• The manufacturing sector’s balances for home sales and orders, employment expectations, investment, confidence, and cash-flow have plunged to record lows in Q4
• In the service sector, all the key balances, without exception, are at record lows in Q4
• Q4 domestic balances are particularly disturbing. Home sales and orders, in both manufacturing and services, are in negative territory for all firm sizes and for all UK regions

What can debt advice achieve?
So where exactly does debt advice come in? If someone’s income seems threatened by the nation’s economic problems, how can debt advice help them prepare for the possibility of reduced income?

“Coping with a reduced income is never easy,” said a debt expert for Debt Advisers Direct, “but entering a period of unemployment with substantial debts can be particularly difficult, as this can drastically affect a borrower’s debt-to-income ratio. This is why we stress the importance of seeking debt advice at the earliest sign of possible trouble, whether it’s the threat of growing debt or the threat of redundancy.

“A professional debt adviser can help borrowers analyse their situation, set themselves goals and figure out the best way of achieving those goals. For some people, it may just be a question of cutting back on their expenses, while others may need to look into professional debt solutions – but either way, the sooner they get some debt advice, the easier they should find it to get their debts under control.”

Try not to get into debt!

It sounds so simple, but it’s true: by avoiding getting into debt in the first place, you can ensure a hassle-free New Year. Easier said than done? Not necessarily.

Saving up beforehand – even if it’s only a small proportion of your overall spending – can make a big difference to your finances.

Let’s assume you’ve set a £200 budget for your Christmas shopping. By saving £50 a month from October and November’s pay packets, you have automatically halved your debt. If you wanted to spread the cost even more, saving £18 per month between January and November would give you the same budget.

It’s well worth making a plan to help you avoid getting into debt. Take a look at how much you will be spending, and how much of that any savings will cover, and then plan how you intend to repay the remaining debt. Try to keep your repayment period short: if it takes you any more than two months, it’s a sign that you should probably reconsider the amount you’re spending.

What if I do end up in debt?

It’s inevitable that some of us will end up overspending and wondering how we are going to repay the debt. Thankfully, there are a few debt solutions that can help to make the debt management process a little bit easier.

The first thing to do if you find yourself in trouble with your debts is to speak to your creditors and explain the situation. In many cases, your creditors will be willing to take lower payments for a short period of time in order for you to catch up.

If you still find yourself struggling, then it’s time to seek professional debt advice. A debt adviser will be able to explain all the options available to you, as well as offering guidance on a range of debt solutions such as debt consolidation loans, debt management plans and IVAs (Individual Voluntary Arrangements).

For more information, call Debt Advisers Direct free on 0800 074 8639.

• My outgoings frequently exceed my income
• My credit card balance is not going down
• I cannot afford to save any money
• I have to borrow more money to pay off my existing debts
• My creditors have been in touch about unpaid debts but I still can’t afford to pay them

If this is the case, you should firstly assess your budget – in many cases, a reshuffle of your finances can help the situation. If that doesn’t help, it’s time to seek professional debt advice.

Expert debt help from Debt Advisers Direct
At Debt Advisers Direct, we know all about debt problems. That’s because we have a 15-year track record in providing a professional, thorough service.

Debt Advisers Direct offers free, confidential advice about all aspects of debt – and we can point you towards the debt solutions that could have you debt free sooner than you think. Call today on 0800 074 8639 for more information.

House prices from Sep 06 – Jul 08*

However (good news)
A quick look at the above chart, however, shows that the average house was still worth £169,316 in July 2008 – pretty much what it was worth in September 2006, back when homeowners were so optimistic about prices. What’s more:

Plus, that ‘natural’ house price growth is unlikely to tell the full story. Every month, anyone on a repayment mortgage is slowly paying off more and more of the money they still owe on that mortgage. Each monthly payment might not account for much (especially at the start of the mortgage**), but they do add up – someone who took out a mortgage back in the 90s could easily have paid off more than half of it by now.

Then there are home improvements: someone might improve their home so they have somewhere nicer to live, but those improvements could easily add to its value. Many improvements actually increase a property’s value by a lot more than they cost (an interesting concept: for more on this, click here).

So property prices would have to fall a long way before a secured debt consolidation loan was no longer an option for most people who bought their home some time ago. And the longer they’d owned their home, the more ‘leeway’ they’d have – the less reason they’d have to worry about ending up with negative equity.

Even so (bad news)
House prices are going down now and no-one’s expecting them to start climbing again in the next month or so. Some expect them to drop by 30%, which would certainly make secured debt consolidation loans a lot less appealing. Whenever house prices come down, there’s always the threat of negative equity (owing more on the house than it’s worth).

