Cry for help from debt-ridden middle class

A debt advice charity is being overwhelmed by demands for help in some of the most affluent parts of the country. Transact, which represents more than a thousand organisations and individuals involved with people suffering financial hardship, said last night that the number of middle-class people wanting advice was rising dramatically.

Its alert came as a survey for The Times found that people attempting to escape the property crash by renting rather than buying face increases of as much as 17 per cent this year. At the same time a survey by the Royal Institution of Chartered Surveyors predicted that house prices will fall by about 5 per cent and the number of housing sales could fall by 40 per cent.

Transact said that the credit crunch was leaving many professionals and homeowners unable to cope with their mounting debts, and some advice centres were having to turn people away. In affluent areas such as Haywards Heath, West Sussex, and Congleton, Cheshire, there had been a 100 per cent rise in the number of inquiries in the past year.

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At the Mid-Sussex Debt Advice Centre, which serves the Haywards Heath area, the average debt of clients — excluding mortgages — is £20,000, rising to £110,000 in the most extreme cases. Emma Russell, a debt adviser, said: “I’ve had at least two clients tell me that they would have killed themselves if they hadn’t found out that we were here.”

Jamie Elliott, the co-ordinator of Transact, told the BBC: “In the past it was almost uniquely people on benefits, people in social housing, who went to debt advice agencies. Since the credit crunch started they are seeing a big increase in professional people and homeowners coming to seek help, who have just been pushed over the edge and now can’t cope with their outgoings.”

The survey for The Times by Hometrack, the property data company, found that the cost of renting a home rose on average by 6.15 per cent in the year to April. In hotspots such as Oxford, Birmingham and London, rents rose by 17, 16 and 14 per cent respectively, while in Cambridge and Sheffield, tenants are paying an average 10 per cent more than they were in March last year.

Richard Donnell, the director of research for Hometrack, said: “The rental sector is a waiting room for the housing market and more people are being pushed into that waiting room just as rents are being forced up.”

Many of the people seeking help from debt advice agencies had used credit in their homes to pay for home improvements but, as fixed-rate mortgage terms came to an end and the cost of living increased, many people were finding it hard to meet repayments, even if they earned a relatively good salary.

Transact said that it expects the problem to become worse, and has called for more funding to provide debt advice.

The Hometrack data tracks rents on two-bedroom flats or houses, but the cost of tenancy is reported to be rising even more quickly for larger family homes. A survey by Paragon, a buy-to-let lender, suggested that rents for detached homes have risen by 30 per cent, compared with an average of 12 per cent across all housing types.

The survey suggests that rent rises are highest in the South West, up by an average of 42.2 per cent, and in East Anglia, where they are 31.9 per cent higher.

The Money Centre said that one third of its landlords had reported plans to increase rents within the past three months, by an average of 6.8 per cent.

The mismatch between supply and demand in homes for rent is helping to create the above-inflation increase in housing costs.

The rent for two-bedroom properties is falling, however, in some areas, including Milton Keynes, Leicester and Reading, because mortgage repayments are similar to the cost of renting. In Milton Keynes, where the rent on an average £140,700 two-bedroom home is about £177 a week, it would cost £178 to buy with a 15 per cent deposit and an interest rate of 6 per cent.

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Stock Market Had Worst Half Year Since 1970

The half year report card for global stock markets was not one to be proud of. The first half of 2008 was the worst first half to a year for the Dow Jones Industrial Average since 1970, when the index was down 14.60%. The 14.44% decline of 2008 is actually the tenth worse performance since 1900. July hasn’t exactly started off with a bang and US traders may be thankful for the long weekend last week. The S&P 500 closed the week down 1.19%, registering its lowest daily close for almost two years. June was especially hard for US markets with a drop of 8.55% for the S&P 500, and a 10.19% collapse on the Dow, making up most of the years losses to date.

The culprits are not too hard to find. The first half performance of the US financial sector was -30%, while the Energy sector managed to find a rise of 8.12%. If you were asked to list the top dangers for the global economy, you would be hard pressed to find any factors that are not already playing themselves out. Firstly we have oil prices that seem to reach new record highs with each passing week. $150 per barrel is looming ever closer. This price action is linked to the second danger, further conflict in the Middle East. Last week, a former Israeli air force commander was quoted as saying that Israel was ready to attack Iran if diplomacy fails. The Iranian oil minister has responded by saying that Iran is ready to defend itself, and that an attack on Iranian nuclear facilities would be the start of war.

