Citizens Advice Bureau alert to rising secured loan mortgage crisis

A new Citizen's Advice poll just released has highlighted the mortgage arrears crisis facing some 770,000 people.

It was found that this number of people with a mortgage had missed one or more repayments on their home within the past 12 months; one in ten of those questioned by the charity wrongly believing that their home would "always be safe" under the terms of a secured loan, even if they missed payments. A further ten per cent were under the false impression that a secured loan allowed the borrower to "to pay back as much or as little as they like each month".

Citizens Advice claims that young people are most likely to miss mortgage payments, with 13 per cent of 21 to 24-year-olds surveyed admitting to having missed one or more mortgage payments over the past year.

The charity claims that it helped individuals deal with 1.25 million debt problems last year and received 51,000 enquiries about mortgage and secured loan arrears.

Commenting, Citizens Advice chief executive David Harker said: "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," he added.

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

With these alarming figures suggesting hundreds of thousands of borrowers are at risk of losing their homes, the situation is likely to worsen. Interest rates are shortly expected to rise, as inflation hits a nine-year high.
There has been much criticism of certain banks due to their relaxed lending criteria to make it easier for people to get on the property ladder, and also much further in to debt than was usually possible previously. Some lenders are prepared to lend up to six times a person's salary, while others are offering mortgages of 100% of the property's value or more.

The Coventry Building Society is currently offering a 125% mortgage, which is 95% mortgage and 30% personal loan.

According to the Council of Mortgage Lenders, first time buyers are borrowing the largest multiple of their salary on record.

When the worst happens, a single missed payment will incur a financial penalty from a lender. Nationwide charges £30 if a direct debit mortgage payment bounces, plus extra fees for letters. Abbey charges £35 if borrowers miss a payment without permission.

Analysts expect the Bank of England to raise the cost of borrowing to five per cent in November.
The warning follows yesterday's announcement that inflation hit 2.5 per cent in August, its fourth monthly rise in a row, while average house prices were almost £200,000.