Equity being used by older people in debt

According to a recent report a rising number of older homeowners are using the equity in their homes in order to pay off debts. Officials are concerned that this increasing trend is leaving more and more people without any means to support themselves in their retirement. Read more

The importance of keeping your credit clean

Over the years more and more of us have become reliant on credit for the things that we need in life, whether it is a new home or a new car or whether it is to fund a wedding, and education, or even a luxury holiday.

Most of us would be lost without our credit cards, and the majority of us take the ability to be able to open a current account for granted. Yet, if you find yourself facing severe credit problems you could find all of these things impossible, leaving you to deal with a very bleak and difficult financial future.

This is why it is so important to keep your credit in good shape. Those with good credit can enjoy a far easier financial future, with access to a choice of financial services and products from a wide choice of lenders. People with good credit can get the best interest rates, making it more affordable to take out finance. Whether you are looking for a mortgage, a personal loan, a secured loan, a credit card, a store card, or any other type of finance you will find that having good credit can make a huge difference to the amount you pay on your borrowing – and whether you are even eligible to get the credit that you need.

Your credit can be affected in a number of ways. Firstly, it is important to remember that having no credit rating can be as bad as having a poor credit rating, as it means that lenders have no way of knowing whether you are going to be a viable risk when it comes to taking out finance. Therefore, it is important to kick start your credit as early on as possible. One thing that has a major effect on your credit rating is your repayment habits – those that pay their bills and debts on time, regularly, and for at least the amounts requested will enjoy a good credit rating and access to some great deals on finance.

If, however, you make regular late repayments on your financial commitments, or worse still you default on your financial obligations, you will find that your credit rating rapidly declines, and this is where you will start experiencing problems. Those with poor credit will find that their access to finance is greatly reduced, and many lenders will not take risks on those with damaged credit, particularly in the current economic climate. Those with very bad credit may find that they cannot get any form of unsecured finance, and will have to rely on credit that is secured against their homes – even then the interest rates charged are likely to be very high.

There are other factors that can adversely affect your credit, such as fraudulent activity, out of date information, or mistakes on your credit file. This is why it is advisable to order a copy of your credit report on a regular basis and checking through the information on the file. You may find that there are mistakes and inaccuracies that could having an adverse effect on your credit, out of date information that needs to be updated, or even suspicious transactions that could result in your credit rating taking a knock. If you pick up on anything like this you should contact the credit reporting agency as early on as possible to get it rectified.

You should also bear in mind that a log is made on your credit file each time you apply for finance, and the more rejected finance applications that are logged onto your file the more your credit rating will suffer. Therefore if you are turned down for finance you should resist the temptation to keep on making applications. Instead, try and find out what may have affected the lender’s decision by going through your credit report, and wait at least three months before you make another application.

Related articles:

• How To Build Up a Good Credit Rating
• Credit Building Tactics

External links:

• Credit Reports
  Every time a customer applies for a financial product such as a credit card, the credit company will consult that customer’s credit file. This file records all their financial activity in terms of credit applications and banking activity.
• Credit Cards Designed To Improve Your Credit
  Credit cards have become very popular over the years because of the ease, convenience, and flexibility that they provide, and these days there are many different types of credit card available
• Applying For Credit Cards When You Have Bad Credit
  For those with a poor credit score, getting a credit card is harder. However, there are solutions and we will discuss and offer these in the article.
• Using Your Credit Card To Build Credit History
  Let’s say you want to buy a house, but you need to get a mortgage to help pay for the house. However, you have no credit history to speak of, so how can you apply for the mortgage to get your dream home?

Financial regulators are ’sleeping on the job’

A debt charity in the UK has accused financial regulators of being ‘asleep on the job’ stating that many consumers in the UK are being pushed into soaring levels of debt by irresponsible lender but that regulators are failing to take the necessary action.

