Since the credit crunch hit, the banks seem to have changed the rules on numerous forms of credit. Hidden fees have crept into many credit card deals and interest on personal loans has increased across the board. Now it seems it is the turn of the overdraft, with many banks altering the terms and conditions of their overdrafts.

There are some who believe that the banks are changing their overdraft policy in response to the outcry over unfair bank charges for unauthorised overdrafts, bounced cheques and other penalty charges.. This may be so, but if their intention is to make their charges fairer and simpler, there is a long way to go yet. While many of the new overdraft conditions appear to be offering customers a better deal, a closer look at the small print shows that in many cases, customers are worse off than before.

The Lloyds TSB overdraft, for example, has trimmed it’s overdraft charge from £30 to £15. But they have also started charging their customers a daily fee for being over their overdraft, substantially increasing the cost of borrowing unless you get out of your overdraft rapidly. Barclays have done a little better, implementing a “buffer zone” beyond your overdraft limit, meaning that as long as you are back in the black inside of five days, you will pay a flat fee of £22. Previously, the bank charged £35 for unauthorised transactions. But again, changes elsewhere have made this not as simple as it sounds – interest on overdrafts has gone up from 15.6% to 17.9%. It’s a similar story across many other high street banks, with changes to overdrafts appearing to benefit the customer, but with other fees and costs added in for good measure.

Debtors need to be more careful then ever nowadays to fully read the small print when taking out more credit, and make sure that any existing lines of credit haven’t changed their terms and conditions. Whether it’s a loan, credit card, overdraft or another form of borrowing, hidden charges and confusing conditions are creeping in across the credit industry, and ordinary debtors are going to have to be savvy enough to tally up the true cost of borrowing.

The gloomy statistics keep pouring in, it seems, and not day goes by without some kind of grim prediction or new revelation about the economic downturn. This week has been no exception – first, the news that the largest majority of retailers in 16 years raised their prices last month, which is likely to further raise the cost of living in the UK. Retailers have had their prices driven up by a downturn in sales and an increase in fuel, food and raw goods prices – the very same increases that are affecting ordinary consumers are also putting the squeeze on the high street.

The second grim statistic has once again concerned house prices. Nationwide reported this week that prices fell by 2.5% compared to the previous month, the biggest month on month fall since the recession in the early 1990s. Year on year, the average house price fell by 4.4.% to £173,583, the biggest annual drop since 1992. Whatever way you look at it, house prices are tumbling, and they are expected to do so for at least another year.

This combination is very dangerous. The dramatic increase in food and fuel prices has many people struggling to pay their way. In the past, remortgaging could have been an option, but the tumbling house prices remove this option. Higher mortgage payments are yet another cost that people are having to deal with, and to top it all off the cost of borrowing has gone up as well.

For those whose finances were balanced on a knife edge before the credit crunch hit, life has become very difficult indeed. Living is more expensive, borrowing is more expensive, and assets are worth much less; it’s no wonder that so many people feel caught between a rock and hard place. Ultimately, most debtors will have few options except to make cutbacks where they are able to and try and hold on until things improve – and this will take years rather than months.

Britain’s economic woes have hit the high street, new research has revealed, as the service industry has reported consumer spending has dropped to the lowest it has been for a decade. Restaurants, bars and cinemas have seen a profitability drop to the lowest levels since the survey began in 1998, and business volumes have dropped by -44%, the lowest since 2001.

Interestingly, holiday spending has held steady in the face of a downturn in almost every other service sector. It seems that even in the throes of a severe economic crisis, there’s nothing that can stop Britons from grabbing a little time in the sun. Professional businesses, like law, accountancy and IT have all done well despite (or perhaps because of) the harsher conditions.

From a consumer debt point of view, the downturn isn’t necessarily bad news. It’s a sign that people are tightening their belts and cutting down on non essential purchases. Statistics earlier in the year suggested that people were continuing life as normal, and borrowing more to maintain existing levels of spending in the face of the economic downturn. Now, it seems that things have fully sunk in. Mervyn King, head of the Bank of England, has warned that the country is in for a tough few years, rather than a tough couple of months. Even though debt statistics are worsening and insolvencies are on the rise, increased consumer prudence gives some degree of hope. People are more willing to talk about debt, more willing to acknowledge it as a serious problem, and more willing to work towards a solution. It already looks as though we are set to face an economic crisis in the years to come, but if debtors approach their problems with prudence and openness, it may yet avoid becoming a debt and insolvency crisis as well.

People are increasingly willing to talk about their debt problems, a new survey by IVA.co.uk has revealed, with over a quarter of adults in the UK (27%) having talked about their money problems with friends and family. Interestingly, the numbers vary greatly in different parts of the country. Londoners are the most likely to talk to have discussed their debt troubles, with £2% having done so, whereas figures are lower in the North (29%) and even lower in the Midlands (18%).