Oil fuelled inflation is still causing central bankers headaches, with Citi Group today predicting that UK inflation jumped to 4.6% in June. Last week, the ECB went to great lengths to stress that the recent rate hike didn’t automatically precede a series of hikes. Nevertheless, Trichet’s firm stance on fighting inflation has caused some disagreements between the ECB and the Federal Reserve in the US. The final horseman of the apocalypse could be when the global economy finally yields to the pressures of inflation and the aftermath of the credit crunch. There are increasing signs that the world’s largest economy is slowing. Thursdays US payroll figures showed a 20% increase in unemployment year on year. Also Non Farm Payrolls shrank for the 6th consecutive month. With UK house prices going the same way as the US market, the bricks and mortar ATM is no longer paying out, and UK households are already at record levels of indebtedness. Shocking figures from Marks & Spencer last week was testament to this.

The week ahead is a quieter affair with fewer top tier announcements than the week just gone. That said, there are still some potential market moving datasets due. UK industrial and manufacturing production figures are released on Monday morning. The recent Purchasing Managers Index monthly survey of UK manufacturing was described as “truly dreadful”, with indications that this sector at least may be heading for a recession. On the same day, we provisionally have the UK Halifax Price Index delayed from last week. On the same note, US pending home sales are released on Tuesday. Bad news is expected for both, the only question being how bad the news actually is.

The week’s top ticket trading is the MPC interest statement on Thursday. The Bank of England is still stuck between a rock and a hard place, with record oil prices driving inflation, and slowing consumer spending hurting the economy. A no change verdict is widely expected to be the more likely course of action.

With next week being relatively lighter on the economic news front, BetOnMarkets.com thinks that it may be a good time for a trade that looks to profit from low volatility. A barrier range trade wins if neither of two levels are hit within the specific time period. A barrier range trade predicting that the FTSE 100 will not touch 5016 or 5875 in the next 16 days could return 10%

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Families have £155 a month less to spend

By Harry Wallop Consumer Affairs Correspondent

DISPOSABLE incomes have fallen to their lowest for five years as household costs soar, a report claimed yesterday.

Wages have failed to keep pace with spiralling petrol, gas and electricity bills and taxes, leaving the average family with £155 less to spend at the end of each month compared with 2004.

The study by Ernst & Young, one of the country’s largest accountancy firms, calculates that the average family, with two children, has £755.52 left at the end of each month after paying essential bills. With this they have to buy food, drink, clothes, holidays and pay any school fees.

Monthly disposable income has fallen from £909.84 five years ago and from £821.69 last year, equating to a total fall of 15 per cent. The accountancy firm admits that the fall in “discretionary spend” would have been more dramatic if it had included food prices, which have risen significantly, in its collection of fixed household bills. Jason Gordon, the director of retail at Ernst & Young, said: “All consumers are painfully aware of the huge hikes in petrol and utility bills but we’ve also seen some fairly hefty price increases in pension contributions and debt repayments.

“If we go one step further and factor in food price inflation, which official figures have placed at 8.7 per cent in the last year, it’s clear that household budgets are under enormous strain. Add in the impact of falling house prices on the consumer’s propensity to spend, and the consumer economy is undoubtedly on a knife-edge.”

The figures come a day after the new deputy governor of the Bank of England, Charlie Bean, warned that living standards would continue to fall for the next year because of high oil prices.

Leading retailers, most notably Marks & Spencer, say that they have noticed a sharp and sudden deterioration in consumers’ spending power, which is likely to cause serious problems on the high street over the coming months. The Ernst & Young study says that although an average family’s income has increased over the past year by 3.7 per cent to £3,784 a month, this has not kept pace with the 9.6 per cent increase in fixed household bills, such as the costs of running a car, mortgage, pension contributions, utility bills and council tax.

Mr Gordon said: “Worryingly, though, the worst could be yet to come.

“If, as predicted, utility prices rise by as much as 40 per cent later this year and interest rates are increased to control rising inflation, consumers and consumer facing businesses will face even bleaker times.

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New buyers told to weather the negative equity storm

First-time buyers have been advised not to panic if they find themselves in negative equity. New buyers should remain calm and try to weather the storm. It comes as house prices across the UK fall and people who bought their houses within the last two years face the prospect of owning a property which is no longer worth what they bought it for.

If it is your home, it is an individual purchase, it is about you and the decisions you make. Do you stay living in your house because it has lost £20,000 in value? Of course you do because it is your home and you know eventually you will pay that mortgage off. Perhaps a £20,000 dip in year three and four of your mortgage is more than outweighed by the fact that in year ten to fifteen of your mortgage you will be in positive territory and you can see a finishing line for paying off your original debt.

If you find yourself in a bit of negative equity, weather the storm if you can.

Halifax reported that house prices fell by 1.3 per cent in April.

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