According to officials from the Citizen’s Advice Bureau, which deals with many debt related issues, there have been over 1.7 million debt related issues to be dealt with by the bureau over the past year, which reflects a rise of 20% on the previous year.

Officials state that although the CAB is doing all that it can to help consumers deal with their debt related issues, it is up to financial regulators to try and tackle irresponsible lending in order to tackle soaring debt levels. The charity is currently embarking upon a conference to help consumers to deal more effectively with money issues, and this problem has been highlighted as part of the conference.

One CAB official stated: “Time and time again, we come across people in desperate straits who need not be there if the firm who lent them money had acted responsibly on day one. And while some regulators have taken action on scandals like the mis-selling of payment protection insurance, others seem to be asleep on the job.”

The Cab says that rising debt is one of the major issues facing the economy and that action must be taken by the financial services industry to combat the problem.

According to recent data spending on plastic has rocketed by nearly 50% since 2002, and in 2006 Brits spent around £511 billion on credit, debit, and store cards. However, figures from the Bank of England show that there has been a steady decline in the amount owed on credit cards since the start of 2006.

Alan Wright
14th November 2007

Loans ‘good’ for debt consolidation if used wisely

People considering taking out a personal loa as a means to manage their finances are advised it is sensible if done sagely.

According to Moneyextra.com, if consumers are going to use this means to tame their finances, they must be careful not to build up debt on an overdraft or credit card at the same time.

Robin Amlot, senior editor at the financial services company, explained that debt consolidation is the “key reason” people chose to take out personal loans these days.

He advised a course of action for those doing so, saying: “Two key factors about taking out an unsecured personal loan as a way of consolidating your debts is that you are fixing your interest rate - so you know what you’ll be paying each month – and you are fixing a date in the future at which you will have cleared the debt.”

Recent research by Thomas Charles debt consultancy in association with YouGov found that 15 per cent of people in Britain are in serious debt, with men being more indebted than women overall.

Meanwhile, one in four Britons plan to avoid spending money on credit cards this Christmas.

Figures show increase in bankrupt pensioners

Recent figures have shown that the number of pensioners in the UK that are going bankrupt has doubled in the space of five years.

There are now twice as many pensioners declaring themselves bankrupt as there were five years ago according to the figures. In the past year around 7% of bankruptcies were made up of pensioners, but in 2002 the number of pensioners that made up total bankruptcy figures equated to just 2% according to records.

Some experts have stated that it is increased life expectancy that has had an impact on the finances and savings of pensioners, tipping many over the financial edge and resulting in bankruptcy. This, state experts, has been made worse by the rises in the cost of living, fuel, and other areas, which has put further strain on pensioners’ finances. The research also shows that there appear to be more pensioners going bankrupt in rural areas compared to urban areas.

One insolvency expert stated: “More and more pensioners are going bankrupt as they struggle to repay debts when their pension is their sole source of income. Although attitudes towards bankruptcy have changed dramatically since the days of debtors’ prisons, the older generation still feel the stigma of bankruptcy and are reluctant to ask for help until it’s too late.”

Around 1250 bankrupts around the UK took part in the research. It is thought that the reason for the higher concentration of bankrupt pensioners in rural areas is the result of fewer work opportunities and higher transportation costs.

Some industry officials state that the cost of food – on which many pensioners spend a large proportion of their income – is contributing to the financial strain faced by many in this age group. Food price inflation rose from 2.5%in July to 2.8% in August according to figures.

Tom Smith
3rd November 2007

Debt advisers expecting flood of enquiries

According to a recent report debt advisers across the UK are gearing themselves up for a flood of debt related enquiries as thousands of fixed rate mortgage deals come to an end. Many consumers across the UK took out fixed rate deals in 2005 for a two year period, with a low fixed rate of under 4.5% in many cases.
However, since that time interest rates have rocketed, with a series of five interest rate hikes in the space of a year, taking the rate up to 5.75%.