Equity & negative equity – in a nutshell:
1) The less someone owes on their house, the bigger the ‘buffer’ they have against negative equity.
2) Secured loans and remortgages are probably not a good idea for anyone who owes more on their house than the house might be worth in the foreseeable future.
3) Negative equity is a scary thought, but it needn’t be a real problem if the homeowner doesn’t have to sell. The housing market is cyclical, so house prices will go up again – it’s just that no-one knows how long that’ll take.

Negative equity – an example:
Last summer, Mr. Jones took out a £200,000 mortgage to buy a house – which he now needs to sell.

The bank will expect to be repaid (almost) £200,000, but no-one will offer Mr. Jones more than £180,000. So the house’s value has dropped, but the mortgage hasn’t. It isn’t the bank’s fault the value has decreased – it’s simply one of the risks of being a homeowner.

He can’t sell for £180,000, as he’d have to find another £20,000 to clear the mortgage debt before anyone will give him a mortgage for a new house. One option (depending on Mr. Jones’ credit history) would be to ask the bank for a £20,000 personal loan to cover the shortfall. If the bank won’t, and if he can’t find the money elsewhere, he’ll have no choice but to wait for house prices to go up again.

But then again (good news)
Some people think this slump will be short lived, and lead to more dramatic house price increases before too long. After all, they point out, since many builders have stopped building now, there won’t be enough houses to keep up with the demand that appears as soon as the mortgage market recovers.

Debt consolidation – the pros, the cons & the alternatives
Finally, anyone who’s considering a secured debt consolidation loan is probably doing it for a good reason – i.e. to help them cope with their debt repayments. What they’ll want to know is this:

• What are the benefits?
• What are the drawbacks?
• What other choices do I have?

Secured debt consolidation – the pros

• Can lower monthly repayments
• Can reduce interest rate paid
• Simplifies finances
• Helps borrowers avoid late / non-payment charges, saving money and protecting their credit rating
• Helps them keep their debt repayments in line with their disposable income (if their income drops / cost of living rises)

Secured debt consolidation – the cons

• Can cost more in the long run (if the borrower arranges to pay it back slowly, they’ll be paying interest for longer)
• Puts their property at risk – as with any secured loan, if the borrower doesn’t keep up with repayments, the lender may force them to sell their property (although this should be the last resort)
• The psychological risk: it can be tempting to use credit cards and overdrafts again once they’re paid off, which can lead the borrower deeper into debt.

Secured debt consolidation – the alternatives
Secured debt consolidation loans aren’t the only way of tackling debt. Depending on the individual’s circumstances, another approach may be more suitable. To find out more about the alternatives, click on a link:
Debt management plans
Remortgages
Individual Voluntary Arrangements (IVAs)
Debt advice

* all house prices in this article taken from the Nationwide House Price Index (HPI).
** mortgage payments tend to be ‘slanted’ so the bulk of each repayment goes towards the interest, rather than paying off the capital; towards the end of the mortgage, it’s the other way around.

• If, for example, you’d rather avoid any further borrowing at all, you may prefer a debt management plan, which involves asking a debt expert to reduce your monthly payments by re-negotiating your payments with your creditors.
• If…
  • your debts are substantial (around £15,000 or more), and
  • you can’t afford to make your monthly payments, but
  • you can commit yourself to making regular fixed payments,
  …then an IVA (Individual Voluntary Arrangement) might be more appropriate than a consolidation loan. It’s a government-backed debt solution in which you spend five years (in most cases) paying as much as you can afford once you’ve taken essential living expenses into account. An IVA can’t go ahead unless creditors accounting for at least 75% of your debt agree. If they do, they’ll commit to writing off any outstanding debt when the IVA is successfully concluded.

These aren’t the only other debt solutions available, but they’re important alternatives to a debt consolidation loan – and a professional debt adviser can help you understand all the pros and cons, so you can choose the solution that’s best for you.

• Transport costs – 27% average rise in the last 12 months
• Food costs – 23% average rise in the last 12 months
• Household bills (incl. Council tax) – 10% average rise in the last 12 months
• Taxes – 1% rise in the last 12 months

• Tax Freedom Day has been a lot later in previous years. In the early 80s, it came as late as June 20th – a whole 173 days’ worth of taxes, as opposed to 2008’s 155 days.
• It’s also been much earlier – Tax Freedom Day 1965 was 27th April – just 117 days spent paying taxes.
• The Adam Smith Institute states that if Government spending had grown in line with inflation since 1997, we could have abolished income tax, corporation tax, capital gains tax and inheritance tax, leaving the taxpayer £200 billion better off.

