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Bad Credit Mortgages Increase Debt Spiral
With the ability to borrow becoming easier and more common, it seems that
Britain’s consumers are entering an ever-decreasing spiral of debt. The
problem for many of these consumers is that while the Bank
of England’s interest rate seems to be rising with alarming consistency,
wages are not rising to reflect that increase.
Those who took out loans a few years ago may now be struggling to meet the
necessary repayments. Coupled with a rise in public spending, the effects that
costs such as the rate of interest have are not to be underestimated.
The amount of homeowners in arrears to their mortgage lenders, by three
months and more has increased by a startling 4%. This could possibly be as a
result of the rising trend of lending to those with bad or poor credit
histories. The lenders, known as ‘sub-prime’ mortgage lenders, are able to
lend to these consumers, off-setting the risk to themselves by high rates of
interest.
The borrowers who use these loans tend to be people whose credit rating is so
bad that they would be unlikely to get a mortgage or loan elsewhere. And yet, it
seems that the banks themselves have been almost supporting this trend by
lowering credit standards to accommodate these high-risk borrowers.
As a result, total debt, taken as a percentage of a consumer’s disposable
income, has risen from 100% to 160% and with no signs of any abatement.
Reflecting this, the Council of
Mortgage Lenders has released figures showing that over 14,000 homes were
repossessed in the UK in 2007, between the months of January and June. In 2006,
during those same months, the figure was 10,800 – marking a significant and
worrying increase.
Also on the rise is the number of Insolvency Voluntary Agreements, which are
up by 30%. It seems that, faced with an ever-increasing cost of living, many
consumers are resorting to bankruptcy and IVA’s as a drastic method of
clearing their debts.
The circle of debt is then perpetuated as unscrupulous lenders target these
consumers with initially attractive loan offers that have many hidden pitfalls
and high interest rates.
There are those who would contend that the banks need to ‘crack down’ on
borrowers with bad credit, but it seems that in the eyes of ‘sub-prime’
mortgage lenders, these consumers are easy targets; desperation leading them to
their doors.
A mortgage is likely to be the biggest, and most worrying, financial
commitment in anyone’s life. Considering this point, is it then not worth
researching the subject and finding the mortgage or loan that best suits your
needs and your circumstances? Online mortgage calculators are a good place to
start and they are now many of them on different sites.
The “Which?” mortgage
calculator has the capacity to compare from over 8,000 sites and there is a mortgage
calculator available at Alliance and Leicester’s website, as there are at
the website of most leading banks. Motley Fool has something similar in their mortgages
comparison centre.
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