The credit crunch that was sparked in the United States sub-prime sectors has also had global repercussions, and has resulted in some lenders hiking up their mortgage rates even further. This means that the thousands of people that will be coming out of their fixed rate deals will not only face a huge rise in their interest rates and mortgage repayments, but will also find it increasingly difficult to remortgage to a more competitive deal.

Even those that switch to another fixed rate will have to fix at a far higher rate than they did in 2005, which means a huge rise in their monthly repayments.

It is thought that in the coming months around twelve thousand homeowners will see their fixed rate periods come to an end, and will face repayment rises of 40%. This means that many will have to find hundreds of pounds extra each month in order to continue with repayments on their mortgages, and this could send many households into the red, tipping them over the financial edge and leaving them facing repossession.

All homeowners that are due to come out of their fixed rate deals will face these problems, with many lenders having hiked up their standard variable rates to 8% or more. However, sub-prime borrowers will face severe affordability problems, as many sub-prime lenders have increased their rates to beyond 10% according to some experts.

It is thought that both the level of debt enquiries and the level of repossession will increase over the coming months as a result of this situation. The Consumer Credit Counselling Service has announced that it is opening a specialist repossession advice centre to deal with the severity of the situation.

Tom Smith
25th October 2007

Abbey slated over 125% mortgage

Amidst the turmoil and chaos that has hit the financial and mortgage markets over the past month, high street bank the Abbey has announced the launch of a 125% mortgage deal for first time buyers and other property purchasers, and this move has been strongly criticized by many financial professionals.

The mortgage allows consumers to borrow over and above the value of the property, but experts state that many consumers could find themselves left in negative equity as a result of taking on these loans.

Experts state that if consumers default on the 125% mortgage they could quickly find themselves locked into negative equity, and this could be further fuelled if, as expected by many analysts, property values in the UK tumble over the coming months. The government has been urging financial institutions to be more responsible with lending in light of the current financial situation, and Abbey is now being accused of ignoring this advice.

The Abbey is offering consumers the opportunity to borrow 100% of the property value, and an additional £25,000 on top. The recent chaos with Northern Rock has increased concerns over irresponsible lending by financial institutions, and many experts are now accusing the Abbey of further fuelling the debt crisis in the UK by offering this type of mortgage in the current economic climate.

Officials from the debt charity Credit Action have commented on the availability of this 125% mortgage loan, and one official stated that the loan posed ‘real dangers’ to borrowers, adding that anyone that decided to take on this type of loan would have to be ‘incredibly bold or incredibly stupid’.

Tom Smith
24th October 2007

Don’t bail out friends and family with loans

A debt advice agency in the UK has warned that lending money to friends and family could have an adverse effect on both the lender and the borrower.

Officials from the Debt Advice Bureau claim that it is better to offer family and friends advice and support when they run into financial problems rather than throwing money at them by way of loans. In many cases these loans are not fully repaid and can put a strain on the relationship, and often this type of action results in people becoming reliant on loans from family and friends to bail them out if they get into financial difficulties.

Officials from the Debt Advice Bureau state that consumers should help family and friends to overcome debt and finance related problems rather than encouraging them to rely on others to help them out financially, as this can simply lead to a cycle of debt, and could even lead to the borrower getting themselves into debt in order to help out the family member of friend, which can make matters even worse.

One official from the bureau said that by lending money to friends and family consumers could be making the problem worse for all concerned.

He stated: “You don’t want to be laying the groundwork that every time they have a slight cashflow problem, you come to the rescue.”

Official figures show that in many cases the money that is lent to friends and family members is not received back in full, and in some cases is not repaid at all.

According to the results of a recent survey, only around 58% of 70% of consumers that had loaned money to family member had been fully repaid. Of the 59% that had lent money to a friend only 27% had been fully repaid. 

Tom Smith
6th October 2007

Students protest against HSBC

Students in the UK have launched a protest against one of the UK’s leading banks, HSBC, and the protest has been quickly gaining popularity through the Facebook website.

