While existing homeowners continue to focus on overpaying on their mortgages or clearing other debts, remortgages still managed to account for the bulk of mortgage lending. Remortgages accounted for 24,626 of the 36,709 mortgage loans approved. Remortgaging and equity withdrawal approvals taken together were, however, still lower than a year ago, the BBA said.

Sales of properties remained fairly flat however, with 73,000 homes sold during May, compared with 72,000 in April.

The average value of homes purchased during May was £150,500, which was up 10.5% on last year’s May figures.

The BBA’s figures also confirmed the level of credit card purchases was generally subdued, and down on the six-month average, reflecting again the focus on clearing rather than creating debt. Demand for personal loans was also down on a year ago, according to the BBA.

“High street banks are the main providers in the mortgage market, supplying 75% of all new lending and approving more than 35,000 loans for house purchase each month. The low interest rate environment is resulting in customers choosing to reduce or pay off borrowing, particularly personal loans, rather than saving,” said a BBA spokesman.

The need for financial advice and financial planning has been emphasised again this week, as new figures reveal that the average UK citizen is now struggling with debts of over £6,000.

These debts do not include larger borrowings, such as mortgage owings. The main elements of the household debt include, on average:

- credit card bills of £1,748

 - loans of £3,077 taken to pay for cars, weddings, holidays, and home repairs

- bank overdrafts of on average £518

- finance deal borrowings of £646 to repay the cost of kitchens, furnishings and household goods

Of those surveyed, 47% said their household debts were due simply to the easy availability of credit, which led them to spend more than they earned.

A further 12% of people revealed that their debts had come about because they had lost their job, and a quarter of those surveyed said their credit card bills had arisen as they struggled to pay for everyday necessities, such as petrol and food.

Worst of all, 50% of those surveyed said that they were now able to repay only the minimum amount owed, and that they expected to be in debt for at least four years.

*Source: Lovemoney.com survey of 3,000 UK adults

Consumers can request a copy of their credit reference file for £2 from credit reference agencies such as Experian or Equifax, and online applications are also possible. The file must be provided within 7 days.

Ensuring that the following information categories are up to date is essential.

Your credit reference file will show banks and lenders how well you repay your debts, and if you pay on a timely basis in other words, if you are a good payer.

Your credit reference file will show details of existing loans you have. Lenders may decide that applicants who already have several loans can afford no further credit, even though they may be good payers.

Your credit reference file will also list any ‘financial links’ you have, including the identities of any person with whom you have a joint bank account or joint mortgage. They may also run a credit check on that person, so it’s essential to update details of any financial links you had that no longer exist.

Some lenders use a process of ‘credit scoring’ when considering an individual for credit. This involves giving you a points score based on your age, your job status, your type of job, and whether you own your own home. It is essential to ensure that developments in any of these areas are correctly registered in the records they use.

Details of personal loan or credit card accounts, whether live, closed or defaulted, remain on your file for 6 years.

Other information stored in your credit reference file for a certain time includes bankruptcy (kept for 6 years), an Individual Voluntary Arrangement or IVAÂ (6 years), a court administration order (6 years), and a county or high court judgement (6 years, but may be removed if paid in full within 1 month of the judgement).

More than 1m householders have had to use a credit card for rent payments or mortgage repayments in the last 12 months, according to the data published today by housing charity Shelter*.

Shelter found that a credit card had been used by 6% of all UK residents making regular housing or mortgage payments. As there are approximately 17.3m householders in the UK paying rent or mortgage repayments**, Shelter has concluded that just over 1m is the relevant national figure.

This expensive payment method is likely to have been a last resort for most mortgage holders, which also indicates that they may already be struggling with their personal finances.

In that case, making mortgage repayments ‘on the plastic’ is extremely risky, as credit card companies are not subject to the same rules as mortgage lenders, and can obtain a ‘charging order’ from the courts to force defaulters to sell their home.

A ‘charging order’ transforms credit card debt, which is an unsecured loan not attached to any concrete asset or property, into a secured loan with your home as the security.

Once the charging order is obtained, a credit card company can than move on to obtain a possession order that forces a homeowner to sell their home and repay their credit card debt.

While cases of actual repossessions are still relatively rare, data from Citizens Advice showed that in the period from 2000 to 2008, the use of charging orders to recover debt increased by over 7 times, and that around three-quarters of applications for charging orders are approved by the courts.

*Source: YouGov poll for Shelter published January 2010 covered 2022 adults in the UK
**Source: Survey of English Housing/Scottish House Condition Survey/Living in Wales (Welsh Assembly)

Under the Consumer Credit Act, credit card loan agreements must contain three key pieces of information:

• The amount or limit of credit agreed
• The rate of interest to be charged
• Details covering how the debt is to be repaid 

In addition, the original document can be ruled as invalid even if these details were included, if they have now been obscured because the document is illegible. 

The test cases follow a case in October this year where a debt collection firm failed to enforce its claim on a debt of £6,585 due to an illegible original. The case, which related to a debt on an MBNA credit card, was thrown out, not because the original data had not been correctly logged, but because it was no longer visible on the old and faded document. 

Where documentation is illegible, it fails to fulfil its function as a record of the terms of the agreement, and the courts are unable to grant an enforcement order to recover the debt. 

Lenders must also provide documentation to prove that the terms of the agreement were communicated to the borrower at the time, although many lenders have difficulty in doing so due to their own disorganised filing and administrative systems.

The average level of debt for those affected is £4096.32, spread over bank overdrafts, credit cards, store cards and loans. 

The age grouping most likely to have hidden debt was the 19-30 age group, of whom 26% had hidden debt. 

