Shelter, who carried out the research, has warned that relying on such methods could lead to people losing their homes.

The figure equates to almost seven million people when projected on a national scale, the charity said.

Payday Loans UK

And it has urged those sinking into a “spiral of debt” to seek immediate help.

Shelter found that 2% of people have used at least one payday loan to fund their rent or mortgage in the last year, equating to almost one million people nationally.

It said such loans, which are intended for short-term use and can charge as much as 4,000% APR in some cases, are an “unsustainable” way of paying for housing.

Campbell Robb, chief executive of Shelter, said: “These shocking findings show the extent to which millions of households across the country are desperately struggling to keep their home.

“Turning to short-term payday loans to help pay for the cost of housing is totally unsustainable. It can quickly lead to debts snowballing out of control and can lead to eviction or repossession and ultimately homelessness.”

The Shelter report will fuel concerns about people seeking high-interest credit, following a report from insolvency trade body R3 last month which predicted payday loan companies will see a surge in demand in the coming months as Britons struggle with their finances.

The Office of Fair Trading is planning a review to ensure businesses are complying with responsible lending rules amid criticism of the payday loan sector.

The Consumer Finance Association (CFA), which represents businesses offering short-term loans, stresses on its website that payday loans are designed to be repaid typically within a month and a half and they are not appropriate if a large sum of cash is needed to be paid back over months or years.

Martin Lewis of MoneySavingExpert.com said: “It’s incredibly worrying there’s now evidence of people using payday loans to meet housing costs.
“While it’s an obvious temptation to grasp these loans as a lifeline, in the long run it may hurt more than help.”

finance.yahoo.com

The OFT has not named the companies involved, but said it was concerned firms were not checking whether customers could afford to repay these debts or explaining the terms of the loans clearly – including the often hefty charges for falling behind with repayments.

Payday Loans UK

Those found guilty of misconduct could lose their credit licenses or be forced to change their practices.

The regulator is now widening its investigation in the run up to Christmas, and will look at the online advertising of a further 50 firms.

In total the OFT received 1,535 complaints about these controversial companies in the first 11 months of this year, up from just 700 complaints for the whole of 2010. Surprisingly, it received more complaints about these payday loan companies than credit card companies – despite the fact that the latter is far more widely used by the general public.

Payday loans have attracted criticisms recently – from politicians and consumer groups. These short-term loans charge high interest rates, in some cases equivalent to APRs of 3,000pc.

This market has boomed in the UK in recent years, and is now estimated to be worth £2bn, with the number of customers rising from 300,000 in 2006 to an estimated 4m today.

The OFT highlighted a number of concerns about how these loans are structured and advertised. This includes the use of “continuous payment authority” which gives the payday loan company the right to keep taking repayments, even if a customer’s bank account is overdrawn.

It is also concerned that many of these loans – which may be just for a week or a month – are effectively “rolled over” if they haven’t been repaid. In such cases charges can quickly spiral, leaving those on low incomes struggling to repay these debts.

However, payday loan companies have argued that they offer a cost-effective way for people to access small amounts of credit for very short-periods of time, typically to tide them over until their next payday. While the APRs may look high compared to personal loans and credit cards, they are comparable to the charges levied on some unauthorised bank overdrafts.

telegraph.co.uk

Concern over personal debt has reached the highest level since insolvency body R3 began making records, it said yesterday as it warned of “zombie debtors”
who are only paying off interest rather than the debt itself.

Payday Loans UK

Payday loan companies have been criticised for charging annual interest rates of up to 4,000 per cent. Frances Coulson, president of R3, said people across all socio-economic groups face a “debt hangover” which is worsening because of rising unemployment and increased spending in the run-up Christmas.

“Many who take out payday loans find them to be a negative experience, often escalating financial troubles.”

MPs and consumer groups have called for a tightening of laws on payday loan firms, although this has raised fears it could push the poorest people toward illegal loan sharks.

