Banks Tell Borrowers to Spend Less

by Mark Johnston

Banks are more concerned than ever over people’s finances as food, energy bills and petrol prices rise and high inflation is putting a dent in many households already tight budget.

Repossessions have been kept lower than many experts had forecast by the Bank of England slashing the base rate to 0.5% and keeping it there for more than 2 years. However banks fear that repossessions could rise substantially when the rates increase.

The Council of Mortgage Lenders revealed almost 20,000 families had their homes repossessed in the first half of the year because they failed to make their mortgage payments.

Banks are now taking a more intrusive approach in a bid to stop mortgage arrears. Many home owners are being credit checked without their knowledge and told to cut their lifestyle spending.

The banks argue that their use of ‘secret’ credit checks to identify high risk customers is being done to prevent them falling in to default. They also add that mortgage small print often states further checks can be undertaken.

It is standard procedure for credit checks to be undertaken when borrowers are taking out a mortgage or re-mortgage, but systematically checking borrowers finance after mortgages have been taken out is unprecedented. This news comes after the announcement of the new mortgage fraud busting service, which allows banks and HMRC to check up on earnings declared by potential borrowers.

The information commissioner’s office, which provides data privacy, says banks should be ‘upfront’ about additional checks.

Northern Rock Asset management and the Bradford and Bingley have been contacting around 2,000 borrowers warning them that their everyday spending is putting their homes at risk.

Borrowers, even those who are already years in to their mortgages are being contacted and warned that if they do not cut back on spending on luxuries which include mobile phones, gym membership and T.V packages, it could put them on the road to potential ruin and that they should focus on their mortgages instead.

This news has triggered wide debate over how far banks should be able to interject into troubled borrowers finances. Even borrowers have been divided by the tactics, with some resenting the infringement, feeling this is merely spying dressed up as ‘reasonable behaviour’, whilst others call for more banks to take a tough approach.

Many borrowers calling for tougher approaches believe that there are too many people who should never have been given a mortgage holding large mortgages they can not afford. They believe it is precisely such people that caused a global recession in the first place.

In conclusion is this a sensible precaution given the debt crisis? Could a phone call from the bank be the jolt some need to change their spending and start prioritising important bills such as their mortgage?

Or is this just downright bullying? If someone is struggling to make ends meet surely the last thing they need is a patronising phone call from the bank warning them to cut back on their spending!



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