Students are now threatening to boycott HSBC over new regulations that will mean the end of the hugely popular three year interest free overdraft facility on graduate accounts with the bank.

Many graduates have benefited from this three year interest free overdraft facility with the HSBC over recent years, enabling them to enjoy a financial lifeline without paying interest between leaving university and starting work.

However, the bank has stated that many of these accounts were abused, and this combined with high levels of bad debt have resulted in the bank having to make a commercial decision to scrap the three year interest free overdraft facility.

However, students are arguing that the reason they joined the bank in the first place was to be able to take advantage of these popular graduate accounts. The protest comes at a bad time for the bank, which along with other banks in the UK, is now vying for the business of new students that are starting university as the academic year kicks off.

One student stated: “They’ve shot themselves in the foot to be quite honest. Why would they want to alienate themselves from graduates who’ll be earning high salaries in years to come?”

Another stated: “I am so disgusted with HSBC right now - it actually makes my blood boil… Never before have I lost so much faith in an organisation. As soon as I can I am closing my account, moving my ISA and finding a new decent bank.”

Tom Smith
6th October 2007

Students need to be more careful over getting into debt

According to a recent report the level of student debt in the UK is on the up, with many students graduating from university having racked up huge levels of debt along the way.

One credit reference agency is now urging students to think very carefully before getting themselves into debt, and to ensure that when they do take out credit cards and loans that they use the money sensibly and for necessities, and they make the repayments sensibly and on time.

Melanie Mitchley, an industry expert from the firm Call Credit has stated that students need to be mindful of the effects of getting into debt, and need to be careful about building up debt. She stated that new students need to manage their finance more sensibly, and need to keep on eye on their finances.

According to Barclay’s figures former students have been graduating with debts that are in excess of £13,000 on average. Another survey into student debt indicates that students could soon be graduating with average debts of around £20,000.

Ms Mitchley stated: “We are urging all students whether freshers or in their final year to be aware of the potential pitfalls if they don’t take control of their financial affairs. Our experience has shown that taking on credit needn’t be a problem if you manage your finances well and ensure you keep up your repayment.”

Another survey carried out by the Halifax showed that credit cards, overdrafts, and loan were amongst the most common forms of debts for students, with 43% of students surveyed having borrowed on credit cards, 73% using an overdraft facility, and 83% having taken out a loan.

One Halifax spokesperson stated: “These are significant sums for anyone, let alone someone who is not yet working full-time.”

Tom Smith
5th September 2007

Could bankruptcy be the best option for you?

Most people are only too aware of the concerns over the UK’s growing debt mountain, and over recent years an increasing number of consumers have found themselves with growing levels of debt in the form of credit cards, loans, store cards, and more.

As a result of this many have struggled to keep up with repayments, a matter which has been made worse by rising interest rates and repayments for those with variable rate loans and mortgages. The UK has seen levels of bad debt and insolvencies rocket over recent years, with an increasing number of people teetering on the financial brink because of their debts.

One debt charity, Credit Action, has stated that despite the stigma and the potential problems that are linked with bankruptcy many consumers that are having real debt problems could actually benefit from wiping the financial slate clean and declaring themselves bankrupt. The charity has pointed out that bankruptcy is not an easy route, nor is it the right route for everyone. However, as a last resort for those in severe debt that can never be repaid it can be effective and can give them the fresh start that they need.

Credit Action officials do point out that the consequences of bankruptcy can be far reaching, and getting future credit could prove impossible for many. However, one official from the charity stated that although it is not a step that should be taken lightly it is a course of action that could prove the most effective for some people.

He stated: “Bankruptcy is really the option of last resort, but for some people it is the right thing to do if they’re never going to be able to pay their debts back.”

There are other alternatives available for those with a high level of debt who are experiencing difficulties making repayments. This includes Individual Voluntary Arrangements, which are considered to be a softer alternative to bankruptcy, informal arrangements with creditors, and debt management plans. 