Sarah Brooks, director of financial services at Consumer Focus, said: “Much more needs to be done to prevent consumers getting caught in spiralling debt.”

A spokesman for the coalition said it was aware of concerns and that ministers are working with the industry and consumer organisations to ensure people are protected.

Industry group the Consumer Finance Association said firms provide an alternative to bank charges on unauthorised loans and described the 2,000 people sample size in the R3 survey as “not credible”.

cityam.com

Mortgage Rates

According to official monthly data, published by the Bank of England, the average rate offered on a two-year fixed rate mortgage to those home owners with a 25 per cent deposit, was 3.36 per cent, during June.

This was down from 3.51 per cent the month before and 3.67 per cent a year ago and was the lowest level since January 1995, when data was collected in this way. Experts said it would have been the lowest ever because not that many fixed rate mortgages were taken out before the early 1990s.

The record average figure, follows a series of eye-catching deals being offered by some mortgage providers, as they try and lend more money to customers, after a year of failing to hit their lending targets.

It is also further evidence of how the financial crisis – which has squeezed the disposable income of millions of families has finally benefited many home owners.

Melanie Bien, director at the broker Private Finance, said: “These figures show that there are some very cheap deals around and if you have a good sized deposit you can dramatically reduce your monthly mortgage payments.

“Some people have absolutely benefited from the crisis.”

The Bank of England slashed its Bank Rate to a record low of 0.5pc more than two years ago, in an attempt to keep the economy afloat and help families hit by the financial meltdown. However, six months after its radical move, the average mortgage rate had actually increased, as nervous banks were reluctant to lend money to anyone without a perfect credit history.

Since then rates have moved up and down, and only in recent weeks have they improved significantly with the likes of Chelsea Building Society offering a 3.5pc five-year fixed-rate mortgage and Yorkshire Building Society offering a 2.79pc two-year deal.

Banks have started to act as a result of “swap” rates – the rates that lenders use to underpin mortgage deals – started to fall. These have come down as a result of the markets betting that interest rates are unlikely to rise for the rest of this year or well into next year.

However, Ms Bien warned that while rates had fallen substantially, only those with a decent deposit could enjoy low rates. “The big issue is that if you want a high loan-to-value deal, you aren’t going to be offered a good rate.”

telegraph.co.uk

Money

It means that tomorrow is so-called Debt Freedom Day – the day when borrowers become free of paying the interest on their debts and can finally begin re-paying the actual debt itself.

It is the equivalent of borrowers spending the first 45 days of their entire salary on the amount of interest that would have accured during the last 12 months.

However, there is a small glimmer of hope for cash-strapped households as it is five days earlier than last year, according to the financial website Unbiased.

Researchers explained the drop, saying people are borrowing less and paying back more of their debts.

But accountants warned that the date will be much later for some Britons as their interest payments remain high.

David Birne, of accountants HW Fisher & Company, said: “A lot of people have a lot of debt and in many cases they are only just managing to stay on top of it.

“A lack of spare cash and of equity in their homes means they cannot materially pay down the debt, which means the interest payments remain high. The inability to pay down debt quickly very quickly takes its toll. For many people, Debt Freedom Day is unfortunately a long way off.”

Earlier this year, the Insolvency Service revealed a sharp rise in the number of debt relief orders, a new form of bankruptcy introduced by the former Labour Government.

Numbers more than doubled in 2010 with 6,100 issued in the final three months of last year. The orders allow people with debts of less than £15,000, assets of less than £300 and less than £50 surplus income a month to have their borrowings written off without having to enter full bankruptcy.

Karen Barrett, chief executive of unbiased.co.uk said “With debt levels still remaining at extreme highs there is no better time for people to service their debt and get back in control of their finances.”

pawn broker

According to the National Pawnbroking Association and borro.com, an online pawnbroker, the 79pc rise in loans in January is down to a number of factors, including the impending ‘Blue Monday’, the third Monday in January, when the next pay check is eagerly awaited and credit card bills from overspending at Christmas begin to appear.

