Lenders secure consumer debt against property

Cash-strapped banks are increasingly acting to secure personal loans and credit card debt against property.

According to the Ministry of Justice, court orders made in this respect rose to 131,644 in 2007, up 42% on 2006.

Charging orders work in the same way as a second mortgage on a property, and can provide a guarantee to creditors.

Indebted property owners are not required to sell their homes when an order is granted but eventually the debt is collected when the property is sold.

The increase in the use of charging orders is likely to continue as the credit crisis forces banks to tighten their lending policies and reduce their exposure on personal loans.

In theory a charging order can result in repossession, but this is rare.

Given that the Chancellor of the Exchequer, Alistair Darling, is expecting banks to do more to help borrowers in financial difficulties, lenders are unlikely to pursue this method of recovery.

Despite predictions that the credit crisis would cast a dark shadow over Britons’ spending habits, consumers are increasingly using credit cards to pay for life’s essentials, such as food and travel to work.

Meanwhile national debt charities are reporting that they are inundated with enquiries.

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