Swift Money

The amount of UK homeowners taking equity out of their homes is growing. Many Britons are turning to equity release in order to increase their disposable income.

Mark Gattenby, financial services director of Help the Aged subsidiary intone believes that many are turning to equity release to keep up with mortgage and credit card debts, he also urged potential equity release customers to seek advice:

“It is true to say that there is a general lack of understanding of equity release with the general public. As equity release is a major financial decision we would always encourage the public to seek independent advice from a specialist before proceeding.”

Business Development director of Key Retirement Solutions Dean Mirfin echoed these thoughts:

“Retired homeowners should talk to advisers to ensure they do not end up paying too much for equity release plans. [However], providers looking for sales are unlikely to point retirees in the direction of the best deals available.”

The Consumer Credit Counselling Service (CCCS) is advising Britons to make an annual budget to plan ahead for their spending.

Frances Walker from the CCCS is recommending consumers to calculate their annual budget to calculate their monthly repayment.  Walker suggests that if monthly outgoings are over 20% of people’s income they should look at how to optimise their budget.

Debt consolidation may be a good way of reducing monthly repayments and ease consumers’ budget.

Credit Action estimates that UK’ debt totalled £1,4000billion.

According to the Department for Work and Pensions (DWP) over spending Britons need to think ahead for their longer term financial plans.   The DWP has said that a lack of financial planning for expensive periods such as Christmas and festive overspending often leads to financial shortfalls.  As a consequence, some households are left struggling to pay bills.

More than 50% of Britons overspend at Christmas, with people in the North-East, North-West and Wales suffering the largest financial hangovers. Susan Clark of Job Centre Plus said:

“Struggling to pay the bills after Christmas is a situation that many people find themselves in and can be very stressful.”

One way of managing overspending may be to consolidate existing debts into one loan.

A study from the Financial Researcher show that borrowing a lower sum of money could cost more as higher interest rates are often charged on lower tiers.

David Black from Defaqto is advising borrowers to research interest rates levels for each tier as selecting a bigger loan may save them money. Borrowing a larger sum of money could save up to £1000 according to the research.

As interest rates tend to be lower for bigger loans, Defaqto is recommending consumers to be careful when choosing their loan as they my find more competitive rates on higher tiers.

As households feel more financial pressure, research conducted by YouGov for MoneyExpert.com has found that more than 6m bills have gone unpaid since 2007.

2.3million people failed to pay council tax bills in the second half of 2007 and 1.3m people did not pay energy bills in time. With rising energy bills and the continuing credit crunch, households may still find it difficult to pay bills in 2008.

Sean Gardner, Chief Executive of MoneyExpert.com said:

“Paying one bill late is not something to panic about. But if you find this is something of a habit then you need to take action. Missing bills can have serious consequences, whether it’s losing a service altogether or even ending up in court.”

According to YouGov nearly three million consumers in the UK failed to meet their credit card payments, resulting in 35m of fees.

£9bn worth of credit balance will be transferred in the New Year, according to a survey commissioned by Abbey.  In the first three months of 2008, the average transfer will be £2,666 with eight per cent of men and seven percent of women taking on transfer deals.

Men will transfer more money than women, an average of £3,395 compared to £1,820 transferred by women. Geographically, consumers in the South-East and the Midland will transfer the most, £3,021 and £2,900 respectively, larger sums than consumers in the North of England (£2,051), Scotland (£2,154) and Wales and the South West (£2,022).

Roger Lovering of Abbey Credit Cards said:

“Its great to see that many people are already turning their attention to getting their finances in order.  January credit card bills can often catch people by surprise, so we would encourage people to keep a check on their finances over the festive season and plan ahead to ensure they aren’t paying over the odds for their plastic.”

Nationwide Building Society believe that consumers should be told when introductory savings rates expire and fall to lower levels. These calls come at a time when average interest rates are below inflation.

Nationwide claims that its rivals are taking advantage of customers who fail to monitor their savings accounts. Currently, many banks offer high interest accounts for a year, before the products drop to below the Bank of England’s base rate, without warning.

Matthew Carter, Nationwide Director of Savings said:

“The savings market is a highly competitive one and providers are vying to take market share. Some providers seem more interested in boosting profit and achieving best buy status than actually offering long term good value to their customers.  Consumers are told when their mortgage deals are due to change and it shouldn’t be any different for savers. With introductory deals becoming more common place, the society is concerned it is becoming even harder for savers to make the best decision.”

Lisa Taylor, of personal finance website moneyfacts.co.uk believes that accounts with a steady rate of interest, rather continually shopping round is the best tactic for the consumer in today’s climate.  Recently, savers have seen rates reduced with the 0.25% reduction on the base rate in December. Taylor said:

“Often a simple no strings account will offer an equally good return, without the need to jump through hoops or navigate a maze of complex terms and conditions.  Some savers have seen their rates axed by more than double the base rate cut. And with many of the accounts already offering uncompetitive rates, the proportion of the rate shaved off is much higher. Take the example of the Halifax Liquid Gold, which saw a 0.36% cut. When we consider the rate was only 1.36% in November, the cut means more than a quarter the whole rate vanishing.”

One in ten people who are planning on buying a house are bringing forward their plans according to a survey by fool.co.uk. According to the survey 38% of potential house buyers want to buy this year and 34% in 2009.

David Kuo, head of personal finance at fool.co.uk said:

“The long overdue correction in the property market will allow many people who have been waiting to move house to finally realise their dream.  Quite often people will ask how much they can borrow when they want to buy a property. But that is altogether the wrong question. Instead, they should ask themselves how much they can afford to repay.”

Fool.co.uk found that in the next five years there will be more sellers than buyers; for every four people looking to buy there will be five sellers.

According to the Home Builders Federation (HBF), environmental issues could affect house buying in the future.  Each new house will need an Energy Performance Certificate (EPC) to ensure the house is well insulated and energy efficient.  On top of this the government is offering stamp duty exemptions for carbon neutral homes as part of its “Building a Greener Future” policy.

John Slaughter, direct of external affairs at the HBF said:

“I think that [the EPC] will have some influence on perceptions of purchases. And obviously, if you go back to point about hiking energy prices at the moment, then people will always take more notice things in that climate. The benefit of the EPC is that it will actually raise awareness of the benefits of good levels of energy efficiency and insulation would have – not just running costs but [for the] comfort of the house and so forth.”

Cuts to the base rate of interest may not lead to lower repayments for mortgage holders. Speaking after the Monetary Policy Committee’s (MPC) decision to hold the base rate in January, Motley Fool’s David Kuo said:

“The link between the MPC’s decisions and mortgage payments is by no means certain.”

Despite Chancellor Alistair Darling urging mortgage lenders to pass the December cut on to consumers, there is no obligation for them to do so.  Following the credit crunch, the main aim for many financial services organisations is to stabilise their business.  On this, David Kho added:

“Many homeowners are unlikely to reap the benefits, even though there are indications that the Bank of England may continue to cut interest rates to stimulate the flagging British economy.”