Parents take on personal loans to pay rising school bills

June 9th, 2008

Many people have been wary of looking for credit recently, and those that have gone looking have often found it difficult to find. For this reason borrowing on mortgages or for a new car or a family holiday have decreased sharply over the last year. And yet certain parents are bucking the trend and taking out large loans to pay for private education for their offspring.

As many as 18,000 parents took out personal loans last year as fees increased to a record high. The average loan was for £9,065, with experts claiming that applications will rise in coming years as parents struggle with rising energy, fuel and food bills.

Interestingly, these figures come just a month after Chris Woodhead, the former chief inspector of schools, said that some parents were being ripped off as schools spent money on “five-star facilities” with little educational benefit.

According to the latest report released by Sainsbury’s Finance, 18,000 UK loans worth an estimated £165 million were taken out across the UK last year to cover school fees.

In the last 12 months independent school fees rose 6.2 per cent. The average private school charges £11,253 and the number of schools with fees over £25,000 increased almost fourfold to 51. The Independent Schools Council said the increases are due to staffing and that cost rises are comparable with the state sector.

A combination of a rise in the cost of living, more children going to private school and the cost of private education rising could lead to more parents taking out loans to help fund their children’s education.

In the current market parents need to make sure they are shopping around for the best loan rate available and not simply turning to their current account provider. Failure to shop around will mean an expensive commitment to education could financially ruin the concerned parents.

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The scourge of negative equity returns

June 4th, 2008

A new study released by Citibank shows that negative equity, that scourge of the property market in the early nineties, is beginning to become a real problem once again.

A quarter of a million homeowners have slipped into negative equity since the start of 2008 and more than a million could suffer the same fate by the end of next year as the housing crisis deepens.

The report says the current problems being seen in the housing market have seen prices fall by 7 per cent since last autumn, creating a rise in the number of people who owe more on their mortgage than their house is worth.

In the midst of the early 1990s recession around 1.8 million homeowners were trapped in negative equity.

There are warnings that house prices could fall by 15 per cent or more by the end of 2009, taking the number of households in negative equity over the million mark.

The house price figures will pile more pressure on the Bank of England. Its Monetary Policy Committee is expected to leave interest rates on hold at 5 per cent when it meets on Thursday, despite three cuts in the past few months.

This move would help with the current inflation being seen in fuel and food prices but does nothing to help the housing market. It is widely thought that inflation will prevent any further interest rates cuts this year, meaning the current housing market problems look likely to continue.

Both mortgage providers and general loan lenders are expected to increase pressure on borrowers this week.

The Cheshire building society is expected to increase the cost of two of its three fixed-rate mortgages and add £500 to its mortgage fee.

The following day the Post Office will increase the interest paid on its fixed-rate mortgages by around half a per cent. Last week the Abbey and the Woolwich increased the cost of their fixed-rate loans. Tracker mortgages are fairing slightly better but not a lot.

Interest-only loans are also being hit by the credit crunch, with many lenders shutting the door on people trying to get the deals, popular with people trying to keep their bills down.

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