"Debt management companies that negotiate with lenders on behalf of borrowers in exchange for a fee could become regulated by the government, which launched a consultation on the issue today.
The companies set up debt management plans designed to reduce monthly repayments for borrowers, but these can be expensive over the long-term after fees are added to the repayments.
Debt advice charities have long expressed concern about some companies operating within the burgeoning debt management sector.
The number of such companies has ballooned from 40 in 1999 to over 150 now and it is estimated that between 100,000 and 150,000 people enter debt management schemes each year.
A recent review of the sector by debt charity Money Advice Trust concluded that the advice given by these companies was mixed and that the Office of Fair Trading should require them to be clear about the cost of their services when they promote them.
It found some customers were only told the levels of fees very late in the process, leaving them feeling they were in a worse financial position than before they contacted such companies.
"If you are in unmanageable debt you need to get advice on the full range of options available," said Beccy Boden Wilks of the Money Advice Trust.
"Often these companies only sell debt management plans or consolidated loans whereas you may be better off taking another route such as bankruptcy."
The consultation is expected to conclude in December and the government will announce its conclusions early next year. Options being considered include regulation or an industry code of practice"
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( 3 / 278 )Although interest rates are currently incredibly low this has to eventually end and new reports suggest that this could be the case early next year.
"Simon Ward of Henderson New Star said the Bank of England’s projections for inflation in two years’ time could be at the top end of their historic range at 2.5pc. The Bank bases its interest rate decisions on inflation expectations about two years in the future.
This high level of expected inflation implies that the Bank might have to raise rates to bring price rises back down towards the target of 2pc. The other means of tightening policy, a reversal of “quantitative easing” or money creation, is “off the agenda”, Mr Ward said, because of the likely effect on the cost of government borrowing.
“An eventual withdrawal of monetary stimulus is likely to take the form of a rise in Bank Rate rather than a reversal of quantitative easing,” he wrote. “Given the historically low starting level [of interest rates], rises in Bank Rate, when they begin, could be larger than in the initial stages of prior cycles.”
The two-year-ahead forecast for inflation is now above the target, at 2.17pc, Mr Ward pointed out. “This is the first positive deviation since last August and the largest since August 2007 – the MPC [monetary policy committee] last raised Bank Rate in July 2007.”
He said the committee’s decision to adopt a looser policy than warranted by its projections appeared to reflect a judgement that the economic costs of inflation undershooting the target would exceed those of an overshoot. “It has, in effect, taken out temporary insurance against worse-than-expected outcomes.
“The emphasis, however, is on ‘temporary‘, since such an approach risks damaging inflation-fighting credibility.”
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( 3 / 270 )It has been widely reported in the news recently that repossessions have been falling in recent months. This is thought to be due to interest rates being so low as well as better handling of cases.
"Repossessions fell by 9% in the second quarter of the year, reflecting the impact of falling interest rates and changes to the way such cases are handled by courts and lenders, the Financial Services Authority said today.
Lenders repossessed 13,610 homes from April to the end of June, compared to 14,884 in the previous quarter, but the figure is still 23% up on the second quarter of 2008.
The FSA said the quarterly fall was likely to be a result of the pre-action protocol introduced in November last year, under which courts can only grant a repossession order if all other measures to keep someone in their home have failed. It said this had probably delayed cases preceeding to repossession.
It added that lower interest rates and a more cautious attitude on the part of lenders towards repossessions were also helping struggling mortgage borrowers.
The FSA figures showed that new arrears cases fell for a second consecutive quarter from 60,000 in the first three months to 51,000 in the second three - a fall of 14%. Both quarters showed a steady decrease from 68,000 in the last three months of 2008.
However, with borrowers still struggling to clear their arrears, the total number of loan accounts in arrears has been steadily increasing since early 2007. At the end of June there were 403,000 loan accounts in arrears, an increase of 3,000 or 1% since March, and an increase of 30% on a year earlier.
The group defines a mortgage as being in arrears when a borrower has missed payments worth at least 1.5% of his or her outstanding mortgage debt.
