An unpaid credit card bill worth 1,000 pounds is now enough for a UK lender to go to court, forcing debtors to sell their property. A recent regulation puts tens of thousands of British homeowners at risk of losing their houses.
Frankie Waller, an owner of a modest London dwelling, might well
soon lose the place holding memories of the last 20 years of his
life. September court hearings will decide if he can keep his
home or will have to sell it to repay 6,000 pounds of credit card
debts he has run up.
“Nobody asked me or twisted my arm to take out the credit.
That’s my doing entirely”, Waller confessed to RT’s Polly
Boyko. “But the word ‘unsecured’ was attached to it.”
That key word – unsecured – is supposed to mean the loan is not
attached to any of your assets. However, as of October 2012 the
rules of the lending game have been changed by a government
regulation, making it easier to turn unsecured debt into secured.
That means failure to pay it off puts borrowers at risk of losing
their homes.
A creditor has been given the right to apply to court for a
charging order, forcing the debtor to sell his property. As of
April, accumulating a debt of just 1,000 pounds is enough for the
‘un’ prefix to disappear from your unsecured loan.
Edward Ware from Step Change Debt Charity, which is trying to
help those with serious debt problems, believes the regulation
makes too many homeowners vulnerable.
“We wanted that threshold set at 25,000 pounds because we
wanted that extra layer of consumer protection. The government
have [sic] made it easier for lenders to get charging
orders,” Ware told RT.
Britain’s Office for Fair Trading has already warned major banks
over threatening to force debtors to sell their homes over debts
of just over 1000 pounds.
However, when the threshold was introduced in April, the Justice
Ministry justified it as a measure helping protect debtors.
“With a high threshold, such as 25,000 pounds, there is a risk
that creditors may seek to recover their debt by initiating
bankruptcy proceedings as an alternative to enforcement. This
would be a more draconian outcome for debtors than an Order for
Sale”, Lord McNally, Minister of State (Ministry of Justice)
said.
However, house prices in the UK are on the rise, and debt
charities are predicting a surge in charging orders. Because if a
debtors’ house gains value, its sale is guaranteed to return
their debts to their creditors.
Besides, a recent survey, issued on Monday, suggests the Britons
have become less cautious with unsecured loans, finding them
increasingly easy to obtain. Households' perceptions of credit
availability rose to 48.4 in August from 47.7 in July, survey
compiler Markit says, adding that it’s the biggest rise since the
survey began in February 2009.
"A brightening economic and financial outlook, alongside some
signs of improved access to household credit, looks to have
spurred consumer spending again in August," senior Markit
economist Tim Moore, as cited by Reuters.
Frankie Waller, however, has been sobered out of his own bright
vision of lending and spending.
“How’d you think it makes me feel?” he asks. “I mean I
feel thoroughly sick, and my wife feels thoroughly sick over it.
It’s something in the good times we took pride in paying and
throughout the bad times we’ve struggled for very hard. This
extra pressure, financial pressure is causing a rift between my
wife and I. Our relationship is very strained… life’s not
good.”
And Waller’s not alone in his grief. Eighty-one thousand and
fifty-nine Britons faced charging orders in 2011, according to
the most recent statistics by the Ministry of Justice. The
post-regulation statistics is yet to come.