That people are showing a greater willingness to talk about debt is a vital step in solving the UK’s debt problem. Perhaps, in a strange sense, the downturn in house prices and the heightened cost of living have made it more acceptable to talk about money troubles, as so many people are struggling to make ends meet. Personal debt has been in the news a lot over the past few months, which has helped to break down some of the old taboos; the media, the government and individual debtors are increasingly able to discuss debt honestly. A sense of shame or denial helps no one.

Many IVA forum members have talked about the tremendous pressure that debt has put them under, and how they struggled to talk to those close to them about their problems. Debt is traditionally something that people feel ashamed to discuss, and keep secret for as long as possible – that even a quarter of people in the country are able to talk about with those close to them is a surprising statistic.

Of course, the bitter irony is that many people develop a serious debt problem precisely because of this unwillingness to talk about money troubles; rather than talking about their problems and asking for help, the natural tendency is to cover things up and keep borrowing. If people are willing to be more open about their debt problems early on, there is a much greater chance of finding a solution before things get out of control.

The Battle of the Bank Charges continues…

The Office of Fair Trading is drawing closer to reaching a decision on whether or not banks will have to repay millions of pounds worth of bank charges to ordinary consumers. Last month, a High Court Judge gave the OFT permission to make a ruling on whether or not banks have been overcharging for missed direct debits, bounced cheques and other late payment charges. Banks routinely charge up to £39 for each infraction, allegedly to cover administration costs – independent research suggests that the true costs of these charges to the banks is as little as £2 a time, and that the banks are making a small fortune from them.

But it isn’t going to be an open and shut case. Several large banks have already successfully been granted the right to appeal against the OFT’s decision when it eventually comes. Whether or not the appeals are successful, they will prolong the case and delay any return of money to consumers by up to two years. Eager consumers may hope that the banks early clamour for an appeal is an indication that the OFT’s decision is going to go against them, but the banks are probably just hedging their bets. If the case goes their way, they’ll have no need to appeal, and if the OFT rules against them, an appeal may overturn the decision or at least slow the process down.

Frustrating as the slow progress of the case is, it was never going to be any other way. The banks will fight any ruling against them every step of the way, exhausting legal appeals until they are forced to give in. Consumers who have charges to reclaim from the banks may still have to wait for several years before a final decision is reached, but it is important to look at the big picture rather than the immediate financial gain that most people are hoping for. If the OFT rules that the banks have overcharged consumers, it will set a legal precedent that will protect ordinary consumers for many years to come.

Britain’s largest mortgage lender has reported a 40% drop in value of its new mortgages, as the housing market dries up and the UK’s debt problem worsens. Nationwide had a total of £6.7 billion in mortgages this financial year compared to £11.2 billion the previous year, and has blamed “unprecedented market conditions” for the sharp drop.

Nationwide claim that this drop is controlled and anticipated, and that they expect to ride out the downturn without any serious mishaps. The society has said that just 0.36% of its 1.5 million mortgage customers had fallen at least three months behind in their mortgage repayments, compared to an industry average of 1.21%, though it may be too early to tell – the coming months may see a significant increase in the number of people falling into arrears with their mortgages.

While it seems likely that Nationwide will survive without any significant troubles, how their customers will fair remains to be seen. Nationwide have been more consistent than some lenders with their mortgage packages, with few large increases in their prices, but the increased cost of mortgage lending that has happened across the market, particularly in the sub prime sector, is going to be the crucial issue for many struggling debtors this year.

Chief executive of Nationwide Graham Beale commented that “Last month we reported the first annual fall in house prices for 12 years. We think this trend will continue throughout the year, but remaining within single digits.” He went to say “The society is conscious of the difficulties faced by consumers in these disrupted market conditions and we are playing our part to help by continuing to focus on offering mortgages that meet the needs of both existing members and first-time homebuyers.”

It is to be hoped that Nationwide can live up to its promises, and that other mortgage lenders follow its example in helping homeowners through the troubled times. As the recent rise in repossessions has shown, far too many homeowners are vulnerable to the sudden shifts in price that continue to shake the housing market.

Millions of middle class debtors are finding themselves in serious trouble, recent research from debt advice charity Transact has shown, as the credit crunch starts to hurt wealthier UK residents. Debt advice charities in more affluent counties, such as Tunbridge Wells, Cambridge and Horsham, have seen an increase in enquiries of up to 200% in the past twelve months.

Anecdotal evidence from these charities suggests a significant switch towards wealthier middle class debtors who are suffering from the effects of the credit crunch. This growing breed of client includes a retired bank manager from Sussex with an annual income of £40,000 and £110,000 of debt across 20 credit cards and loans. In the Midlands, an IT manager on a £28,500-salary has £28,500 of unsecured debt and a county court judgement against him.

The data suggests that the drop in house prices and rise in mortgage payments is to blame for this sudden rise in middle class debt and insolvency. Plenty of wealthier individuals have been spending heavily on home improvements, anticipating that the growth in equity would cover the cost. With so much money invested in property and high levels of secured and unsecured debt, the drop in house prices has dealt a body blow to many households that have overstretched themselves.