The FSA figures follow research from the Building Societies Association, which found that 97% of borrowers who went into arrears in the last two years have not faced repossession and remain in their homes. Of those who fell behind with payments, 33% have repaid their arrears in full, 41% are repaying them now, and 12% have come to an arrangement with their lender but are not yet paying off their arrears. Just 3% had their homes repossessed.
The research showed borrowers were more likely to be successful in settling arrears if they sought financial advice and spoke to their lender about their problems at an early stage"
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( 3 / 245 )If you are currently in debt then you may be wondering what the best course of action is. By completing our simple form you could find the help that you need. IVAs can write off up to 75% of your debts and let you keep your home. The IVA application is anonymous and no credit search is carried out. Our company has been helping people in debt for over 70 years and our expert staff will help you find the best debt solution for your circumstances. We facilitate thousands of ivas each year, you are under no obligation and we charge no fees.
An IVA stands for Individual Voluntary Arrangement. It is a legal and government approved method of resolving debt that avoids the consequences of bankruptcy. If you owe over £15,000 to three or more creditors and can't afford to meet the repayments then you may be eligible for an IVA. For further information on this take a look at the site where we have answered a number of FAQ's.
There is also a great deal of information regarding debt management which is is an arrangement set up by someone in debt to pay off the remainder that they owe at a lesser rate than was originally agreed upon. While people can technically set up their own debt management plan, it is typically easier to get an experienced debt management company to do it for you. The main reason is that the adviser will handle all negotiations with the creditors.
We have all kinds of debt solutions.
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( 3 / 271 )For many new home buyers an interest only mortgage can seem like a great way to get a foot on the property ladder, however it is important to make sure that you investigate this option thoroughly before committing.
"Interest-only mortgages may seem appealing when buying a new home because of the far cheaper monthly repayments they offer. But those borrowers who signed up to one at the peak of the last property boom are now finding out about the downsides the hard way.
Such home loans – where you repay the interest but none of the capital – became popular in the 1980s and enjoyed a resurgence in the last property boom; indeed, 23% of mortgage holders now have this type of loan, says price comparison site moneysupermarket.com.
While back in the Eighties most homeowners took out an endowment plan that was intended to repay the capital when their mortgage ended, many of those who went down the interest-only route in 2006 and 2007 did so without putting adequate provision in place to ensure they could pay off the balance.
Instead, they "gambled" on rising property prices and cashing in equity.
"Even though they couldn't afford the monthly repayments on a traditional capital and interest mortgage, they were desperate not to miss out on the 'fast-track to profit' that owning property had become," says Andrew Hagger of another comparison site, moneynet.co.uk.
"As property prices continued their seemingly endless rise over 10 years, people got caught up in the rush, and took a short-term view that 'interest-only' was a way to afford that first step [on the housing ladder]."
While this works well in a market where prices are climbing, the same cannot be said when they are heading in the opposite direction.
Prices have fallen by 22% from their peak in 2007, according to Halifax, forcing many households into negative equity – a situation where they are stuck with a mortgage which is worth more than the property.
And this, according to the City regulator the Financial Services Authority (FSA) has left approximately 4.2 million (38%) of the 11.1 million people with an interest-only loan trapped in a position where they may not be able to repay the capital on their home.
The reality is a nightmare for those who must face up to the fact they can no longer rely on rising property prices to cover repayment
So what are the implications?
Many will find they simply won't be able to move, because any equity they did have has been eaten away. "You could eventually be forced to sell your home to repay the mortgage," says Rob Gill of mortgage broker Coreco.
Borrowers who have made no effort to repay any of the capital may also find lenders are reluctant to extend loans to them in future.
"This will have a big impact on your choice of mortgages going forward," says Hollingworth. "With little equity left, you will require a much higher loan-to-value mortgage, and this could put you in a higher price bracket."
Nonetheless, while this might make for gloomy reading, all is not lost.
"Switch to repayment now," advises Hollingworth. "You can usually do this with your existing lender for a one-off fee of around £50."
The current low-rate environment, he adds, is the perfect time.
"This is particularly true if you're on a tracker mortgage, as you have the opportunity to make serious inroads into repaying your home loan," he says"
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