Resurgence in Credit Card Spending – trust deeds news
9th June 2011
There’s been a strange dichotomy in much of the reporting in our trust deeds news section over the past few months. On the one hand we’ve been reporting the ever more serious deterioration in the economic circumstances which determine our spending power. On the other we’ve been reporting falling average levels of debt and a reduction in the number of individuals undertaking debt solutions such as protected trust deeds.
Such a scenario seems illogical, and signs of its’ demise in the long-term are now becoming apparent.
Barclaycard have reported a 10% increase in card spending in April 2011 compared to April 2010. Aviva, one of the world’s largest insurers, has published research which states that the average UK household has experienced an increase in levels of personal debt of around 10% in the period from January 2011 to May 2011. Moneysupermarket.com report similar findings and have discovered that a third of adults have seen their overall level of debt increase in the past year.
It appears that the buffer of historically low interest rates may no longer be protecting homeowners against the threat of formal debt solutions such as protected trust deeds. With greatly reduced mortgage payments many people have chosen to use the extra money to repay debt where they can. However, it would seem that high cost inflation and low wage increases have now eaten into that buffer, meaning many individuals are once again having to rely upon credit to fund basic living costs.
The effect on private tenants may be similar but more severe. Rents have increased significantly over the past year (there has been no reduction in housing costs for private tenants) while other costs have also increased without equivalent pay growth.
Debt spirals are being created by increasing use of credit coinciding with declining levels of disposable income. Such a scenario can only result in growing numbers of individuals finding themselves in an unsustainable financial situation; the only solution for which may be formal debt solutions such as protected trust deeds.
There are a number of unique debt solution options available to residents of Scotland who face such a dilemma. Scottish trust deeds are a possible option particularly favourable for tenants and also homeowners with little or no equity in their home.
Unlike Scottish trust deeds, the debt arrangement scheme does not specifically address assets (such as equity in a home) and may therefore prove to be a more relevant option for homeowners with a greater amount of equity in their property.
There clearly are increased pressures coming to bear on Scottish households today which could possibly result in an increased rate of protected trust deeds in the coming months. The impact of increased mortgage costs, should mortgage rates rise, seems likely to magnify these unwelcome financial risks further.
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