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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. Loans comparison site Beatthatquote.com
offers something similar as well as a chance to compare a broad selection of
mortgage products.
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