk of being unable to repay the loan, which carries serious consequences.
Before considering any debt solution, it's essential that you seek expert advice from a professional debt adviser. They will talk you through your financial situation in confidence and help decide which debt solution is best suited to you. Debt consolidation loans are suitable for some people, but it's also worth considering a debt management plan, and for those with over £15,000 of debt, an IVA may be the best option.
Debt Advisers Direct (http://www.debtadvisersdirect.com) are a debt management company based in Salford Quays, Manchester. The company specialises in a range of financial services, including mortgages, loans, debt help and advice (including debt management plans, IVAs, and debt consolidation).
Article Source: http://EzineArticles.com/?expert=Melanie_Taylor
Friday, October 3, 2008
IVA
IVA
If you have debts of around £15,000 (or higher) that you are unable to repay, an IVA (Individual Voluntary Arrangement) is a Government-backed debt solution that could help you get back in the clear by writing off a substantial amount of your debt. As part of the Insolvency Act (1986), it's a legally binding means of getting out of debt that helped over 40,000 people per year in both 2006 and 2007.
An IVA proposal can only be put forward by a licensed Insolvency Practitioner. If the IVA is approved, you will pay a set monthly amount towards your IVA, usually for 5 years - after which your debt will be considered settled.
Before entering an IVA, your circumstances will be thoroughly reviewed to determine how much you are able to pay each month once living expenses have been taken into account. Creditors are likely to accept an IVA if they can see that a) you are not able to repay the full amount, and b) they will get more from your IVA then they would by petitioning for your bankruptcy.
How does an IVA work?
1) Firstly, you will speak to a debt adviser about your situation. If they think an IVA is your best option, they will work with you to draw up a proposal, telling your creditors how much they would receive if the IVA goes ahead.
2) The proposal is then submitted to your creditors for approval. A Creditors' Meeting will be planned to give your creditors a chance to discuss the terms.
3) The Creditors' Meeting invites your creditors to get together and vote on whether to approve your IVA proposal. For the IVA to go ahead, those who vote in favour of the proposal must collectively own more than 75% of your total debts.
If any of your creditors do not respond to the proposal, it is automatically considered a vote in favour of the IVA.
4) If approved, the IVA begins and you will pay a fixed amount each month, which will be divided between your creditors. This will usually take place over 5 years. Your creditors are legally required to stop charging interest and may no longer pursue any kind of legal action, unless the terms of the IVA are broken.
5) If you are a homeowner, you will probably have to free up the majority of the equity in your home in the 4th year of your IVA, and this will also be divided between your creditors.
6) If you successfully keep up payments for 5 years, the IVA is complete and you are legally debt-free. However, it may take up to a year afterwards for the IVA to disappear from your credit history.
Useful IVA resources:
http://www.debtadvisersdirect.co.uk/iva-solutions/iva-solutions.asp
http://www.gregorypennington.com/individual-voluntary-arrangements.asp
http://www.thinkmoney.com/debt/IVA.asp
Wednesday, October 1, 2008
Mortgage & Secured Loan Chaos
Mortgage & Secured Loan Chaos
It's been well publicized lately that the housing market is on the brink of a crisis - in fact, the crisis has hit the US already. As mortgages become harder to come by and homeowners begin to struggle with rising interest rates and lower demand from buyers, the market is faced with a vicious circle in which prices keep falling, but there are not enough mortgages being offered to increase demand.
What happened? - a timeline
The problems can be traced back to the housing market in the US, in which people with poor credit history (known as 'sub-prime' borrowers) were allowed to take out mortgages - many of whom subsequently could not keep up with payments.
Many of these mortgage debts had been 'bought' by UK banks, meaning they were now responsible for receiving the repayments. However, due to the amount of times these debts had been bought and resold, it was often difficult for banks to predict how much of the debts would be repaid.
When many of these sub-prime borrowers began to fall behind on repayments, it hit whoever 'owned' the mortgage debts - meaning both the US and the UK were affected. This is what became known as the 'sub-prime mortgage crisis'.
