Research released by property purchase company A Quick Sale has revealed a new form of "negative equity" which the firm says is gripping around 54,100 people in Leeds, created by an increasing trend in homeowners taking out high interest loans when t
he equity in their homes runs out.
The boom in house prices in recent years has led to many people releasing equity from their homes to fund more lavish lifestyles. However, as the housing market has slowed down, many people are now turning to other sources of funding, such as unsecured loans and credit cards to fund luxuries such as new cars and exotic holidays.
The new research found that one in ten people in Leeds have taken out a loan to help finance their lifestyle, and one in six would do this to buy a luxury item if they had no equity in their house to fund it. In stark contrast, only five per cent have ever been advised against taking out additional loans or credit cards in order to keep control of their finances.
In addition, almost one in five say they borrow more money than they actually need when taking out a loan in order to have some extra disposable cash, increasing their debts and payments unnecessarily.
The findings come hot on the heels of the recent report released by Datamonitor – Western European Consumer Credit 2006 – which found that the UK is responsible for a third of all unsecured debt in Western Europe.
Concern
The UK consumer credit market hit £215 billion in 2005 and the average UK consumer owes over twice as much (£3,175) as its Western European counterparts (£1,558).
Richard Watters, A Quick Sale managing director, said: "It's a growing concern that there are so many people falling in to more and more debt, often beyond their control, because they are being ill-advised by financial organisations. It is vital loan and credit card companies investigate their customers' financial situations before offering them credit. Our research showed almost one in ten people who have taken out a loan or credit card were not really planning to but did so after receiving marketing information from a company.
"So, without even intending to, consumers are getting themselves into serious amounts of debt that could be avoided. Loan companies should be taking more responsibility and offering advice and guidance to consumers rather than just one 'solution.'
"We are seeing an increasing number of people struggling to afford their mortgages and many are facing repossession. A large proportion of these people have fallen into such difficulties because they have taken out a number of high interest loans or have repayments on credit cards they can't meet."
The research also showed:
l Almost a quarter (24 per cent) of 35 to 44-year-olds have struggled to make repayments on a loan or credit card.
l One in five males (20 per cent) have borrowed or would consider borrowing more money than they actually need in order to have some extra cash.
l Almost a quarter (23 per cent) of 25 to 34-year-olds have been encouraged to take out a loan or get a credit card by salespeople or promotional leaflets.
