Bridging

In the face of huge debts amongst their customers, some banks seem to be growing increasingly aggressive. According to PricewaterhouseCoopers, the average Briton currently holds a debt of £33,000, nearly twice the average figure of £17,000 seen just seven years ago, in 2000.

Although banks claim that they want to help Britons with their overload of debt, the Citizens Advice Bureau (CAB) has publicly acknowledged that they have received an increase in reports from consumers regarding increasingly aggressive tactics from banks. The preponderance of complaints against banks revolves around frequent telephone calls to the customers, attempting to convince them to purchase costly loans to ease their debts.

One HSBC customer reported that the bank was repeatedly asking him to switch to a ‘managed loan’ with a rate of 13%, double the amount he pays on his current loan. According to the customer, HSBC agreed to a reasonable amount of repayment per month for him, but said they can only allow that payment if he switches to the higher rate ‘managed loan.’ In response to the allegations, HSBC stated that, ‘as a responsible lender HSBC only offers a managed loan to customers when all other lending options have been exhausted’.

Many Britons carrying a large debt turn to debt advice charities for assistance. The CAB reported that even customers who had asked their banks to deal with the charities were still receiving aggressive phone calls. A spokesperson for the British Bankers’ Association (BBA), said that banks are happy to work with and negotiate with these charities.

Two factors suggested as causes for the increase in consumer debt are escalating property prices, increasing monthly mortgage payments, and the current credit crunch.

With Credit Action estimating that the total UK debt is £1,400 billion, many UK residents are urged to make a twelve-month budget to assist in sorting out their financial situation.

The Consumer Credit Counselling Service (CCCS), recommends determining one’s budget by looking at quarterly bills, car insurance payments, and other monetary outgoings, setting an annual budget, and then dividing that by twelve.

CCCS spokesperson, Frances Walker, explained that setting a budget and looking into income maximization can assist many individuals and families. She warns, however, that if 20% of your income is going towards monthly repayments, you are stretching yourself too thin. If this is the case, one beneficial option may be debt consolidation.

Are you peering out from behind the curtain, fearing the arrival of the postman? If so, you are not the only one. A recent USwitch study reported that 25% of 16-44 year olds were sweating the arrival of their January credit card bill. Why the heat under the collar? Half of those USwitch surveyed had no idea how much money they spent over the holidays.

Signs of trouble brewing in the credit and debt arenas are strikingly apparent; USwitch reports that 25% of adults surveyed find their debt unmanageable, and 9.5 million people have reached their spending limit allowed on at least one form of credit.

This report is backed by figures that show British interest repayments increased by £12.7 billion to a record high of £93 billion a year. In addition, USwitch reports that the average annual interest bill per household is up by £517 from last year, now topping £3,744.

The increase in annual interest could be a result of a rise in interest rates on their mortgage payments. This is only one aspect of the problems Britons are facing. At the same time, credit card companies are becoming much stricter in their lending practices; a reported 38% of people who applied for a credit card were rejected. 

Commenting upon the staggering results of the company’s study, Mike Naylor of USwitch warned that those with large debts need to be proactive in protecting themselves. He believes that although the recent reduction in interest rates is beneficial and a step in the right direction, it may be too little, too late for many people.

KPMG estimates that 130,000 people will declare bankruptcy as a result of overspending during the holidays, increasing mortgage payments, and unmanageable credit card bills. This figure is 20,000 higher than 2007, which saw approximately 110,000 people declare bankruptcy.

The increase in those declaring bankruptcy reflects the decreasing ability to transfer loans from one institution to another; previously, borrowing money and receiving extra credit, even for those who already had credit issues, was relatively easy compared to now. Mark Sands, of KPMG explained that people could turn to consolidated loans, second mortgages, and credit cards for assistance. Now, he explains, these options will not be there for many people, as credit institutions tighten their lending practices. In addition to the credit crisis, people are suffering from increasing mortgage rates, as many fixed-rate mortgages are expiring.

What will happen to these 130,000 people in 2008? They will be forced to either declare bankruptcy or take out an Individual Voluntary Arrangements (IVA’s), through which they repay a portion of their debts and are then allowed to start again with a clean slate.