Charging orders are a legal way for lenders to recover debt but the OFT has found problems with the way some UK lenders use them.  Used correctly charging orders simply require that debts are paid out of the proceeds when the debtor sells their property.  However creditors can also apply to the courts to force debtors to sell their property sooner sometimes in cases where the debts are relatively small.

There has been a big rise in the use of charging orders in recent years – 164,000 in the last 12 months compared to 45,000 five years ago.  The OFT stated that there has been a widespread failure by banks to consider the circumstances of their customers before asking for a charging order to be put in place.

‘Our investigation uncovered instances of charging orders being used to secure debts of less than £600.  Lenders are entitled to use charging orders but must do so proportionately.’

Responding to the OFT findings a Citizens Advice spokesperson said ‘We are concerned at the current use of charging orders to intimidate vulnerable debtors into paying more than they can afford or to force the sale of a property to recover an often small, unsecured debt by enforcing charging orders through an order for sale.’

‘It is vital that people who are doing their best to repay their debts should be protected from further debt collection, enforcement action and from enforcement related costs that are disproportionate to the size of the debt.’

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The Insolvency Service figures show that there were just under 34,000 personal insolvencies in the months July through to September.  This is a 3.9% drop when compared with the same period of 2009.  However despite the reduction bankruptcy cases are still well above levels before the economic downturn.

With bank credit remaining tight and the government’s austerity measures yet to begin in earnest, analysts warned difficult conditions would persist.

Responding to the report Louise Brittain, a partner at accountants Deloitte, said: “The high numbers of people filing for bankruptcy is unfortunately becoming the norm, and whilst today’s figures are down… we should not take this drop as a necessary sign of things to come.”

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In the survey 14% of respondents stated that they have had debt on their credit card for a period of more than five years.  The research also found that as many as three million people are only making the minimum repayment each month.

People only repaying the minimum amount greatly increase the length of time it takes to repay the debt and high interest rates mean that they can end up paying significantly more than they otherwise would.  When using your credit card to make purchases it is always best to have a plan in place for repaying the debt.  If you borrow and then simply repay as and when you can afford it you run the risk of the debt mounting up and becoming a problem.

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Some debt management firms exploiting people in debt – BBC News

We are pleased to confirm that Spencer Hayes is not one of the companies under investigation and we welcome this OFT announcement as some of the more dubious practices in the industry will continue to be eradicated.

Spencer Hayes sets some of the highest ethical business and customer services standards in the UK debt resolution industry.  We are directly authorised by the OFT as well as the Office of Fair Trading and Financial Services Authority.  All of our staff members are highly trained to help people to meet their goal of long term financial stability and we work to the principle of providing ‘best advice’ at all times.

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The Markit figures demonstrate that fears over potential tough economic times ahead has meant that people are prioritising paying off their debts.  Current record low interest rates of just 0.5% have meant that there is little incentive to save especially with the rising prices of household essentials such as food.  The study found that only people in the highest earnings bracket are showing increased levels of saving with only those earning more than £57,571 a year demonstrating that they are saving more.

Markit economist Tim Moore said ‘Concerns over pay and job security remain at the forefront of peoples minds, while stubbornly high inflation and an impending VAT rise are becoming increasingly difficult to ignore.’

‘Households have responded to the uncertain outlook by paying down debt, reining in their appetite for unsecured credit and delaying major purchases.’

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This is according to research carried out by insolvency trade body R3.  The study showed that as many as one in ten adults struggle to last until payday on a regular basis with 31% admitting that they occasionally struggle.

The main causes of payday struggles include:-

• Repaying credit card and store card debts
• Repaying mortgages and other bank loans
• Spending on non-essentials and luxury goods

On announcing the figures President of R3, Steven Law, commented that ‘Over the course of the last decade personal insolvencies have increased by 350% and it is very worrying that over 40% of the British population are finding it a struggle financially to get through the month.’

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According to the Bank of England net credit card lending increased by £200 million in July.  Although credit card lending has increased other forms of loans have so far remained stable.

Credit cards should never be seen as a long term borrowing option. The average interest rates payable at 16% or more are at least twice as expensive as an average comparable loan, so it makes sense where possible to minimise credit card debt in favour of less expensive forms of borrowing.

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In total 6295 people have entered into a debt relief order in England and Wales in the second quarter of this year.  This represents an 11% rise on the first quarter of 2010 and a huge 218% rise compared with the same period of 2009.

Debt relief orders were introduced by the government as a means of allowing people to apply for personal bankruptcy without having to go through the full court bankruptcy procedure.  The order lasts for one year and fees are just £50 making it a much cheaper option that bankruptcy.

However to qualify for one you must fit into certain criteria and so if you are in debt it is recommended that you first get professional advice to find out if a debt relief order is the best option for you.

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The CEBR survey, carried out on behalf of Asda, measured the amount of money that households have left to spend after paying tax and purchasing basic items. The study found that the average UK household has a disposable income of £175 a week, a fall from £180 a year earlier.

CEBR economist Charles Davis said ‘The outlook for earnings growth is poor and it is unlikely to keep up with the growth in the price of essential goods and services.  The combined impact? Reductions in family spending power into 2011.’

These CEBR figures echo a report published last month that showed that people are increasingly worried about losing their jobs and the higher costs of living.  The study carried out by Markit and YouGov revealed that as many as 30% of households polled said that their finances have worsened in recent months.

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For smaller loans the average interest rate is now over 15%.  Conversely the cost of larger loans has fallen from the highpoint that was reached in May 2010.  The average interest charged on a loan over £5000 has fallen to 10.46% from 10.68% at the start of the year.

These figures mean that in some cases it can actually make sense for people to borrow a little more than they otherwise would.  For example borrowing £4500 over a five year term would cost £1642 but a £5000 loan repaid over the same period would cost just £1150 in interest.

A spokesman for moneysupermarket.com said ‘If you are financially stretched and in need of a loan now is the time to play the banks at their own game and really use current provider rates to your advantage.  By borrowing a bit more you can actually save yourself money without increasing the term or monthly payments.’

If you do intend to borrow it is always wise that you take the time to shop around for the best deal available.  To reduce your chances of getting into financial difficulties never be tempted to lend more than you can realistically afford to pay back.

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