Despite the base rate of interest remaining at an all-time low, lenders have punished those looking for a home loan by increasing their popular fixed-rate mortgage deals – adding to the debt management worries of many homeowners.
Recently major high-street lenders have raised their fixed-rate mortgage by up to 0.9%, with experts predicting there are more who will follow suit. Already lenders such as Nationwide, Barclays, Britannia Building Society and state-owned Northern Rock have raised the cost of their fixed-rate mortgages.
Some industry insiders say that the rises can be blamed on lenders not wanting to be too competitive in the current environment, and use the increases as a way of limiting the amount of mortgage business they are doing.
For homeowners though, as their mortgage repayments increase the available disposable income (amount left over after rent/mortgage, utility bills, council tax etc.) within a household decreases, meaning there is less money around to pay off unsecured balances – like loans, store cards and credit card debt.
This has been further compacted by house prices crashing too, so the amount that lenders are prepared to allow homeowners to borrow has also reduced, meaning that many are now stuck on standard variable rates and unable to move their mortgage to a cheaper deal.
Homeowners whose situation may have changed in the current climate (such as through redundancy or reduced wages) will naturally feel their finances are stretched further than previously, but for many this could lead to debt problems developing.
Already debt advice organisations have reported an increase in the number of people with outstanding credit card debts which have been built up as households use them to pay for fuel and other bills. Reputable debt help companies, like Chiltern, The Debt People and Hamilton Locke suggest seeking impartial debt help sooner rather than later, to avoid serious debt problems and potentially bankruptcy.
Ivan Cooper, Chairman at the UK’s leading debt advice company Chiltern says: “Homeowners and people shopping for a mortgage are being punished with higher interest rates despite the Bank of England keeping the base rate on hold.
“Right now many households are struggling enough to deal with other financial factors, like the growing unemployment rate, so this is a further blow.
“Rather than building up a mountain of debt on overdrafts and credit cards to cope with finances, people should seek impartial debt advice, as there are many solutions that can help the situation – like an informal debt management plan.
“Many overstretched individuals are trying to find a way to regain control of their finances and get out of debt, whilst still satisfying their credit commitments – which is why debt management has become more popular in the press as it allows this to be possible.”
Debt Management Plans gather multiple outstanding unsecured balances (overdrafts, personal loans, store cards and credit cards) into one monthly payment. Repayments are then rescheduled over a longer period of time to make them more affordable. Together this simplifies finances (as there is only one single payment each month on a debt management plan) and makes finances more manageable.
The payment on a debt management plan is calculated based on affordability, and can be altered accordingly to changing financial needs – so if income is reduced the monthly payment can be lowered to accommodate this. Likewise, if you get a promotion or your wages increase the monthly payment can be raised and debts can be paid off quicker. This is why a debt management plan is often referred to as a flexible arrangement.
Other professional debt solutions include Individual Voluntary Arrangements (IVAs), Trust Deeds and Debt Consolidation Loans.
For free and immediate debt advice, or for further information on other debt solutions, please call the number at the top of this page.