Tom Smith
20th September 2007

Is fixing your bills a good idea in light of interest rate rises?

The recent interest rate rises enforced by the Bank of England have hit many homeowners really hard, leaving them with very little in the way of finances due to rising repayments. In light of these rises, many people are now wondering whether it might be a good idea to fix not only their mortgage but also other payments as well in order to benefit from increased financial stability.

Interest rates have gone up five times in the past year, with rises of 0.25% each time, and each of these rate rises has added a significant amount to the repayments of many homeowners, pushing many into the red. With these increased repayments along with the threat of further interest rate rises some experts feel that fixing as many payment as possible, including a mortgage, could prove beneficial in terms of financial management, although others feel that this could prove costly in the long run, particularly when interest rates start to fall again.

One industry expert stated: ‘Having certainty of monthly outgoings is worth its weight in gold, especially for people who are stretching themselves to take out the loan. People have been buying two year fixes, but with arrangement fees and other costs so high, we are now seeing more three and five-year fixes being taken out to avoid paying these fees so regularly.’

Another stated: ‘Fixed rates are going up as lenders factor in possible future base rate rises. Trackers are cheaper, but you have to accept that the rates are likely to go up before coming down, so you have to make sure you can afford higher monthly payments. The rates for three and five-year fixes are quite similar, so the key is to do your homework to get the best deal and make sure you are clear how long you want the fix to last for.’

Tom Smith
1st August 2007

Many people permanently in the red with overdrafts

A recent report has highlighted that by the 20th of each month many Brits find themselves running out of cash and having to rely on their overdrafts to see them through the rest of the month until payday.

In some cases, once payday comes around, Brits are able to slide back into the black for several weeks. However, there are also many Brits that will go straight back into the red, even after their salary has been paid in, because their accounts are permanently overdrawn.

Around two million consumers in the UK are always in the red, unable to pull themselves out of their overdraft debt and therefore having to rely heavily on their overdraft facility. In the past year, according to research, around ten million people in the UK have used their overdraft on at least one occasion. Rising interest rates and repayments may have contributed to this figure, with more and more people having to dip into their overdrafts in order to stay afloat due to rising repayments.

One industry professional stated: ‘It’s no surprise so many people are permanently in the red – with interest rates having risen five times in the past year consumers are not doubt feeling the squeeze. People often dipping into their overdraft need to watch the Effective Annual Rate as some can be punitive and they may find they are better off spending on a 0% credit card in the future.’

Those aged 55 years and over were found to be the best at staying out of the red, with an impressive 64% in this age group managing to stay in the black. This compared to 40% of 18-24 year olds. In the 45-54 age group 5% were permanently in the red.

Tom Smith
31st July 2007

Chancellor Darling Would Like Longer Fixed Rates

New Chancellor of the Exchequer, Alistair Darling, has indicated that he would like to see longer terms for fixed rate mortgages in the UK.

Darling would like to see more fixed rates lasting up to 25 years and on Monday 9 July he pledged a shake-up of the housing market following concerns that have been expressed regarding lenders only offering short term fixed rates in order to maximise their profits.

If homeowners have to renew their fixed rate deals more often, they will be liable for thousands of pounds worth of charges in arrangement fees, which have rocketed in the last couple of years. As interest rates have risen five times in the last twelve months, consumers are looking to fix their interest rates so they know what their payments will be for a reasonable period of time, but the number of deals beyond two years are few and far between.

The Chancellor said that longer-term fixed rates were available around Europe and would be useful in the UK to reduce volatility. He was unhappy with the incentives built in to products that meant mortgage brokers were more likely to advise homeowners to choose short-term products – and the associated high arrangement fees – some now nearly £2,000.

Mr Darling said that the Financial Services Authority have noted the problem of brokers wanting homeowners to return to them every two or three years rather than every ten or twenty.

