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Small debts enough for UK lenders to force borrowers to sell property

An unpaid credit card bill worth 1,000 pounds is now enough for a UK lender to go to court, forcing debtors to sell their property. A recent regulation puts tens of thousands of British homeowners at risk of losing their houses.

Frankie Waller, an owner of a modest London dwelling, might well soon lose the place holding memories of the last 20 years of his life. September court hearings will decide if he can keep his home or will have to sell it to repay 6,000 pounds of credit card debts he has run up.

Nobody asked me or twisted my arm to take out the credit. That’s my doing entirely”, Waller confessed to RT’s Polly Boyko. “But the word ‘unsecured’ was attached to it.”

That key word – unsecured – is supposed to mean the loan is not attached to any of your assets. However, as of October 2012 the rules of the lending game have been changed by a government regulation, making it easier to turn unsecured debt into secured. That means failure to pay it off puts borrowers at risk of losing their homes.

A creditor has been given the right to apply to court for a charging order, forcing the debtor to sell his property. As of April, accumulating a debt of just 1,000 pounds is enough for the ‘un’ prefix to disappear from your unsecured loan.

Edward Ware from Step Change Debt Charity, which is trying to help those with serious debt problems, believes the regulation makes too many homeowners vulnerable.

We wanted that threshold set at 25,000 pounds because we wanted that extra layer of consumer protection. The government have [sic] made it easier for lenders to get charging orders,” Ware told RT.

Britain’s Office for Fair Trading has already warned major banks over threatening to force debtors to sell their homes over debts of just over 1000 pounds.

However, when the threshold was introduced in April, the Justice Ministry justified it as a measure helping protect debtors.

With a high threshold, such as 25,000 pounds, there is a risk that creditors may seek to recover their debt by initiating bankruptcy proceedings as an alternative to enforcement. This would be a more draconian outcome for debtors than an Order for Sale”, Lord McNally, Minister of State (Ministry of Justice) said.

However, house prices in the UK are on the rise, and debt charities are predicting a surge in charging orders. Because if a debtors’ house gains value, its sale is guaranteed to return their debts to their creditors.

Besides, a recent survey, issued on Monday, suggests the Britons have become less cautious with unsecured loans, finding them increasingly easy to obtain. Households' perceptions of credit availability rose to 48.4 in August from 47.7 in July, survey compiler Markit says, adding that it’s the biggest rise since the survey began in February 2009.

"A brightening economic and financial outlook, alongside some signs of improved access to household credit, looks to have spurred consumer spending again in August," senior Markit economist Tim Moore, as cited by Reuters.

Frankie Waller, however, has been sobered out of his own bright vision of lending and spending.

How’d you think it makes me feel?” he asks. “I mean I feel thoroughly sick, and my wife feels thoroughly sick over it. It’s something in the good times we took pride in paying and throughout the bad times we’ve struggled for very hard. This extra pressure, financial pressure is causing a rift between my wife and I. Our relationship is very strained… life’s not good.”

And Waller’s not alone in his grief. Eighty-one thousand and fifty-nine Britons faced charging orders in 2011, according to the most recent statistics by the Ministry of Justice. The post-regulation statistics is yet to come.