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More than 4 million fear they`ll be made redundant Consumers took on more mortgage debt in July Debts called in by parents Teenagers `scared of debt` Rising household costs could pressure people in debt Pensions debt may impact workers` retirement funds Welsh young adults `at highest risk of debt problems` Over 50s can`t afford to enjoy retirement because of debts Budget: tackling the nation`s debt Short-term debt: `no need for price control` The cost of clearing debt Education debt Tackling the national debt Number of mortgage deals on offer exceeds 3,000 Almost 5 million take on debt to pay household bills OECD: household debt more than 120% of disposable income Petrol price falls help people in debt Amount of mortgage debt taken on at lowest level in ten years Northern Ireland sees significant IVA rise Overdraft debt `becoming more expensive`

Many debts unaffected by base rate cut

09/01/2009

Yesterday, many borrowers welcomed the Bank of England’s base rate cut – but many more realised their debts would be entirely unaffected.

It depends on how the interest they’re paying on their debts is linked to the base rate. Some debts are directly linked; others indirectly; and others not at all.

Tracker mortgages, for example, are linked directly to the base rate. When the base rate comes down, so do the monthly mortgage payments of people with tracker home loans – unless this would take their rate below their mortgage’s collar / floor (a pre-defined minimum interest rate).

Other debts are linked to the base rate, but not so closely. Standard Variable Rate (SVR) loans tend to follow the rate, but lenders aren’t actually obliged to drop their rates when the base rate comes down.

And some debts aren’t affected by base rate changes at all. The interest charged on existing fixed-rate loans will stay the same for the term – although a drop in the base rate may encourage lenders to drop the interest they charge on new loans.

“There are many people – particularly people with tracker mortgages – whose monthly finances have improved significantly since the Bank of England started dropping its base rate. But many other people with debts have been entirely unaffected by the Bank’s efforts to help the economy.

“If they’re in financial trouble, they may have to take steps to bring their debts under control – they may find, for example, that a debt solution such as a debt consolidation loan or debt management plan could help. Before they commit themselves, they should seek professional debt advice.”

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Debt Advisers Direct offer free debt advice and a range of debt solutions, including debt management plans, debt consolidation loans and IVAs (Individual Voluntary Arrangements).

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