Consumers and lenders warned over excessive Yuletide borrowing

Ramesh Sharma

June 1, 2004

Industry concern has risen due to increased business from customers looking to consolidate their debts while other consumers are opting to remortgage their properties to fund seasonal spending, a move that could limit the equity available in the property in the future.

John Stewart, director of PMI Independent Financial Advisers, said the debt consolidation business levels he had experienced were probably much more than coincidence with Christmas just around the corner.

“There has been a definite increase in debt consolidation and over the past few weeks I have dealt with two clients with debts of £80,000 and £60,000,” he said. “However, as long as lenders are getting a return on their money they are going to continue lending.

“I don’t know how long this can go on for; it all boils down to affordability,” he added.

Andrew Frankish, managing director of Mortgage Talk, also warned consumers to think of the implications of remortgaging in the run-up to the festive season and advised brokers to think carefully about the offers being put to clients.

He said: “There are some excellent fixed rate and discounted deals available at the moment and homeowners should consider carefully the merits of changing their lender in order to reduce their monthly outgoings.

“But anyone that increases the amount of their home loan without ploughing the money back into their property is potentially eroding the equity available in their home. And this is a dangerous route, especially if interest rates increase.”

Frankish went on to criticise the industry for encouraging the ‘spend and borrow’ attitude adopted by consumers. “People should think very carefully about the implications before remortgaging or taking out a secured loan to fund their seasonal spending,” he argued.

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