Unsecured loans alert

An increasing trend by home owners in the city to take out high interest loans when equity in their homes runs out, is causing debt to get out of hand.

That is the finding of new research carried out by property purchase company A Quick Sale, which says people in York have been wrong-footed by the boom in house prices in recent years.

On the back of the house price inflation, many released equity from their homes to fund lavish lifestyles. But, states the research report, as the housing market has slowed down they were turning to unsecured loans and credit cards to fund new cars and exotic holidays.

The research found that one in ten people in York have taken out a loan to finance their lifestyle and one in six - or 15 per cent - would do this to buy a luxury item if they had no equity in their house to fund it.

In stark contrast, only five per cent had ever been advised against taking out extra loans or credit cards in order to keep control of their finances.

The research survey found that one in five admitted to borrowing more money than they actually needed in order to have some extra disposable cash, therefore increasing their debts and payments unnecessarily.

The findings strike a chord with Mike Horncastle, manager of the York Credit Union, which mostly battles with the effect on York people who have taken out "doorstep" loans where the APR on credit starts at 177 per cent. He said: "We are increasingly seeing people who are funding their lifestyle with credit cards because the equity on their homes has already been realised. After the secured lending they turn to unsecured lending with terrible consequences."

The new findings come hot on the heels of the Datamonitor report which found that the UK is responsible for a third of all unsecured debt in Western Europe. The UK consumer credit market hit £215 billion in 2005 and the average UK consumer owes £3,175 - twice as much as West Europeans who average £1,558 worth of debt.