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The Perils Of The Property Ladder: Has Anyone Noticed The Silence?
By: Rachel Lane
As you ascend the dizzy heights of property investment, don’t lose your head and
ignore mortgage research and advice.
There was a time when every conversation was focussed on property and every
other TV programme was about property makeovers. Everybody wanted to get into
property and those already on the ladder seemed fixated on becoming wealthy
overnight. Remember those media-nominated millionaires who bought property for
thousands and sold it for a million? How excited we all were, rich - with hardly
any effort.
But recently it’s been rather quiet. Those who have yet to buy their first home
have become sceptical, if not bored by chasing impossibly affordable homes and
those who have bought property have become nervous, if not by the commentary
that house prices are falling, but by the fact that they have bought property on
top of other debts and the realisation that repayments are becoming more
difficult.
According to the Department of Trade and Industry, bankruptcies are still on the
increase, up almost a third on the previous year. In the latest debt statistics
by Credit Action, UK economist Vicky Redwood from Capital Economics states that
the level of personal debt is at breaking point:
“It is unlikely that the numbers have peaked but we estimate that households
must be feeling the pain of borrowing too much. People are paying the equivalent
of about 20 per cent of their disposable income on interest and debt repayments
– the highest since 1990.”
In a survey by the Citizens’ Advice Bureau (CAB), the three most common reasons
for debt problems were quoted as:
“ * Sudden change in personal circumstances – resulting typically from job loss,
relationship breakdown or illness;
* Low income – the consequences of living for a long time on a low level of
income; and
* Over-commitment – in some cases related to money mismanagement.”
It is the third reason that is often highlighted in the context of mortgage
borrowing. In a press release regarding the Chancellor’s proposals to introduce
cheaper mortgages, Keith Tondeur, Director of Credit Action warned that:
“At first glance the offer of help to first time buyers sounds useful. However
this scheme comes at a time when after several years of steep rises the market
is cooling. One question that we should be asking is whether this is being done
to keep the housing market buoyant so that people feel confident and therefore
keep on spending”.
“House prices are undoubtedly too high for many people to afford which explains
why numbers of first time buyers have been falling, with the average age of a
first time buyer rising sharply. This scheme could therefore, if care is not
taken, create a false market and lead to first time buyers taking on a large
amount of long term debt that they could well struggle to repay."
The seduction of the property market may cause a vicious circle of debt: if
people borrow more than they can afford, they may damage their credit record if
repayments cannot be met. An adverse credit record will brand the borrower
“sub-prime”, and is likely to prompt less favourable credit options later in
life. It is true that products such non-standard mortgages, adverse loans and
adverse credit cards serve a purpose, but their rates will always be less
favourable than standard products.
In addition to self-inflicted debt, it is also possible for your credit record
to be manipulated by other parties. In June earlier this year, Callcredit issued
a warning to guard against identity fraud when moving house.
“Homeowners who fail to check their credit file before they move and register
themselves on the Electoral Roll once they have moved are at risk from:
* Identity fraud – a fraudster could obtain enough financial information about
you from your rubbish to run up debts at your old address without your
knowledge. People who just cut up cards and don't tell their lender are
particularly at risk from this type of fraud.
* Credit refusal – a person's credit history has to add up to the lender when
you apply for credit, if you don't appear on the Electoral Roll at your current
address it will make it more difficult to get credit.”
If you’re thinking about buying a house, try the following sites for starting
your own detective work in finding a good mortgage:
* Make sure your credit record is in good shape:
* * http://www.callcredit.plc.uk/
* * http://www.checkmyfile.com/
* * http://www.experian.co.uk/
* Don’t be lazy, shop around for the best mortgage:
* * http://www.moneynet.co.uk/ (compare mortgages)
* * http://www.cml.org.uk/servlet/dycon/zt-cml/cml/live/en/cml/pub_info (superb
range of consumer information.)
* * http://www.moneysavingexpert.com/mortgages (Martin Lewis has some money
saving recommendations)
Make sure you keep your finances flexible; ensure you know what you can afford
and for how long you can afford it. What was the best mortgage, current account,
ISA account five years ago, may not be performing as effectively now.
About the Author:
Rachel writes for the personal finance blog Cashzilla: http://www.cashzilla.co.uk
Cashzilla is a personalfinanosaurus. “Rachel” means sheep in Hebrew: “little
lamb” or “one with purity”. Cashzilla means financially savvy with great fiery
ferocity.
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