Bernadette WhitlockDistrict Manager

Thanet District Citizens Advice Bureau

•Citizens Advice is a national association of which each individual bureau is a member.

•Bureau membership is retained by adhering to the required quality standards, tested by regular external audit.

•All bureaux are autonomous separate charities as far as local governance is concerned, and responsible for their own funding, publicity and recruitment

Aims & Principles

The Citizens Advice service provides free, independent, confidential and impartial advice to everyone on their rights and responsibilities.

It values diversity, promotes equality and challenges discrimination.

The service aims:

• To provide the advice people need for the problems they face

• To improve the policies and practices that affect people’s lives.

Credit Crunch

Credit crunch is a term used to describe a sudden reduction in the general availability of loans (or "credit"), or a sudden increase in the cost of obtaining loans from the banks(Wikipedia)

A credit crunch is often caused by a sustained period of lax and inappropriate lending which results in losses for lending institutions and investors in debt when the loans turn sour and the full extent of bad debts becomes known.

These institutions may then reduce the availability of credit, and increase the cost of accessing credit by raising interest rates.

In some cases lenders may be unable to lend further, even if they wish, as a result of earlier losses restraining their ability to lend.

It has made banks less willing to lend to each other or to consumers -

That's the crunch.

Surging inflation is stopping central banks from cutting interest rates to help ease the credit crunch

People who have patchy credit records are finding it more expensive to borrow, and banks are tightening their lending criteria.

Citizens Advice has recently started to see a change in the way lenders treat clients in financial difficulties, with many firms no longer willing to freeze interest.

 For many CAB debt clients, process-driven collections practices simply exacerbate their debt problems.

The credit crunch means that the cost of new mortgages has increased, there are fewer mortgages available to choose from, and they are more difficult to obtain.

This is making life harder for the 1.4 million borrowers coming off cheaper, fixed-rate mortgages in 2008

At the same time consumers are also feeling the squeeze: commodity prices have risen fast, driven by demand from booming China and India, making petrol, food and other basic costs more expensive.

Household finances have been badly stretched in the past year as the cost of energy has increased by 17% **July 2008 consumer price indices, Office for National Statistics

Food prices in UK supermarkets and shops have risen by 8.3% since January

Meat and fish - up 22.9% - registered the biggest price increases for any one category in the survey,

General store-cupboard items, such as tinned foods registered a 15% increase, fresh fruit and vegetables went up by 14.7%. price rises of nearly 50% for some individual food itemsSeptember 2008, Verdict Research. For BBC

Analysts say Consumer Price Index inflation is likely to rise to about 5% in coming months

To put this in context - Consider IS/JSA rates – Personal allowances -

94.95both aged 18+

47.95/60.50/94.95one under 18

47.95/72.35both under 18Couple

60.5018 or over

47.95under 18Lone parent

60.5025 or over

47.95under 25Single

The following table shows the monthly trigger figures for each category of expenditure according to the size of household, as accepted by major creditors.

623682100Other expenditure

10763141242Housekeeping

8831184049Travel

1171540Telephone

Ownvehicle£ pervehicle

Children14-18per head£ per month

Children under 14per head£ per month

Additionaladultsper head£ per month

First Adult£ per month

Expenditurecategory

Total £431 = £99.46 a week The “other expenditure” category includes fuel

EFFECTS of the CREDIT CRUNCH on INDEBTEDNESS

3 groups of people :

those already in debt for whom higher interest rates and cost of living will make their situation worse, may result in not keeping up re-payment schedules, may cause increase in bankruptcies

those not in debt, but heavily committed, or just managing, and may be tipped into a debt situation

those not in debt, who will notice a more difficult situation but will be able to manage

May have over-extended themselves through easy access to credit in the past – e.g. loans, credit cards, high % mortgages.

Will already be in a debt situation, i.e. unable to meet their commitments and have already (or need to have) negotiated re-payment schedules with creditors.

Some will be using credit cards to pay mortgage and other living expenses

May already be in touch with advice agencies which will have looked at income maximisation as well as at payment options and budgets.

Group 1 those already in debt

Group 1 those already in debt

• Priority debts may include rent, mortgage, council tax and utilities – also possibly court fines.

• May already be on pre-payment fuel meters (PPM) – ie highest tariffs. Hike in fuel bills may not have resulted in re-calibration of meters so could be stacking up arrears unknowingly.

• Those not on PPM will find their costs for fuel and food have gone up so may not be able to meet repayment schedules set up.

Group 2 - those not in debt

May have over-extended themselves through easy access to credit in the past – e.g. loans, credit cards, high % mortgages, but will have managed to cope while the situation remained stable.

Hikes in food and fuel bills may mean putting a squeeze on other less visible areas of expenditure such as mortgage, council tax.

Some may be coming to the end of fixed rate mortgage schemes and will now find massive increases to their outgoings. Where these cannot be met re-possessions may result.

Those who let out properties and fail to maintain the mortgage will result in loss of home for tenants.

Group 2 - those not in debt

Repayments on loans may not be maintained, with resulting risks to home for secured loans.

Minimum payments, if at all, may be made on credit cards with resulting massive increases in interest owing.

Those on fixed incomes eg pensions, benefits, may be tipped into debt because of increases in food and fuel costs as benefits not rising in line with inflation.

Group 3 - those not in debt

In theory the least worrying group, as they will be better able to

cope, although feeling the pinch.

However – see below…….

Other effects:

Potential increases in rent either legitimate or not – where landlords try to cover increased mortgage costs.

Those planning to buy may be unable to, thus stagnating the renting pool

Small businesses going bust, with consequent loss of jobs – puts group 2 people over the edge, and may also affect group 3

Fewer companies taking on new staff, so those unemployed have fewer options

Other Effects

Self-employed people whose businesses fold may not be entitled to JSA/IS- will rapidly be unable to pay mortgage

Private developers pulling out of house building so Social Landlords who share sites are having their new builds mothballed

More difficult to find accommodation for prisoners on release. – resulting in re-offending in order to be fed and housed

Potential Effects on Revenues and Benefits Services

Increases to rents will result in more people applying for HB

New claims will be for LHA.

LHA rates may have to change to keep pace with increasing rents

Where LHA rates leave large shortfalls more people will be applying for Severe hardship payments

Potential Effects on Revenues and Benefits Services

Increases to rents may result in increased requests for change of circumstances reviews by existing benefits clients

Where payments for rent and council tax are not on direct debits there could be a failure to pay and increase in arrears

Some people have already cancelled their direct debits in order to gain control over payment

Increased claims for HB/ CTB which may not all be payable, but will tie up system – many people do not understand what these benefits are for, eg not mortgages.Those in arrears of rent/C Tax, who have set up acceptable payment schedules may no longer be able to keep to them.

Potential Effects on Revenues and Benefits Services

Resulting in:

-increased officer time needed

-need for pragmatic approach to dealing with arrears management

-increased use of court procedures

- increased use of bailiffs

Figures for Thanet CAB

352515222020Redundancy

132323252229Threatened homelessness

5447119Actual homelessness

146136164193155165Discussing bankruptcy

9411388917197Council tax arrears

143226152128Private rent arrears

36104012Social landlord rent arrears

1010101558LA rent arrears

365035352930Fuel debts

515152323241Mortgage & secured loans arrears

10481261118910869061188Separate debts

Qtr 3 Qtr 2Qtr 1Qtr 3Qtr 2Qtr 1

200820082008200720072007