New debt rules threaten homes of thousands

credit card and piggy bank

New rules for people in debt have come into force, which could leave hundreds of thousands of people in the UK at risk of losing their home over debts as small as £1,000. And these aren't mortgages or other 'secured' loans: they include things like payday loans and credit cards.

So what are the rules, and what are the risks?
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Not entirely new

Lenders have always been able to pursue you for these 'unsecured debts'. Despite the fact that they are not taken out against the value of your property, if you were to fail to make repayments, the lender could get a county court judgement (CCJ) against you.

This judgment was previously given alongside a repayment agreement. Only if someone failed to stick to the agreed payments would the lender then apply for a 'charging order' against your property - in 2011 there were 81,000 of these.

Once you have a charging order it doesn't necessarily mean you will be forced to sell your property - but that when it is sold you will have to repay the debt as soon as you have repaid your mortgage lender.

However, in some instances a lender will force a sale - by applying to the courts. According to The Independent, just over 400 people were forced to sell their property in 2011 for this reason.

The new bits

The new rule - called the Charging Orders Regulations 2013 - came in on Friday and does two things. First, rather than requiring borrowers to have failed to stick to a repayment agreement after the CCJ - it can actually be made at the same time - without giving borrowers the opportunity to repay without losing their home.

Second, it states that these orders can be given regarding any loan which exceeds £1,000. Previously there was no minimum but they were generally used for much higher sums, and campaigners had hoped for a far higher limit.

The Stepchange Debt Charity told The Independent that it believes this will ramp up the number of charging orders that are made - because it reduces the window of opportunity for borrowers to repay, and it gives the signal to lenders that even relatively small unsecured loans should be recovered this way.

It added to Credit Today: "The likelihood is that we will see more charging orders and this will potentially create a situation in which other creditors take similar action, which in turn places undue stress onto financially vulnerable people."

It voiced these concerns after the government announced in its Budget last month that HMRC will use these orders more often, saying it was worried that the use of charging orders will prompt other creditors to take similar action, putting further pressure on many vulnerable consumers.

StepChange Debt Charity's external affairs director Delroy Corinaldi said it would: "make it harder for the government to make demands on other creditors to show forebearance."

When house prices eventually rise, the debt charity also expects the number of those charging orders that are turned into court orders to sell your property to increase. Once homeowners have sufficient equity in their property to repay their debts, they will be forced into a sale.

All this means that it's vital that you act quickly if you are struggling with debts. It's worth getting free advice as early as possible. We revealed the best places to start in a guide earlier this year.

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10 top ways to add value to your home
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New debt rules threaten homes of thousands

Of course with all these things, the value it adds depends on the property you have to start with, and the kinds of improvements you make, but Which? estimates the cost of a new kitchen at £8,000 and HSBC calculates the added value to your property at £4,500 - which is a clear loss.

This has been done by 41% of people in the last three years, and 29% of people plan it in the next three. It's cheaper than a kitchen, and Which? estimates the cost at £3,000. This is roughly the same value that HSBC says it will add to your property - so you'll break-even.

It may be difficult, but getting your property ready for sale means depersonalising it. 

Clutter can distract viewers and more than half (60%) of the property valuers who took part in the 2012 HSBC Home Improvement Survey said that the number one way to increase a property's chance of selling quickly, and for a good price, was to de-clutter.

This has been installed by 31% of us in the last three years, and 15% plan it in the next three. Installing central heating is a disruptive job, and according to WhatPrice it will cost you around £3,235. However, this is the first of the top ten to actually pay off. Property expert Phil Spencer says it will add £5,000 to the value.

A quick splash of paint can work wonders on tired-looking walls, and sticking to neutral tones is the safest bet.

Keeping the colour scheme simple, fresh and inviting will help potential buyers to see themselves living in your home.

Some 18% have added one in the last three years, and 30% will in the next three. This is another huge job, but with more people struggling to move and deciding to improve instead, it's increasingly popular. The amount it costs will depend on an enormous number of things, from the area you have to work with, to the size of the extension. However, assuming you add a single room you could spend around £20,000. HSBC estimates it will add around £15,500 to the value of the property, so you are unlikely to gain as much as you spend.

According to Halifax valuers, loft conversions - which require lofts with a roof height of at least 2.4 metres - are a good way to increase the potential sale price of your home.

Be sure to stick to your budget, though. The average loft conversion will cost between £10,000 and £30,000, while HSBC's figures show that they typically add £20,876 to the value of a property.

Putting in new windows adds around £5,265 to the value of the average property and can reap big rewards when it comes to energy efficiency.

It is, however, sensible to ensure that your new windows are in line with the style of your property to maximise the added value - particularly as putting them in can set you back about £5,000.

Off road parking or a garage can be especially advantageous in areas where parked cars line both sides on the street.

Nationwide's figures show that adding a garage, which can cost anything between £8,000 and £25,000, can increase the value of your property by 11%.

Outside space is just as important as inside - especially when people are seeing your home for the first time.

While 63% of the HSBC survey expert respondents said that repainting or varnishing a front door would make a difference, only 23% of homeowners recognised this. Peter Dockar at HSBC said: "It is often the smaller jobs like painting the front door that can make all the difference when looking for a sale."
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