Why are debt conscious homeowners going bankrupt?

As we watch the debt mountain grow, changing the social climate in the UK, many still remain ignorant of the true cost of the debt mountain.  Many people are clueless as to the social impact of the countries debt.

Those who are aware of the debt mountain blame people who do not know how to manage their money, are forced to take out high interest loans and mortgages, or are shop-a-holics.  New statistics prove that this is not true.

One thing that international analysts blame for the debt mountain is the UK’s love with home ownership.  Owner-occupation has hit near record levels, with 84% of adults working to be homeowners within ten years. In 1939, there were 3.8 million home-owners in England and Wales, 1.5 million of whom held a mortgage. Today, there are 18.4 million owner-occupiers in Great Britain, and 70% of them have a mortgage

This is in part due to the bank’s clever number crunching practices. Since 1939 we’ve seen the introduction of lower down payments, higher interest, closing fees, administration fees, mortgage terms that make it difficult to repay any capital, and a host of other ‘fine print’ that extends the length of a mortgage, or increases the monthly payments.  This is only the tip of the iceberg.

Banks and building societies will lend £1 billion every day in what is called ‘the biggest-ever home loan bonanza in Britain. The Council of Mortgage Lenders said banks will lend an extraordinary £360 billion in mortgages before the end of 2007.

Currently, more than 60% of the population are living in their own, over mortgaged, home. However, after taking a closer look, homeownership did not build the debt mountain.  The blaring truth is that housing equity still outweighs mortgage debt with the value of housing assets increased by £410bn in 2006 versus a £100bn increase in mortgage balances. This means that we owe record numbers on mortgages, but our assets still outweigh our debts.

We are all susceptible of losing our homes and ending up declaring bankruptcy.  Let’s look at the debt and financial forecast, today:

• Household debt increases £13 a day
• Consumers will borrow £313m
• 330 people will become insolvent
• £1bn in mortgages will be approved
• Citizen Advice Bureaus will deal with 5,300 debt problems
• It will cost £15 to operate the car
• It will cost £30 to maintain a household
• Each child will cost £23.50 to raise
• Your home value increased by £46
• 24.3m transactions worth £1.3bn will be added to credit cards
• Online users will spend £82m
• 354 mortgage possessions will be issued
• interest payments increased, per £100,000 owed, from £450 to £570.

Combine this with a few other facts, and it is easy to see why the average, hard working, UK consumers finds themselves in financial trouble when they don’t overpay, over shop, or buy a bigger house.

Less than 40% of the 30 something generation are aware that they can get help.  Twenty five percent of adults found that their pensions were not enough to retire on and are ‘certain’ that they will declare bankruptcy.

The average cost of running a home is ₤11,035, up 12% in two years.  This is an increase of about ₤1,000 - ₤1,500.  The average cost of raising a child is up 9%, to ₤23.50, last year alone. This means that the cost of raising two children is about ₤5, or an increase of ₤1,800.

This means that the average family has experienced a ₤2800 increase in their expenses, in one year.  Add to this another ₤800 - ₤1800 in mortgage.  There is another  ₤1,200 - ₤2,000 increase in interest on the ₤15,000 the average consumer owes. This number increases dramatically for the elderly who are forced to build debts as high as ₤36,000 as they try to hold onto their homes.

The annual fuel bill now averages ₤1,100.

Total all this and the average household has seen their income decrease ₤4,800, without incurring another debt, spending any money, or enjoying any luxury.

This explains why so many households who considered themselves ‘middle class’ or ‘comfortable only five years ago are struggling to pay their debts, or have already petitioned for bankruptcy.

Thousands of homeowners are currently fighting to find out what will happen when their five-year mortgages are up for renewal.  The banks have removed affordable fixed rate products from the market, meaning that homeowners will be forced to pay an extra 2 – 5% on their mortgage, but will also experience another 2 – 5% increase in interest rates this year, depending on the increases in the Bank of England’s interest rate, and the homeowners credit rating.

This is why all consumers are advised to ask for help from one of the free debt services.  The swing from ‘tight’ to ’struggling’ can happen so fast, even if you’ve enjoyed a pay raise, found better employment, or reduced your debts.