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Homeowners at risk of losing their home from unmanageable debt, says Citizens Advice  

13-09-2006

Homeowners could be at risk of getting into serious debt by over-committing themselves with loans and other forms of credit, say national charity Citizens Advice. A new survey - released for this year’s Advice Week - shows that some  770,000 people (see note 1)throughout Great Britain, with a mortgage have missed one or more mortgage payments in the last twelve months. The national charity is warning people to think carefully before taking on additional borrowing, particularly if they already have a mortgage and is pressing mortgage and secured loan lenders to ensure people can afford their repayments.  

The survey showed that younger people are more likely to have missed a mortgage payment, with 13% of 21-24 year-olds surveyed said they had missed one or more mortgage payments in the last twelve months. This suggests that some people who are new to homeownership may be getting straight into difficulties. In 2005/6 local Citizens Advice Bureaux dealt with over 51,000 enquiries about mortgage and secured loan arrears and over 87,000 enquiries about actual or threatened homelessness.

David Harker, Chief Executive of Citizens Advice said:

“These figures do not surprise us. Local Citizens Advice Bureaux helped people to deal with 1.25 million debt problems last year and see many people with mortgage and rent arrears. We are very concerned about the numbers of people who are missing payments. Missing payments on mortgages or secured loans could lead to arrears and possibly repossession. There is a clear need for more information and advice about the consequences of taking on financial commitments, particularly for younger adults.”

The survey also found that many people do aspire to home ownership, but may not be in a position to afford to own their own home. 19% of people who rent, or around 2.6 million people, say they would like to own their own home but don’t anticipate ever being able to afford it.  An additional 42% of people who rent, or around  5.5 million people, said they would like to own their own home, said whilst they cannot currently afford it they hope to be able to in the future.

David Harker added:

“If people are considering becoming homeowners they need to understand clearly what they are taking on. We don’t want people to borrow far more than they can afford. There is also a big responsibility on lenders of both mortgages and secured loans to take into account a person’s full financial commitments, and ensure that customers can afford repayments on any additional lending.”

The survey also found that some people don’t understand what secured lending is and that missing payments on these loans could lead to them losing their home. 11% of survey respondents thought a secured loan was a loan where the borrower ‘can miss payments and their home will always be safe’, with a further 10% of people thinking it was a loan ‘where the borrower can choose to pay back as much or as little as they like each month’. There is also concern about the way secured loans are marketed in newspapers, radio and TV adverts.

David Harker continued,

“Promises of quick decisions, easy monthly payments and help for people with bad credit ratings or mortgage arrears look very attractive. Celebrity endorsements could lull also people into a false sense of security.  But these can detract from the vital small print that loans may be secured against your home and that you could lose it if you miss payments. Companies need to make this information much clearer.”

Advice if you have difficulties paying your mortgage

• Let your mortgage lender know straight away.
• Don’t try and borrow your way out of debt, as it could get worse
• Don’t just stop or miss payments as you could lose your home.
• Don’t ignore letters, especially court papers and court hearings

Advice if you are thinking of borrowing

• Spend time shopping around to see what’s on offer
• Always look at the total amount you will have to repay
• Make sure you know the difference between secured and unsecured lending
• Don’t borrow more money to pay off existing debts
• When taking out a mortgage with variable interest, ask what your monthly payment will be if the rate goes up. A fixed interest rate may make more sense for you.

Get advice from a local CAB or go to www.adviceguide.org.uk. Advice Week 2006 (11-17 September) is organised by Citizens Advice as a celebration of the work of the service, to raise funds and to recruit new volunteers.

Case studies

A CAB in Gloucestershire saw a couple who had debts of nearly £300,000.  Most of this amount was secured on their home, and the clients had remortgaged eight times (four times with the same lender).  The clients had sought advice when they could no longer afford to make the repayments on the mortgage from the husband’s self-employed income.

A client of a CAB in Staffordshire had helped his wife buy her council house five years ago.  Last year they remortgaged to clear other debts.  At the time the client’s wife had stopped work to look after their children and his wages were only £170 per week.  The mortgage repayments were more than half of his weekly income and he had other debts to pay.  One of the other creditors had obtained a county court judgment and had applied for a charging order to enforce it.

A CAB in County Durham saw a 54 year old woman who was finding it difficult to meet the repayments on a secured loan of £74,000 and other debts.  She told the CAB that she had chosen the secured loan because she felt she could trust the celebrity who appeared on the TV advert for the loan company.  The client did not understand the implications of the secured loan she had taken out – i.e. that if she did not meet the repayments she would lose her home.

Note 1

The survey was conducted amongst a representative sample of 2057 adults in Great Britain by GfK NOP for Citizens Advice between 3 - 8 August 2006. The sample was weighted to be representative of all adults throughout Great Britain. All figures are based on the adult UK population of 45,340,100. 4% of respondents said they had missed one or more mortgage payments in the last twelve months. Based on the GB population this would indicate that approximately 770,000 said they had missed a mortgage payment in the last twelve months.

• GfK NOP survey on homeownership and debt, September 2006 ( 44kb)

Notes to editors:

1. The Citizens Advice service is a network of independent charities that helps people resolve their money, legal and other problems by providing information and advice and by influencing policymakers. For more information in England and Wales see www.citizensadvice.org.uk
2. The advice provided by the Citizens Advice service is free, independent, confidential, and impartial, and available to everyone regardless of race, gender, disability, sexual orientation, religion, age or nationality.
3. Most Citizens Advice service staff are trained volunteers, working at over 3,300 locations across England and Wales.
4. Advice and information www.adviceguide.org.uk
5. Volunteer hotline 08451 264264 (local rate)
6. Citizens Advice Guide to your rights, second edition: January 2008 - over 600 pages of practical, independent CAB advice. An invaluable resource for any bookshelf - available from all good bookshops; price £11.99; ISBN: 9780141034089

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