In many ways this is unsurprising. Higher earners are offered more credit and can consequently run up very large debts if things spiral out of control. What this shows is that debt is not a problem that is confined to a particular class, no matter what the popular perception may be. No one thinks of debt as being a middle class problem, but with so much middle class wealth invested in suddenly unstable housing market, it hasn’t taken much to put some people into a very difficult position. Debt is often caused by unforeseen circumstances, but is also frequently caused by people living beyond their means on cheap and easy credit, no matter what their profession and personal circumstances. As the effects of the credit crunch really begin to take hold, anyone with unsecured debts or a recent mortgage needs to urgently assess their finances to make sure they are out of harm’s way.

Debtors who are struggling with the rising cost of living will have a long time to wait before things improve, the Bank of England has warned. The bank has predicted that Britain faces at least two years of “stagflation”, a period of rising interest and limited financial growth. The Bank also suggests that Britain may face a housing crisis to match the US, with the threat of rapidly falling prices matched by a significant increase in the number of repossessions.

The only silver lining to this economic cloud is that the Bank of England is expected to cut interest rates twice in the months ahead and hence reduce the cost of borrowing. However, there is no guarantee that the savings will be passed on to ordinary debtors. Recent cuts in interest rates have helped mortgage providers rather than homeowners, as lenders seek to protect themselves against the worsening economic situation. Borrowing, both in for mortgages and ordinary credit, is likely to continue increasing in cost, as are food and fuel prices.

This will be an urgent wake up call for many. Despite the financial difficulties faced by an increasing number of Britons, many have been acting as though the higher cost of living and troubled house prices were a temporary blip rather than a steady decline. Things will get better in the future, but it is a future that years rather than months away. Debtors will have to plan carefully in order to make it through the difficult times ahead. Above all, they must be cautious about taking on credit in order to help with temporary costs. This strategy might work if the economic troubles were only going to be short term, but since it may well be years before things improve regular use of credit is likely to prove a recipe for disaster.

People with mental health issues are more than three times more likely to develop a severe debt problem than the average consumer, recent research has shown. The report, produced by mental health charity Mind, has shown that those who suffer from bipolar disorder (also known as manic depressives) are especially vulnerable, as during their ‘manic’ phases they are prone to expensive shopping sprees and impulsive purchases.

Of course, this isn’t to say that people in debt are more prone to mental health problems. The vast majority of debtors are ordinary people who have seen their debts pile up for ordinary reasons – job loss, routine overspending, a long sickness, and so on and so forth. What these findings do highlight is the how vulnerable certain groups can be in a culture of easy credit. The targeting of credit cards to the young has been widely criticised, and with good reason – it normalises debt for young people just as they begin to earn. Equally, numerous members of the IVA forum have cited depression and bereavement as being causes of their debt. When someone is upset, they don’t think about the full consequences of their spending, and it is all too easy to get into a serious level of debt.

Once again, more responsible lending, based not just on an individual’s income and credit report but on their personal circumstances and situation, is something that needs to be implemented more by creditors. This needs to be carefully handled – responsible lending needs to be avoid discriminating against those with mental health problems and other difficulties, while at the same time protecting troubled people from taking on an excessive amount of debt. Otherwise, we will continue to see the unfortunate pattern of vulnerable members of society running up enormous amounts of debt that they cannot afford to repay.

The number of homeowners under threat from repossession has risen significantly this year, recent statistics from the Ministry of Justice has shown. Mortgage possession claims (the first stage in a repossession) have increased to 38,688 in the first , a 7% rise on the previous quarter and a 16% rise compared to this time last year. After a mortgage posession claim is issues, the next stage is a mortage possession order – these too have risen by 7% this year, 17% year on year. The first quarter of 2008 has also seen a 6% increase in the number of County Court Judgements being issued, another indicator that ordinary consumers are struggling to make basic payments. Overall, the Council of Mortgage Lenders expects repossessions to nearly double by the end of the year, as they are expected to rise from 27,000 in 2007 to 45,000 in 2008.

With the double effect of a sharply rising cost of living and mortgage prices that are spiralling upwards, many homeowners are finding themselves trapped between a rock and a hard place. The 1.4 million homeowners who are set to come off their fixed rate mortgages are especially likely to suffer, as are recent home buyers who have found themselves in negative equity. In the past, equity rises would have allowed struggling homeowners to remortgage and pay off their debts, and the more buoyant housing market meant that it was much easier for those on sub-prime mortgages to find a decent deal. Now, with house prices tumbling, many people could find themselves stuck in mortgages that they simply cannot afford to pay.

The good news is that this rise in possession claims and orders won’t necessarily lead to a wave of repossessions. Almost 50% of those under a repossession order manage to negotiate an agreement which allows them to keep their house or temporarily make reduced payments. But most analysts are predicting doom and gloom this year. Insolvencies, repossessions and CCJs are all likely to increase significantly over the next six months, and thousands of people are likely to face severe financial trouble before the year is out.