Largest hidden debt by cash value was among the 46-50 age group, where the average amount was £5880, and the 36-40 age group, with an average debt of £5834. 

AXA recommends financial advice as a means of facing up to and gaining control of debt. 

“The important thing is for people to take control of their finances and get the help and support they need,” said AXA spokesperson Alison Green. 

Those hiding their financial concerns should be encouraged to take their head out of the sand and start taking an active role in their financial future, she said. 

*Source: AXA report ‘My Budget Day/UK home to £50bn of hidden debt’, November 2009

As a result, access to a credit card will be harder to get, borrowing rates will spiral, and monthly credit card fees could become standard, as credit card companies look for ways to increase their revenues, according to a new report by the accountancy firm PriceWaterhouseCoopers (PwC)*. 

Bad debts in the credit card sector are now at an all-time high of 6%, but the number of cards in circulation has tumbled by 8%, and borrowing is down 3%, as cards are cancelled or blocked and consumers refuse new debt. 

Credit card companies wrote off £3.2bn in bad debts last year, according to PwC, who predict that these levels will rise even further as more consumers are affected by unemployment, short-time working and pay cuts. 

“This will leave consumers surprised at both the cost of credit, and the difficulty in gaining access to it,” the report said. 

Credit card companies have hardened their attitudes to lending already, PwC said. “The recent announcement by one major issuer that they would not generally seek to acquire new credit card customers without those same customers also holding a current account with them is in stark contrast to the time when credit card issuers accounted for 1 in every 4 pieces of junk mail that made it through our letterboxes.” 

The UK Card Association, commenting on the PwC report, predicted a marked reduction in the choice of products and an overall increase in charges, with both increased interest rates and an expansion of annual and other credit card fees. 

*Source: “Precious Plastic 2010: Consumer Credit in the UK”, PwC 2009

Best of all, prepaid cards are usually not subject to a credit check, as you are accessing funds you have already paid up-front.

The beauty of the prepaid card is that you are spending your own funds, which you have ‘loaded’ on to the card. It is not a credit card, lumbering you with hefty interest charges. Moreover, it is not a debit card linked to your bank account, and draining any overdraft facilities that might be available there. Your prepaid card contains as much as you have loaded on, and no more – so overspending is not possible.

Once your cash has been loaded on, the actual use of a prepaid card is similar to using other cards. It can be used as an alternative to store cards for purchases in High Street shops, for telephone shopping by reading your card number over the phone, for mail order shopping by including the card details on your order form, and for online shopping, by keying in your card number and details at the website checkout. And you are governed by how much of your own cash you have left on the card at all times.

Until now,  prepaid cards generally cost up to £9.95 to sign up, and then charged monthly fees of £4 or more to subscribe. But the market is now undergoing a revolution, due to a product innovation by telephone provider O2.

For O2 customers, a pair of pre-paid VISA cards are now available that are totally fee-free (except where some ATMs make a charge for cash withdrawals).

The ‘Cash Manager’ card can be loaded with up to £10,000 per year and is not only a safe, secure alternative to carrying cash, but updates you with your current balance by free text message, every time you use the card.

The second O2 card is ‘Load and Go’, a card where you can load up any amount subject to a limit of £1,800 per year. This card is ideal for parents who wish to give children going off travelling an ‘emergency stash’ that cannot be overdrawn. The card can be used at ATMs and anywhere that takes VISA, but again you may spend only as much as is loaded on the card. Again, a text message updates you on the card’s balance after each use, so that you are alerted to the financial activities.

 This may mean an end to free banking services, and in particular free current accounts, as charges are stepped up to anticipate the possible loss of other revenue sources currently under challenge. 

The major motivation for the rethink is the prospect of a severe curb on charges relating to late payments and unauthorised overdrafts. 

OFT to Challenge Penalty Charges 

The Office of Fair Trading (OFT) may soon get the go-ahead to challenge the fairness of bank overdraft and penalty charges, a lucrative income stream that brings the banks an estimated £3bn per year. 

While many overdraft and late fees have been charged at £30 or more, the Office of Fair Trading has expressed a view that any bank or credit card company charging more than £12 to the customer should have to justify its charges in public. 

The Office of Fair Trading has encouraged bank customers to consider switching accounts if new charges appear. “Where consumers are reluctant to change providers, firms have less incentive to compete vigorously. Also, new banks entering the market, offering potentially better deals, have less opportunity to expand,” the OFT stated in a recent update. 

Even if the OFT is not cleared to go after the banks on this issue, a second assault may be possible, as government may step in to pressure the banks to slash these punitive charges. The writing is already on the wall, as the government-backed Royal Bank of Scotland recently cut its overdraft charges by half to £15, in a move seen by many as a barometer of thinking in Whitehall. 

For the same reason, the future actions of both RBS and Lloyds TSB, which together account for half the current accounts in the UK, are likely to be imitated by other key players in the market. If both these government-backed banks decide to withdraw free personal finance services, their actions are likely to influence the remaining players in the market.

Practices such as increasing customers’ borrowing limits without their permission, and taking interest-only repayments that do not reduce their real debt, will be challenged this month in proposals by consumer minister Kevin Brennan.

 The current practice of raising credit limits without consulting the customer will in future require the customer’s acceptance of the extra credit, in advance.

 The practice of taking interest-only payments has slowed customer capacity to make headway with their debt in up to one-third of cases, the government claims.

 Also to be outlawed is the practice of allocating customer repayments to the cheapest debt first. For example, customers with part of their debt under a zero-interest deal are forced to repay that part first, leaving the part of their debt that is subject to high interest rates to accrue interest for longer.

Welcoming the proposals, consumer groups accused credit card companies of enticing customers into overspending, and then squeezing as much additional income out of them as possible.