What is happening now?
UK banks' losses have in fact been small so far - but there is a risk that they could get a lot bigger. For this reason, they are very cautious about new lending, and so they are tightening the criteria needed to qualify for mortgages.
The knock-on effect of this is that houses are harder to sell, meaning prices are getting lower. However, lower mortgage availability means that demand isn't getting any higher - so house prices are likely to fall further - and so the cycle continues.
The Bank of England has acted on two fronts. Most significantly, they have swapped £50bn of secure Government Bonds in return for banks' mortgage debts - effectively a show of confidence that sub-prime losses will not be as big as the banks feared. This move is designed to calm the insecurity that is causing the tighter lending policies and prevent any particularly dangerous drops in house prices.
Additionally, they have lowered the basic interest rate in order to convince banks to lower mortgage interest rates - but this is currently not working, and so the problems continue.
What happens next?
There are mixed opinions amongst the experts:
RICS (Royal Institute of Chartered Surveyors)
* Predict that house prices at the end of 2008 will be down by 5% from the end of 2007
* Sales will be down by 40%
CML (Council of Mortgage Lenders)
* House prices at the end of 2008 will be down by 7% from the end of 2007
* Sales will be down by 35% to 770,000 sales
Although the extent of the predictions vary, nearly all experts agree that the housing market is increasingly on the downturn. House prices have only fallen slightly so far - but if the trend continues, the housing market will decrease in value significantly in the coming months.
The US have already been through what the UK is going through now - a tightening in lending criteria combined with fewer mortgages - and they have seen some sharp falls in house prices. Many economists believe the UK will follow this pattern.
Banks need to continue borrowing and lending, if a little more carefully than before, if the market is to recover. If they don't, house prices will continue to fall, and it could be years before they begin to rise again.
If you're being affected by current economic problems, you may find the following resources useful:
For help managing existing outgoings, or if your struggling to repay debts:
http://www.gregorypennington.com
http://www.debtadvisersdirect.co.uk
http://www.thinkmoney.com/debt/
If you want to consolidate your existing debts into one more manageable payment:
http://www.gregorypennington.com/debt-consolidation-loan.asp
http://www.debtadvisersdirect.co.uk/debt-consolidation/debt-consolidation.asp
http://www.thinkmoney.com/debt/debt-consolidation.asp
If you're looking for help and advice on mortgages, remortgages or secured loans
http://www.thinkmoney.com/mortgage/
http://www.thinkmoney.com/loans/
Article Source: http://EzineArticles.com/?expert=Melanie_Taylor
Debt Consolidation & Debt Consolidation Loans
Debt Consolidation & Debt Consolidation Loans
Why do we borrow? Cars, holidays, TVs, home improvements... the reasons might vary, but all loans mean we end up owing more. Or do they?
Debt consolidation loans stand out from the crowd. Unlike other loans, they're designed to help people deal with the debt they already have. So they're fundamentally different to other kinds of loan.
The principle is simple: borrowers consolidate their debts by taking out a new loan large enough to pay them all off. This can deliver three benefits in particular.
Benefits of debt consolidation
First of all, repaying one loan is simply easier than repaying many. Rather than juggling multiple debts - paying different creditors different amounts at different times - the borrower can just make one monthly payment. Since it's easier to manage, the borrower is far less likely to make payments late (or not at all!), which can lead to anything from penalty charges to higher interest rates, and which always looks bad on a credit rating.
Second, there's a good chance the new consolidation loan will come with a lower interest rate, especially if it's used to pay off high-interest debts like credit / store cards and overdrafts.
Third, a consolidation loan gives the borrower a chance to think carefully about repayment terms. If they couldn't keep up with repayments to their 'old' debts, it might make sense to pay back the consolidation loan over a longer period of time. It'll mean they stay in debt for longer (and perhaps cost them more in the long run), but it'll reduce their monthly payments, and sometimes that's the most important thing.
Drawbacks of debt consolidation
However, there can be drawbacks to debt consolidation.
