IT IS becoming increasingly clear that the property market is undergoing a fall in value. The website Propertysnake.co.uk lists over 500 properties across Scotland which are showing a fall in price over the last year indicating that, while Scotland may not be as badly affected as the rest of the UK by the housing market falls, it will still experience some downturn.
This would be bad enough if it wasn't coming at a time when lenders have dramatically reduced the number of mortgages being approved.
This leaves homeowners in a dilemma. Many are discovering that, as their mortgage renewal date comes around, t
here is no provider willing to lend on a property that may decrease in value over the period of the loan.
Therefore borrowers are finding themselves in the increasingly difficult situation of reverting to the standard variable rate at a time when other costs such as food, utilities and fuel are rising.
There are already reports of individuals paying their mortgage with credit cards to prevent the inevitable. This is obviously doomed to failure but you can understand the predicament in which people find themselves when they have a home with a falling value, no-one able to buy it because there are fewer mortgages available and increasing debts due to rising mortgage costs.
The homeowner is being squeezed on all sides and there is already evidence that increasing numbers are choosing insolvency as their escape route from rising debts.
My firm's initial analysis of the numbers taking out a Protected Trust Deed or undergoing sequestration indicate a dramatic rise in the numbers making themselves bankrupt.
For some who have overstretched themselves during the past few years, it is clear that personal insolvency is the solution. It offers a quick way to ease the burden of debt and release an individual from the undoubted worry and stress that severe indebtedness causes.
But it is not a solution for the many who have spent a number of years building up equity in their homes only to find their mortgage lender asking for at least 75 per cent loan to value. Due to the current housing market, homes and individuals which would have easily qualified a year ago are now deemed not creditworthy.
There is no easy solution to this but some simple steps can be taken to reduce your risk of personal insolvency:
1Try to negotiate with your existing lender to get a better deal. They are aware of your credit record and therefore have the most information on your ability to repay your debt.
2Reduce costs wherever possible by driving less, buying cheaper food and checking whether you have the best deal from your utility supplier. This may not sound fun but it is possible to substantially reduce your costs simply by regularly reviewing your expenditure.
3Consider all of your other options. There are only two key ways to improve your financial situation: spend less or earn more, or ideally do both. Do you have friends or relatives who may be able to help financially? Can you spread your property costs by taking in a lodger? Is it possible to get more work to increase your income?
The key is not to bury your head in the sand. Open all letters from creditors, liaise with them and negotiate as much as possible. Ignoring the situation will not make it go away and you need to be aware that an awful lot of people are going through the same financial stress that you may be experiencing at the moment. That doesn't make it go away but it means you should understand that many people will know exactly what you are talking about. It won't make lenders more sympathetic but, equally, as they will be unable to repossess the homes of a large percentage of the population they will have to negotiate better terms if sufficient numbers are experiencing problems.
The most important aspect is to recognise as early as possible that you may be getting into difficulties and to seek professional help.
• Bryan Jackson is a corporate recovery partner with accountants and business advisers PKF (UK) LLP
