Consumers suffer as borrowing channels dry-up

Many households will be pushed over the edge into bankruptcy this year as borrowing channels dry up as a result of the international credit crunch. 

A report from the TDX Group, which provides detailed debt-collection information to lenders, claims that about one millions consumers are struggling with ‘problem debt’, at an average of around £25,000 each.  Almost 600,000 of these are expected to be forced into last-resort options such as IVAs and bankruptcy during 2008 as they will be unable to obtain credit to refinance their unsecured borrowings as they have done in the past.

As the credit crunch tightens lending conditions across the UK, banks are becoming more and more unwilling to take on high-risk borrowers.  This means that the methods of debt management that have become popular in the last few years in the UK, such as ‘rate tarting’ with credit cards in order to constantly chase the best rate and avoid paying interest charges, may become a thing of the past. 

Many households are already struggling with rising living costs and increased financial strain as mortgage lenders refuse to pass on recent interest rate drops.  And the problems are only set to continue.  An estimated 1.4 million homeowners will come to the end of their fixed-rate mortgages this year and face sharp repayment increases as banks increase their lending margins in attempts to protect themselves from the global financial turmoil.  In addition to this, 3 million households will see their mortgage repayments rise during 2008 by an average of £150 per month*, despite the fact that the Bank of England has dropped the base rate three times in the past 5 months. 

It is estimated that home repossessions will rise by up to 50% this year to 45,000* as borrowers find themselves unable to keep their head above water and keep up with their financial commitments. 

Timesonline.co.uk data.

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