Some salutary lessons for borrowers

After the heatwave, as I write this column the increasing amount of cloud outside reflects the gloom of the financial news.

Bad debt and repossessions dominate the headlines, trumped by the 0.25% rise in the base rate. Consumers should heed the warnings.

Five big banks reported their profit figures recently and while they look healthy, there is an ominous undercurrent. The five report bad debt write-offs of over 5.75bn during the past year.

While they were producing their figures, repossession statistics were published showing that the number of repossessions in the first half of 2006 was the highest since the first half of 2001. At 8,140 the number was also almost double that seen during the same period in the previous year.

So the Bank of England’s decision to raise the base rate seemed to be the last in a string of dismal news items for the mortgage industry. But if you look more closely at the figures, maybe things are not as bad as the headlines suggest.

The number of properties being repossessed is only a 10th of what it was at the worst point of the housing crash 10 years ago. And the increase is being attributed to increased payment problems that followed the rises in interest rates imposed between autumn 2003 and summer 2004.

One of the consequences of those interest rate rises was an upturn in the number of fixed rate mortgages being taken out. So holders of such products are protected from increases in interest rates such as the recent one. Many more people are shielded from interest rate rises than was the case two years ago.

Around half of all outstanding loans from building societies are now on fixed rates. This is the highest proportion for several years and shows that people are seeking to offset the risk of interest rate rises.

And it is not only those who are taking out fixed rate loans who are benefiting. With interest rates at a relatively low level, many people whose fixed rate mortgages end over the next few months will find that rates are lower than their previous fixes. They will be paying less than they were.

More good news provided by statistics is that the growth of unsecured lending has slowed in the past 18 months. This will further help home owners. Fewer borrowers paying off unsecured debts means they are better able to meet their mortgage repayments.

So investigation shows the financial news is not as bad as it seem but these figures should be seen as a shot across the bows. Like people going outside on a cloudy day, clients should take heed of the weather warnings and ensure they have a financial umbrella at the ready.