Homeowners can't have unsecured debt
Yes, you read it right, unsecured debt, as in credit and store card debt, a personal loan, an overdraft or even a catalogue debt, is not unsecured if you own your own home. So am I barking mad in saying there is no such thing?
The answer is simple. Fall behind with say, your credit card payments and through a relatively straightforward and uncomplicated legal process the lender, bank or credit card company can apply to the court to put these debts on your house, a bit like a second mortgage.
“No they can’t” I hear you exclaim, “Because it is unsecured, they would have had to inform me at the time they would put it on the house if I failed to pay!”
Read the small print though, and at the very end of several pages I daresay there will be some reference to it.
So why isn't it made clear, like when you apply for a mortgage? When you see mortgage adverts in the press, hear them on the radio or see them on the box, they all have the same statement: your home may be repossessed if you do not keep up repayments on your mortgage. Should we not have something similar in bold text on the same sort of advert for any form of unsecured credit?
As far as I'm concerned, the reason companies don't do this is because if they told the customers what could happen if they default on their payments they wouldn't sell as many products. So, just tell the punters what they need to know, give them the credit and put the rest in the small print.
A recent report from the debt charity, Citizens Advice, states that since 2000 there has been an astonishing 733% increase in the number of 'charging order' applications, which can result in the forced sale of a home through the courts for unsecured debt. At the moment, creditors can apply for a charging order only after a County Court judgement has been issued on the debt.
Or, they can badger the borrower into 'voluntarily' agreeing to have the charging order put on their home. This is not always in the borrower’s best interest, so they should seek further advice, because if they subsequently fall into arrears with repayments, the creditor can ask the court for an “order of sale” to force the sale of their home.
But it's not all bad news if the debt gets secured on your house. In any agreement made under the Consumer Credit Act or where the debt is less than £5,000 in total, even if it’s not covered by the Consumer Credit Act, the interest cannot be added, and so potentially becomes an interest free loan.
Anyone on the receiving end of an application for a charging order on their home can try to defend it by asking the court not to grant the order.
The grounds for this could include:
• You have other debts and to grant a charging order would favour this lender in preference to the other firms you owe money.
• You or a member of your family have a disability or serious illness.
• You already have a repayment plan in place, which is servicing all your unsecured creditors.
• You have other debts that are larger and some of your other lenders have frozen interest.
You could also ask the court to enforce payment in other ways, such as an attachment of earnings, which is when any payments would be taken directly from your salary on payday. Alternatively, if your debt is covered by the Consumer Credit Act 1974, which most bank loans and credit cards are, then you can apply for a time order, which can change your monthly payments and extend the length of time you can pay the debt over.
If house prices continue to fall, there is a risk that an increase in charging orders will push many homeowners further into negative equity and more house repossessions will further depress an already ailing housing market.
Under new proposals, the coalition government will look to set a minimum threshold of unsecured debt of £25,000 before a homeowner could lose their home. I would like to see the threshold of unsecured debt better defined before an application for a charging order can even be made.
At the moment, it can be done for a relatively small amount, sometimes even below £1,000.I think a threshold nearer the £10,000 mark would help. More importantly though, why aren’t borrowers made more aware that a missed or non-payment on a credit card debt and the like can result in the debt being dropped on your home which could eventually lead to repossession?
A case of mis-selling debt
I think this a case of mis-selling unsecured credit on a massive scale, don’t you?
In my view borrowers have been far too exposed to the risk of losing their homes to unsecured creditors. Some lenders and debt collection agencies use the threat of a charging order followed by repossession as a tactic to intimidate desperate and vulnerable debtors into making payments they can’t afford.
This is extremely unfair to the individuals concerned, so I welcome the foresight of the coalition government in going some way in addressing this issue.
An overdraft is an agreement with your bank that authorises you to withdraw more funds from your account than you have deposited in it. Many banks charge for this privilege either as a fixed fee or charge interest on the money overdrawn at a special high rate. Some banks charge a fee and interest. And other banks offer a free overdraft but impose very high charges for exceeding the agreed limit of your overdraft.
A homeowner’s worst nightmare; repossession is an action of last resort by mortgage lenders to recover money from borrowers that have failed to keep up with repayments on their mortgage or other loan secured on their home (see secured loan). Repossession is a legal procedure that has to go through several processes before the homeowner is evicted and the property reposed. These are: if a borrower keeps defaulting; the lender applies for a solicitor’s notice; the lender instigates possession proceedings through the court; at the court hearing a possession order is granted and sometimes a possession warrant; a bailiff is appointed and an eviction notice issued at which point the homeowner has two to three weeks to vacate the property.
The circumstances in which a property is worth less than the outstanding mortgage debt secured on it. Although it traps householders in their properties, the Council of Mortgage Lenders (CML) says there is no causal link between negative equity and mortgage repayment problems. At the depth of the last housing market recession in 1993, the CML estimated 1.5 million UK households had negative equity but most homeowners sat tight, continued to pay their mortgages and eventually recovered their equity position.
The practice of a dishonest salesperson misrepresenting or misleading an investor about the characteristics of a product or service. For example, selling a person with no dependants a whole-of-life policy. There have been notable mis-selling scandals in the past, including endowment policies tied to mortgages, employees persuaded to leave final salary pensions in favour of money purchase pensions (which paid large commissions to salespeople) and payment protection insurance. There is no legal definition of mis-selling; rather the Financial Services Authority (FSA) issues clarifying guidelines and hopes companies comply with them.
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.
“Arrears” tend to be associated with debt. If you fall behind and miss payments on any outstanding debt, the amount you failed to pay is an arrear – the amount accrued from the date on which the first missed payment was due.