The fact that the Bank of England held base rate at 5% in June should come as no surprise to anyone; the Bank is accountable for inflation and has no other weapons with which to fight it.

While it is recognised that to cut interest rates could be inflationary, it is also important to be aware that it is real people who are feeling the pinch caused by (relatively) high interest rate.

In fact, whatever rate the Bank of England sets does not always translate directly into mortgage and other consumer borrowing rates, because the banks usually lend between themselves based on the London Inter Bank Offer Rate (Libor) which is usually above base rate; recently by quite a margin.

Mortgage lending may be on the decline, along with house prices and completions, but according to Credit Action, personal debt in the UK is rising by £1 million every five minutes of the day. Secured lending on homes grew by 8.7% to £1,207 billion at the end of May 2008; consumer credit grew by 6.5% to £230 billion over the same period.

A more worrying statistic (and the last in this article, I promise) is that 123 properties are repossessed every day. That is families of real people who lose their homes.

Yet some simple steps can help you manage debt inspite of the credit crisis.

Protecting your interests
We wrote some time ago about the steps that can be taken to ensure that your credit rating is not adversely affected, but one issue we did not consider was identity theft. This can happen in a number of ways and usually only comes to the victim’s notice when unexpected items appear on their bank or credit card statement, strange bills start appearing or a legitimate loan is refused because of an apparently adverse credit rating that does not add up. In a worst case, a solicitor’s letter for a totally unknown bill could arrive.

It is vitally important to follow a few simple rules:
• Protect your personal data on the internet (always look for “https” in the address and a closed padlock) and over the telephone (never give credit or debit card details to someone you do not know);
• Shred bank/credit card statements as well as utility bills, as these can be used to create a fake identity;
• Protect passports and driving licenses; and
• Watch out for post going missing.

You may also wish to consider whether unsecured loans such as credit cards and store account cards should be moved into your mortgage. This can reduce the interest rate, but you could end up paying more in the long run, as the loan could last much longer.

Unravelling the mess of identity theft can take time and be stressful.

Protecting your family
Most people with a mortgage will have some form of life insurance that will repay the loan should they die, or in some cases, if they become critically ill. However, with economic uncertainty looming on the horizon, it is also important to ensure that you have income protection in case you should lose your job. Many schemes are set up by mortgage lenders at the start of a loan period, but these can be expensive and in some cases (particularly for the self-employed or those running their own businesses) may not provide any cover at all. Reviewing your arrangements would be a good idea.

It is important always to seek independent financial advice before making any decision regarding your finances. For further information, please contact Robert Bruce Associates on 0845 838 7377.