Will anyone give me a debt consolidation mortgage?
In recent months, the number of mortgages on offer has plummeted as lenders adopt a much more cautious approach to lending money. They’re not just turning down more applications, but requiring larger deposits from the people they do lend to.

This applies to remortgages (on property the borrower already owns) as well as mortgages (for purchasing a property in the first place). With mortgages, 10% deposits are common these days, and 25% deposits aren’t uncommon. As for remortgages, most lenders are now limiting them to 80% of the property’s value – down from 125% before the credit crunch.

Would that debt consolidation mortgage be affordable?
Many people have criticised lenders for not passing on recent cuts in the Bank of England’s base rate to their customers. At the end of April, over a third of British lenders did reduce the rates on their SVR (Standard Variable Rate) mortgages – but even so, the limited availability of credit is keeping interest rates higher than we’re used to.

Is there enough equity in my house to make it worthwhile?
If you want to consolidate your debts through a remortgage, you’ll probably need a bigger deposit than for a first-time buyer mortgage – it could be 40% of the mortgage deal, so you may be counting on the equity in your home.

When house prices were rising rapidly, this wasn’t such an issue: homeowners knew they’d have more equity to draw on if they just waited a while, so many of them saw debt consolidation mortgages as an ‘easy’ solution to debt. Now that the housing boom seems to be over, it’s a different picture:

This might give you some indication of price trends in your area – and perhaps how much equity you could have to draw on if you’re planning to remortgage to consolidate your debts. The key factors are:

1. how long you’ve had your property, and
2. whether you’ve already secured a loan / taken out a debt consolidation mortgage against it.

• Experts don’t expect this move to slash the cost of borrowing, but say it may stop the cost of borrowing from rising further.
• Banks can only trade mortgage debts which were on their books at the end of 2007 – the BoE wants to help banks use their existing mortgage assets, not encourage them to grant risky mortgages, knowing they can swap them for bonds.
• The BoE expects the banks to want about £50 billion of bonds to start with, but hasn’t fixed a maximum limit.

To protect itself, the BoE is only offering banks 70-90p of bonds for every £1 of these assets. Still, even 70p of secure assets is better than £1 of problem debts nobody wants.

• Young adults (18 to mid-20s) seem particularly likely to borrow to meet everyday expenses, and to make little distinction between ‘need’ and ‘want’.
• To some young adults, the availability and benefits of debt solutions outweigh the drawbacks of over-borrowing.
• Property is seen as the best investment, and worth borrowing for, as mortgages have been reasonably cheap recently and are also seen as a form of investment.
• Ready availability and cheapness of borrowing makes it attractive – many credit users feel little desire or need to seek alternatives.

What do people see as the solution to debt?
There’s a big difference between manageable debt and unmanageable debt – the kind that calls for urgent action, whether that means making big lifestyle changes, seeking debt advice or looking into professional debt solutions.

So how do people know they’re sliding from one group into the other? How do they know they might need a debt solution? Interestingly, the report states that young adults tend to see external warning signs (e.g. final demands, threats of court action) as indications that they’re facing problem debt, while older people pay attention to internal warning signs (e.g. worrying about money, losing track of spending).

Some young adults, says the report, don’t really understand what debt solutions involve – and a ‘core minority’ see debt consolidation and insolvency as easy solutions to problem debt. It also shows that people (particularly those in or approaching the ‘family years’ (mid-20s to mid-50s)) tend to see housing equity as the solution to all their future financial needs.

What’s the long-term solution to the UK’s debt problems?
The report states that governments (and businesses, in some cases) can, for example:

• Reinforce financial education. Standard Life is already involved in various initiatives – e.g. helping primary-school children understand how money works, and how it can work for them.
• Use tax policy to encourage people to save for the future.
• Counter some of the myths about money management – e.g. that housing equity is the solution to future pension needs.

• 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.

• The Halifax House Price Index states that prices in the UK (not just England & Wales) came down in September, October and November. They rose in December and remained quite stable in January, giving an average price of £197,244 – 4.5% higher than a year previously.
• The Nationwide House Price Index states that prices in the UK fell in November, December and January, bringing the average price to £180,473 in January – 4.2% higher than a year previously.

• the creditor hasn’t contacted you (at your last known address) or taken action (e.g. court action) in that time
  and
• you haven’t made payments or acknowledged the debt in that time.