Debt Advisers Direct comment on BoE Financial Stability Report

12/05/2008

Commenting on the Bank of England’s Financial Stability Report, Melanie Taylor of Debt Advisers Direct said: “The experts seem divided on whether or not we’re past the worst of the credit crunch, and the BoE’s Report reads as a warning not to talk ourselves into an avoidable recession.”



“Despite the complex language, it’s a simple message to lenders: you were too eager to lend money, but now you’re being too cautious, and neither extreme is healthy, as a healthy economy depends on consumers and businesses having access to a reasonable level of credit. Far from denying there are still problems ahead, the BoE is simply stating that too much pessimism will discourage the risk-taking and confidence that lead to recovery.”



“In figures, the BoE thinks that future losses from sub-prime investments will be about half as much as the market currently believes. And its offer to exchange mortgage debts for government bonds shows it’s confident about this assessment – the BoE is ‘putting its money where its mouth is’.”

Charging orders: security matters

04/04/2008

As a nation, we owe over £1.4 trillion. For some people, their share of that total is simply too much – and when borrowers worry about debt, so do lenders.



From unsecured debt...

Almost £230 billion of the UK’s personal debt is unsecured: there’s no property backing it up, so if borrowers don’t make their payments, lenders have to go to the courts for help.



It’s important to understand that courts aren’t there to punish people; they’re there to resolve disputes. If the court feels it’s the best way of helping the borrower repay a debt at a rate they can afford, it can issue a County Court Judgment (CCJ), laying down a new payment plan which they must follow. If this doesn’t work out, the lender can then ask the court to take enforcement actions. If the court thinks it’s necessary, it can issue a Warrant of Execution (and send the bailiffs to the borrower’s home), an Attachment of Earnings (and take money directly from the borrower’s salary), or a Charging Order (see below).



...to secured debt

A Charging Order is only an option if the borrower is a homeowner.



Basically, a Charging Order turns an unsecured debt into a secured debt by securing it against the borrower’s property. If the borrower doesn’t then keep up payments on the newly-secured debt, the lender has the option of asking the court to issue an Order for Sale (forcing a sale of the property), although this tends to be a last resort – they know they’ll receive the balance of the debt when the property is sold.



Between 2000 and 2006, the number of applications for Charging Orders grew from around 16,000 to almost 93,000. But there’s no guarantee the court will grant either a Charging Order or an Order for Sale. After all, the borrower entered into the debt on the grounds that it wouldn’t be secured against property, so the court would need to be convinced that a Charging Order is the best way to make sure the debt is repaid.



Staying out of court...

In most cases, there’s no need to end up with a Charging Order – or even to end up in court. When someone can’t keep up with their payments, there’s a wide range of debt solutions that could help them. They could reduce their monthly payments by consolidating their debts, or join a debt management plan and ask debt professionals to negotiate with their lenders on their behalf. People with larger debts could consider an IVA (Individual Voluntary Arrangement).



And most creditors would rather come to an agreement (see our Ten Golden Rules for talking to non-priority creditors) than take legal action – although they’re not likely to accept lower payments, waive charges or freeze interest unless they see the borrower doing their best to pay off their debts.



… and in the house

Even if a homeowner does end up in court, there’s no reason to assume they’ll lose their home:

• If the court grants a CCJ against them, they’ll have the opportunity to pay off their debt at a rate they can afford.
• If they don’t do that and the court grants a Charging Order, this gives them another opportunity to stick to a payment plan.
• If they still don’t make regular payments, the court could issue an Order For Sale (but only if the lender requests it).
• If that happens, that doesn’t necessarily mean they’ll lose their house – they may be able to get the Order For Sale suspended.

So although Charging Orders are becoming more commonplace, homeowners shouldn’t worry that they’ll lose their home as soon as they miss a payment on an unsecured debt.

How to: get approved for credit

04 April 2008

When people talk about ‘the credit crunch’, they mean that getting approved for credit isn’t easy right now.

In a credit crunch, lenders are very careful about lending money – partly because all the other lenders are watching their lending very carefully, so they’re not lending to each other very much.

Credit reports & credit approvals

It’s always true that some people find it easier to get approved for credit and others find it harder. But in a credit crunch, it might be almost impossible for people whose financial situation is (or has been) less than perfect.

To find out about your financial situation, any lender you ask for credit will probably check your credit report. This is your financial ‘track record’, which is maintained by the UK’s Credit Reference Agencies (Equifax, Experian and Callcredit), and which helps them decide how risky / safe it would be to lend you money.

It shows them how much you owe, how reliably you make your payments, and whether you have any defaults, arrears or County Court Judgments against you (either now or at any point in the last 6 years).

Improving your chances

If lenders don’t like what they see on your credit report, they might reject your credit application, or they might offer you credit at a more expensive rate.

So it pays to keep your credit rating as healthy as possible. You can improve your chances of approval – and your financial situation in general – by:

1. Checking your credit rating for mistakes. The Credit Reference Agencies will post you your credit report for about £2. If you find a mistake, you have the right to have it fixed.
2. Dealing with problems on your credit report. Entries like CCJs and defaults will stay on your report for 6 years – you can’t get rid of them, but if you pay what you owe you can have them marked as ‘satisfied’.
3. Being realistic. Always think very carefully before you apply for credit – figure out how much you would need to pay back every month, and leave yourself some leeway in case your expenses increase and / or your income drops.
4. Staying on top of your debts. Try not to pay anything late, if you can help it.
5. Opening a bank account. Not having one might make lenders think you’re not used to dealing with money.
6. Registering on the electoral roll. Lenders will check your name and address against the roll.
7. Talking to your creditors if you have any financial problems. See our 10 Golden Rules for negotiating with creditors.
8. Being patient. If you’re refused credit, don’t apply again and again to different lenders – each application is recorded on your credit report, so wait a month or two between applications or creditors might think you’re in serious trouble.
9. Getting advice. Debt specialists can help you manage your money, negotiate with creditors, prioritise your debts…
10. Getting help. You don’t have to fix your debt problems by yourself – there’s a wide range of professional debt solutions available, so find out which one could be right for you.

Of course, being approved for credit isn’t the most important thing. These 10 tips will help you steer clear of unmanageable debt and the many problems that can cause – and that’s even more vital than looking after your credit rating.

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