Due to the rise in the seriousness of the debt problem within the UK, we are spotlighting an exclusive feature series to provide our own view of the growing debt situation for many.

In this article we reflect on some of the issues being reported to us by our own clients and show how secured loans also known as second charge mortgages have been used by them to consolidate debt and improve their situation.

We sincerely hope that anyone reading this who is experiencing debt problems as well as those looking to acquire debt will find food for thought here that will help them ensure that they properly consider their situation before acquiring further debt.

April 2021
By Charles Dunn
Editor

How access to credit has changed?

During the course of a single lifetime, consumer purchasing has moved from saving up our pennies to purchase our little luxury items with cash and for those large items such as houses, by building up a relationship with the manager of a local bank or building society to prove your suitability for being granted a mortgage. Hire purchase was common for cars and other reasonably expensive items and with repayment terms usually limited to around 24 months, these debts were rarely a problem.

Role forward to today with nearly everything being offered against some form of credit and we can begin to see that for many, debt has become a pandemic
that is ruining their lives. We have now reached the stage where a high proportion of all adults within the UK has some form of debt and with credit now so easily available over the internet and people able to purchase almost anything by simply clicking a few buttons on a computer, careless use of these facilities can very quickly get out of control.
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When used wisely, easy credit can be a great asset as it can help provide improvements in standard of living in a way that was never achieved through
the old way of save and purchase. We can what we want now and so long as the repayments remain well within a persons disposable income, life can be
more enjoyable and hopefully, stress free.

Which Credit Can Spiral Out of Control?

Although we have stated above that credit can be a good thing if controlled properly, it is a sad fact that for many different reasons and for a great many
people, that key ingredient “control” breaks down and problems begin. When this happens, debt can spiral out of control and if left unchecked for too
long it can result in Court Action leading to recovery of assets by Bailiffs or even the repossession of your home if it was used as security against debt.
Being declared bankrupt or having your credit rating reduced are other possibilities that could affect your ability to obtain credit in future.

Below we have shown some common areas of finance where debt could spiral.

Common Areas of Finance Where Debt Could Spiral

Creditcards

These are now virtually universally used for medium sized purchases as they do provide some protection for goods purchased by them and can also provide protection against scams when purchasing over the internet. However, with credit card limits now generally quite high and with many people holding a multitude of different providers cards, purchasing power can often run to tens of thousands of pounds.
As most credit cards charge high rates of interest, often between 20% and 25% APR and their repayment terms often encourage the borrower to only pay the minimum repayment each month, normally around only about 3% of the outstanding amount, the debt can easily spiral.
Putting this roughly into some kind of perspective, if you owed £1,000 and paid paid back each month the minimum 3% or £30. This means that about £970 would carry forward to the next month plus interest of around £20 ( two thirds of the payment you have just made), meaning that you would now owe £990.

Were this to continue, the debt would take a very long time to clear.
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Car Finance

Car buying has changed over the years with around 86% of all purchases now using finance. Many cars are now bought through one of the many dealer arrangements where the car is effectively rented for 2 to 4 years and then handed back to the dealer.

Provided there has been no damage, a new deal for a new car is usually put in place at a new monthly rate and the process repeats itself. Often the buyer never actually owns the car but remains responsible for it.

This sort of buying arrangement means that the buyer never has a month where he or she has no payment to make and in the event of job loss or sickness, may be unable to maintain the payments on the car yet being unable to dispose of the car due to the contract terms.

Where the persons income has been lost and this debt has been added to any other debts that the person may have, the “debt control breakdown” we mentioned earlier may have materialised.

Gambling

With the rise in online gambling hitting the news, many people can easily become hooked and find that their losses have become very worrying. Often, the solution taken is to try and cover the losses with ever more risky bets leading to the likely result that the losses multiply. Gambling can be an addiction that can very quickly get out of control, causing breakdowns in marriages and neglect of children. Medical intervention or other extreme measures may be required to halt these debts but once that has been achieved, the process of resolving the debt problem can begin.

What our mortgage providers are seeing Reports we are getting from some of the mortgage advisers we deal with show that debt is not just the scourge of poorer people who are struggling to make ends meet but is often prevalent in wealthy families who are on very high incomes. When you find people on incomes of over 150,000 per year being turned down by high street lenders for relatively low mortgage loans because they have run up large credit card and other debts, it comes as a quite a shock and and brings home the message that debt can be a curse to anyone.

Secured Loans Can Help Reduce your Outgoings

If you are holding high interest rate debt such as on credit cards but have build up equity in their home, one possibility is to consolidate all of the various high rate debts into a single secured loan arrangement where the interest rate charged is much lower and the term can be set to allow the repayments on the loan to fall well within your disposable income.

However,  if you decide to take this route it is important that steps are put in place to ensure that there is no return to building more debt as that is what brought the problem about in the first place. Were this to be ignored it could lead to serious consequences that could ultimately result in the repossession of your home or other asset that was used as security for the loan.

If you would like to explore how a secured loan  could be of benefit to you based on our own circumstances, please do get in touch and we will do what we can to help you.

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