Des Milligan, the chief executive of the National Pawnbrokers Association, said: “January is traditionally the busiest time of year for pawnbrokers as customers pawn their jewellery to help pay their Christmas bills.”

Paul Aitken, the head of borro.com, said: “January is a busy month for us. We not only see a large number of people looking to free up cash from their assets in order to pay off Christmas debt, but also people looking for help to cover their tax bills, as tax returns are due at the end of January.

But high street pawnshops will face harsh competition for punters as supermarket giant Tesco launched a new service allowing customers to swap unwanted gold jewellery for cash. In November, the retailer began trialling its Gold Exchange in about 15 stores and said it developed the service in the wake of the strong price of gold.

Under Tesco’s gold swap scheme, sellers can send off their unwanted or damaged gold jewellery in a prepaid envelope. Once the items have been valued, customers will receive an offer letter or email stating the proposed price for the gold items.

Telegraph.co.uk

House prices to edge lower in early 2011

The Royal Institution of Chartered Surveyors said the overall outlook for the housing market in 2011 is likely to be the same as this year, with much resting on the economic outlook and it warned that public spending cuts could prompt further falls in house prices.

Simon Rubinsohn, chief economist at RICS, said: “A key risk is that the economy performs more poorly than we currently envisage.

“It is conceivable that the fall-out from the programme of public spending cuts could be greater with the jobless total rising in a more market fashion. In these circumstances, it is likely that the appetite of those considering making a purchase in the residential sector could turn out to be rather weaker than we currently anticipate.”

Unemployment is expected to rise sharply over the next couple of years, reaching the three million mark next year, according to experts.

Vicky Redwood, an economist at Capital Economics, said: “The recovery in the UK labour market appears to be flagging even before the public sector job cuts have really started.”

RICS predicts house prices will stabilize in 2011 following a narrowing of the gap between the demand and supply of properties.

A lack of suitable properties helped to push up prices at the beginning of this year, leading to a mini property boom in some areas. As more properties have come onto the market for sale, prices have fallen.

“It is quite conceivable that by the final quarter of 2011, national house prices will not be that very different from where they currently stand,” Mr Rubinsohn said.

Halifax said at the beginning of this month that values have dropped £5,000 since the beginning of the year amid the mortgage freeze. It brings the typical value of a home in Britain to £164,700.

Concerns about borrowers’ ability to repay their loans have prompted banks to demand larger deposits for the best rates. RICS suggests this trend is unlikely to change.

Mr Rubinsohn said: “There are sufficient reasons to doubt that there will any meaningful improvement in the flow of mortgage finance over the coming twelve months.

“Moreover, it is not difficult to go one stage further and conclude that the balance between the debt and equity requirement for house buyers has changed for the foreseeable future if not for good. In this environment, we find it hard to believe that sales activity in the residential market will be very much higher in 2011 than in 2010.”

Britain’s biggest building society said the average price of a home dropped 0.3 per cent in November, the equivalent of almost £1,000 in a month.

It brings the average price of a home to £163,398, down from £164,381 in October.

It follows a drop in prices of £6,000 in September, recorded by Halifax, Britain’s largest mortgage lender.

Prices have dropped amid an increase in the supply of properties for sale.

Martin Gahbauer, Nationwide’s chief economist, said: “Much of the weakness in property values since the Spring has been driven by a return of sellers to the market, following unusually low levels of property for sale in 2009 and early 2010.”

Demand for property has been low amid a lack of affordable mortgages, with signs that lending criteria will remain strict in the months ahead.

Banks are still demanding substantial deposits for the best rates amid fears that home owners will be unable to keep up their monthly repayments amid concerns about the economy and unemployment.

The latest housing survey from Nationwide found prices dropped 0.4 per cent in the year to November compared with a rise in annual growth of 10.5 per cent in April.

Catherine Penman, head of research, Carter Jonas, said: “A notable improvement in both pricing and sentiment was evident during the first half of the year which has since been counteracted by an increasingly cautionary tone and heavy downward pressure on prices during the second half of the year.