The Chancellor also talked about the possibility of building on greenbelt land in the future as the lack of affordable housing in the South East in the last five years was now becoming a problem for the whole country. Last year’s Government target of 223,000 new houses was not met with only 160,000 being built. Mr Darling agreed that planning is a sensitive issue, but whilst determined to protect Britain’s heritage he said that if we don’t increase the supply of houses the problem will get worse and worse and worse. There was no way he would accept that housebuilding should stop.
   
Ex-Chancellor Gordon Brown, now Prime Minister, oversaw house prices that trebled between 1997 and 2007, and promised to end the boom and bust cycle in house prices, but as it is evident that we are coming to the end of a boom cycle in house prices, both Brown and Darling will be hoping that we don’t enter a bust period of falling or crashing house prices. However, with interest rates having risen from 4.5% last August to 5.75% last week the increased payments to be found by most homeowners will bring about a slowdown in the market.

Malcolm Harris, CEO of Bovis Homes, yesterday warned that any further rate rises could bring the housing market to a grinding halt. Average mortgage payments are now at a record level when compared with how much people earn.

Mr Darling acknowledged that housing is a huge issue and concerns more than the buyers, with parents and grandparents keen for their children to be able to afford housing, but a monthly repayment on a £125,000 mortgage s now £130 higher than it was last year.

Tom Smith
16th July 2007

Debt considered acceptable because of student loans

According to a recent report the popularity of student loans has made debt in the UK seem even more acceptable.

According to the financial education charity Credit Action student loans have become such a norm that being in debt has become something of a fact of life. And according to officials from Credit Action these student loans have nothing to do with a need for money, but more to do with the easy access to student loans.

One official from Credit Action described student loans as ‘government endorsed debt on a massive scale’. Of course, students can find themselves in need of financial aid at some point during their education, but the easy access to student loans has resulted in many students just taking out loans for the sake of it rather than through real need, placing them on a downward debt spiral that could lead to problems later in life.

According to Chris Tapp from Credit Action there is not enough caution exercised with student loans, and the easy access to this type of finance has made debt appear to be acceptable even for the younger generation. With consumers levels in the UK at sky high levels this has raised concern amongst some charities and campaign groups, as those in their late teens and early twenties begin a debt ridden life before they have even completed their education.

According to Mr Tapp student loans enable students to live lifestyles that are beyond their means – something that they then become used to, and something that many have to continue funding through further finance, as their initial jobs after leaving college or university is unlikely to be a high paying one.

Tom Smith
17th June 2007

Finance management skills being taught to your students

With many adults and households now struggling to keep up with debt repayments, a high number of people struggling to manage their finances effectively, and a record number of bankruptcy and IVA applications being filed, schools in the UK are trying to address the issue of consumers debt at its roots by educating youngsters in how to manage finances. At present, children aged just eleven and upwards are being taught about effective financing, which should give them valuable skills and knowledge for the future and could help them to avoid the levels of debt that many of today’s adults are having to deal with.

One school in Pickering, Yorkshire is already enjoying the benefits of this addition to the curriculum, and students seem to find it very useful. The school is working with the Personal Finance Education Group, which aims to bring a better grasp of personal finance into the national curriculum, aided by fifteen million pounds in funding from the Financial Services Authority.

The Regional Director of the Personal Finance Education Group stated: “It’s helping them understand what financial information they need and then how to apply it. If you look what the financial situation looks like for the under-40s it is very different to the way it was some twenty or thirty years ago. A young person aged 18 can clock up credit cards at an alarming rate without much reference to their financial situation and
the important thing is to let people know how to manage their financial situation.”

The children at the school have had some very positive things to say about the new aspect of education that they are receiving, and many are already aware of how this type of additional education could help them in the future.

No Evidence That Interest Only Mortgages Are Taken Out Under Pressure

Amidst concerns that many people may be taking out interest only mortgages rather than capital and interest mortgages simply because of the rising cost of house buying and the problems with affordability, a recent report has been published and has indicated that this is not actually the case, and it is not pressures relating to the affordability of housing in the UK that is resulting in some borrowers opting for the interest only mortgage.

