Market Climate of Debt Solutions
The impact of last years' events in the financial sector has undoubtedly created much turmoil within the UK consumer market, and has in turn heavily influenced the intermediary community and associated products and services represented.
The sudden increase in the cost of obtaining finance combined with the reduction in the general availability of products has left a disquieting number of consumers facing a different set of options from those they would have been presented with even 12 months ago. At that time, the market was awash with funds for remortgaging, and there was a huge selection of attractive fixed rates from lenders. The dangers of overextending by building up additional debt through credit cards and unsecured loans could be masked by the simple expedient of remortgaging on the rising value of property.
Compare those times to today's climate, and the option to consolidate has been drastically limited to those with adequate equity and the means to prove they can repay.
Commenting on the current situation, CML Director General Michael Coogan recently observed that, "It is inevitable that more borrowers' coping strategies will come under pressure in current conditions than in the unusually benign years of the last decade."
The impact of the existing conditions has resulted in a resurrection of the time-honored "diversify or die2 stance from the intermediary community, as advisors seek to compensate for the diminishing income previously obtained through liberal lender commissions and arrangement fees.
The result of advisors embracing new products to add value to an existing portfolio of services, combined with mounting consumer demand for advice on resolving financial difficulties, has resulted in a huge upturn in the general attitude of acceptance of debt solutions as a genuine product recommendation.
Supporting Statistics
The demand for effective debt solutions services for consumers is strengthened by recent statistics released from the Citizen’s Advice Bureau:
- Almost 300 people are being declared insolvent in the UK every day
- Personal debt in the UK currently stands at £1.38trillion, increasing by £1million every 4 minutes
- There were 57,000 reported problems relating to mortgage and secured loan arrears during 2006/2007
- Difficulties with mortgage and secured loan arrears increased by 35% during the first 2 months of 2008
- 18,900 properties were repossessed during the first half of 2008
- The total number of households with arrears of 3 months or more was 155,600 during the first half of 2008
- The impact of the credit crunch has hit the adverse credit sector harder than most of the mainstream market
Predictions by CML forecast:
- An estimated 45,000 repossessions will be made by the end of 2008 – similar to the rate recorded in the late 1990's
- 170,000 mortgages will be in arrears of more than three months by the end of the year
- 1.4million borrowers will face the end of their fixed-rate mortgage in 2008 and being exposed to current market interest rates
The effect of the rising cost of living (including energy prices increasing by 17% and food by 12%), combined with the limited choice and availability of products to choose from will be enough to push an alarmingly large number of households over the edge. Clients suitable for controlled debt solutions may:
- Have fallen into mortgage arrears, and have large amounts of unsecured debt
- Be facing repossession
- Be coming to the end of a fixed rate mortgage, and realise that previous surplus funds are no longer adequate to cover unsecured debts
- Be relying on credit card balance transfers to cover their living expenses
- Be unable to source any sub-prime lending products
- Have experienced a drop in their house prices, and subsequently have less LTV available for re-finance
- Have a maximum offer that doesn’t fully cover their consolidation requirements
Next article: Brokers can lead family finances revolution.