“This negative pressure is expected to continue with an estimated 5 per cent decline in house prices across the UK expected in 2011 as job losses intensify.”

By Myra Butterworth, Telegraph.co.uk

Thousands of students across the country took part in marches and gatherings to oppose Coalition policy.

Demonstrators smashed the windows of a police van in Whitehall and scrawled slogans across its doors and a number of bottles sticks and eggs were thrown at a cordon of officers.

A policeman’s arm was broken in a separate confrontation.

By Andy Bloxham, Telegraph.co.uk

We all know that the poor pay more for everything but the unresolved question is – what do we do about it?

This week’s YouGov omnibus survey for Compass appeared to find overwhelming public support for a cap on interest rates as a solution: 68% of respondents believe there should be a lending rate cap to cover all forms of consumer credit, including the unsecured credit sector.

I can see how this seems like a sensible way of helping prevent people who are seeking short-term credit for small loans from being exploited, particularly those seeking loans from home credit and payday lenders. After all, some payday lenders from America charge over 2500% APR. However, these sky-high APRs exaggerate the true cost of this type of credit.

Interest rates reflect more than the cost of money. Last year’s report by the Joseph Rowntree Foundation into the feasibility of a not-for-profit home credit business found that, even on a not-for-profit basis, to make the service financially sustainable the percentage cost of home credit would be over 100%.

The Office of Fair Trading has recently reviewed the high-cost credit sector. Its report will form part of the government’s review which includes the coalition promise to consider regulating the cost of some forms of credit. The OFT found that introducing price controls would not be an appropriate solution – it could lead to higher costs for consumers and the exit of some providers from the sector.

Interest rate caps can harm people seeking this type of credit more than they help them. If they cannot get credit when they need it, the more likely they are to borrow from unregulated, illegal loan sharks. This might be an old argument, but just because it has been said before does not mean it is not still relevant.

Therefore, it is important that government measures should not make it harder for the less well-off to have access to a sector that a recent review by the OFT found works reasonably well.

The review found that home credit lenders appeared to treat their customers well, as there were low levels of complaints from consumers. More importantly, it found that they tended to show forbearance with repayment difficulties. This is key for me. Of all the lenders the Consumer Credit Counselling Service sees, the home credit sector has frequently proved to be the most forbearing. Agents visiting the homes of clients can easily recognise the can’t pays from the won’t pays, and those that can’t pay don’t, while the debt doesn’t spiral out of control with punitive interest rates and penalties.

The OFT found that suppliers of this type of credit fill a gap in the marketplace not fully served by mainstream providers. That is really the crux of the issue. Not only are most people who use this type of credit less well-off, they often find it hard to access credit from the mainstream banking system.

This can be for various reasons as the review found, many of which arise from more deep-seated issues, such as weaknesses in the financial capability of consumers without credit history, and the reluctance of big banks to be associated with high-cost lending.

To solve the problem we need new approaches: rethought attitudes to small-scale lending from the big banks, a separation of the cost of money from the cost of delivery in the APR so the price of service and convenience stands out clearly, and better information about paying habits as opposed to traditional creditworthiness. The Registry Trust, which I also chair, is exploring setting up a payment register as a way of establishing a file for those with little credit history.

In addition, the government could spread knowledge by extending the website www.lenderscompared.org.uk (set up after the Competition Commission looked at high-cost credit) to make choices clearer to consumers.

Payday lenders need different treatment from the established home credit sector. There is merit in the Consumer Focus recommendations to limit the number of payday loans taken out or rolled over, to five per household annually, for payday lenders to share information to avoid people borrowing from multiple lenders simultaneously and to develop an industry code of practice.

The issue of high-cost credit is a complex one. Capping interest rates could do more harm than good.

• Malcolm Hurlston is chairman of the Consumer Credit Counselling Service, a charity that provides help and advice to people with debt problems