The research was carried out by the Council of Mortgage Lenders in the UK, and shows that those deciding to take an interest only mortgage opt for income multiples that are similar to or lower than those taken by borrowers that go for a capital and interest mortgage, also known as the repayment mortgage. The report also revealed that interest only mortgages are more likely to be taken out by home movers than by first time buyers, despite the fact that the latter group is most likely to suffer the effects of rising property prices.

According to the data, amongst those that find that the interest only mortgage is a viable option are the self employed, as the income for a self employed borrower may not always be steady, and by taking an interest only mortgage the borrower can repay the minimum amount each month thus cutting their monthly outgoings, but can make addition payments on the loan at times when there is a higher level of income available.

The director of the Council of Mortgage Lenders, Michael Coogan, stated: “The view that interest-only mortgages are being used as a dangerous short cut around affordability barriers is not borne out by our research. But we do need to understand as much as we can about why borrowers choose them, and what they do after they have taken out their loan. We are therefore pleased that the Financial Services Authority has been undertaking consumer research, and look forward to reading their findings when they are published next month.”

Interest Rate Rise Could Mean Nearly £300M More To Pay For Homeowners

A recent study carried out in relation to the recent interest rate rise enforced by the Bank of England has shown that mortgage payers in the UK could be paying nearly three hundred million pounds more collectively in monthly repayments on their mortgages. The interest rate hike was recently announced, after Bank of England officials increased it from 4.75% to 5%.

The figures with regards to the monthly rise in total mortgage repayments came from an analysis carried out by Egg. Officials from Egg have advised consumers to start shopping around for a better deal on their mortgages in order to try and save money on the amount that they will otherwise have to pay out as a result of the interest rate increase. Those on a variable rate mortgage could find that the 0.25% rise in the base rate could make a significant difference to their monthly outgoing based on the value of their mortgage.

According to the report from Egg, those with variable rate mortgages in the UK will each pay an average of around £35.92 more each month as a result of the interest rate increase. With over eight million mortgage payers currently on a variable rate, this could mean a rise of around £292 million per month on total mortgage repayments.

Officials state that by doing a little research and shopping around for a more competitive mortgage deal consumers could cut back on the financial impact that the interest rate rise has on their monthly outgoings. There are a number of deals available on the market at the moment, and some consumers may prefer to opt for a fixed rate mortgage to avoid further financial implications in the event that the interest rate rises again early next years, as predicted by some financial experts.

Extended Mortgage Terms Means Huge Amounts of Interest For Consumers

The rising property prices in the UK over the years have resulted in many people losing out on the chance to get their foot on the property ladder.

And because of this, over recent years, many banks and building societies have started to offer longer mortgage repayment terms over and above the traditional twenty-five year mortgage, as well as offering higher salary multiples, in a bid to attract consumers that are desperate to get onto the property ladder. Over recent years many lenders have been offering thirty and thirty-five year mortgage repayment terms.

However, experts are now concerned because some lenders have started offering even longer repayment terms, with up to fifty-seven years now being offered as a mortgage repayment term option with some mortgage providers. These mortgages have been labelled as ‘madness’ by experts, who state that although the monthly repayments will be lower for consumers because of the extended term, rising interest rates and the amount of time for which the borrower will be in debt could prove a real problem.

One director of a mortgage broker stated: “Life-long mortgages are a false economy. You end up paying literally tens of thousands of pounds in extra interest. It really is not a sensible thing to do. The idea of paying off a mortgage for 40, 50 or even 57 years is madness.”

With average house prices in the UK rising to well over two hundred thousand pounds, and with interest rates rising to five percent, a number of lenders have made changes to the mortgages that they offer in terms of the length of the mortgages available and the amount that can be borrowed. This is to attract more custom from those that would otherwise be unable to purchase a property.