First, as mentioned above, paying a debt back more slowly means it'll take longer gathering interest, so the total amount repaid can be higher.
Second, consolidation loans - unless handled carefully - come with a very real danger. When someone uses the loan to pay off their debts, they have to be very careful not to run up fresh debts (particularly tempting on credit / store cards and overdrafts, since they make it all too easy to borrow a few pounds here and a few there). So in general, debt consolidation is a solution that's suitable for people who are confident in their ability to say 'no' to fresh credit. Anyone who isn't confident could well be better off with a different debt solution.
Alternatives to debt consolidation
Either way, it's always important to talk to a debt adviser who understands the full range of available solutions, such as debt management plans, IVAs (Individual Voluntary Arrangements), Trust Deeds (for residents of Scotland) or even bankruptcy. Each solution is unique, and its benefits and drawbacks can affect different people in very different ways - which is why it's so important to talk to an expert first.
Debt consolidation resources:
You can get more information on debt consolidation at the following websites:
You can get more information on debt consolidation at the following websites:
http://www.debtadvisersdirect.co.uk
http://www.debtadvisersdirect.co.uk/debt-consolidation/debt-consolidation.asp
http://www.thinkmoney.com/debt/debt-consolidation.asp
http://www.gregorypennington.com/debt-consolidation-loan.asp
Article Source: http://EzineArticles.com/?expert=Melanie_Taylor
Debt Management - Consider the Pros & Cons
Debt Management - Consider the Pros & Cons
Anyone who knows something about debt probably knows something about debt management companies - professional firms who will manage an individual's debts on their behalf.
This article takes a look at the pros and cons of debt management in terms of three topics close to any borrower's heart: saving money, reducing stress levels and protecting credit rating.
Topic #1: Saving money
Pros: Monthly payments lowered. Interest frozen. Charges waived. The better their relationship with creditors, the better a debt management company's chances of successfully negotiating for one or more of these concessions. This can save the client a considerable amount of money - not just every month, but potentially over the course of the debt management plan as well.
Cons: Lowering monthly payments means debts take longer to pay back. If interest hasn't been frozen, they'll also accumulate interest for longer, adding to the long-term cost. Plus, there's no guarantee creditors will agree to any concessions, or that they'll save the client more in the long run than the debt management company charges in fees. And since a debt management plan is an informal agreement, they're free to change their minds.
Topic #2: Reducing stress levels
Pros: Some people don't have the time to deal with complicated finances, or don't feel confident about doing so. For them, it's a huge relief to hand their debts over to someone else, who might handle everything from letters and phone calls to negotiations and payment distribution. And some people admit they're no good at juggling numbers and negotiating deals, so it makes sense to let a professional talk to creditors and propose a repayment plan that leaves them enough money for essential bills and other expenses.
Cons: Not everyone feels like this. Many people would rather keep their finger on the pulse personally, so the thought of adding an intermediary just adds more complexity to an already-complicated matter. In short, they feel less stressed when they know they're handling it themselves.
Topic #3: Protecting credit rating
Pros: By making new arrangements with creditors, a debt management company can minimize the impact of debt on someone's credit rating, keeping debt problems from escalating into CCJs (County Court Judgments) or even bankruptcy. Plus, even though debt management addresses unsecured debts, it frees up money for secured debts such as mortgage payments, so people can avoid getting into arrears - or even being evicted.
Cons: When they agree to reduced payment terms, creditors may register a default (if they haven't done so already) and this will appear on the borrower's credit report, potentially making it harder and more expensive to get credit.
In conclusion... Debt management isn't for everyone. Some people don't like the idea of delegating their financial affairs like this. Others may not be eligible: creditors will negotiate like this when borrowers can't afford their 'normal' payments, not when they're simply looking for a way to reduce their monthly payments.
| But for some people, the right debt management plan can be exactly what they've been looking for - a planned, systematic path out of debt and back to financial stability. You can find out more about debt management at the following web pages > Article Source: http://EzineArticles.com/?expert=Melanie_Taylor |
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