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Banks have increased their onslaught of credit card customers to offset losses due to increases in bad debts and the cap on overdraft fees.

“The tactics used include the magically appearing annual membership fees, charges for pseudo-cash products such as credit-card cheques, and hidden catches in balance-transfer deals.

The banks have been playing a sleight-of-hand game with their consumers for years. Now it has stepped up to levels that catch most consumers off-balance. In fact, many consumers build up hundreds of pounds of ‘hidden’ charges before they catch onto the bank’s ploy.

One of the biggest tricks is the five pound scheme. The credit card has no minimum balance each month.  Instead of a minimum monthly repayment the customer pays the monthly interest, plus premiums for payment protection insurance, plus fees, plus £5. However, this means that the average person never actually repays any of the capital from one year to the next.

Another scheme pays of the least expensive debt first.  The more expensive debts accrue more interest for longer periods – and of course, the interest is often calculated on the full total of the purchase until paid in full.  This means that all the small purchases are repaid quickly, leaving the large payments languishing on the card for months, or years.

Credit card, and most unsecured loan debts, have higher interest rates than personal loans.  Some unsecured loan debts are currently as high as 25%, and expected to increase at least one more time this year.

“The government is looking tired and stale, and Brown has been tarnished by that,” said Peter Kellner, chairman of YouGov Plc, a polling company. “On its own, the budget won’t be enough to turn around Brown’s fortunes. It will be part of a bigger process to win back support.”

Debt reduction has not been a main priority for Britain’s budget since 2003. Brown expects a deficit of 2.8 percent next year.

“He doesn’t have much room to maneuver,” George Bull, of tax at Baker Tilly Financial Services in London, said. “He should take measures to boost competitiveness, but he doesn’t have the money to finance a cut in tax.”

“The rise in public spending as a share of GDP in the last five years has been striking,” Brian Coulton, an analyst at Fitch Ratings Inc., said in a note to clients. “It has been sharper than the previous episodes of rapid growth over 1980-83 and 1989-1993, both of which encompassed two major recessions.”

Most consumers are unable to fathom the limits of government debt.  However, the more loans the government carries, the more burden is put on the average consumers.  Many consumers are hoping for tax breaks.

Consumers are rarely interested in the budget, beyond learning whether it will offer financial relief.  Tax relief increases consumer’s ability to repay their own personal loans, or secure future loans.

Consumers are frustrated at the government’s attempts to curb their own spending through increased taxes on loans, while increasing the national debt through their own spending.

Debt statistics are updated monthly.  Government, banks, and loan firms use these numbers to determine how they do business.  Consumers can use these numbers to differentiate between ad copy - meant to sell products - and a real look at the UK economy

The total UK personal debt exceeded £1.25 trillion.  At the end of January 2007 it stood at £1,300bn. The growth rate increased to 10.5 per cent for the previous 12 months, or an increase of £114bn.

Total secured loan lending exceeded £1 trillion (£1,000 billion) and at the end of January 2007 it stood at £1087bn, an 11.5 per cent increase over the last 12 months.

The average household debt in the UK is £8,795 (excluding mortgages) and £53,701 including mortgages.  This is far less than IVA and debt management firms are claiming.  These numbers bring the supposed ‘debt mountain’ to a more manageable ‘hill’ – and corroborates the Bank of England’s numbers.

Average owed on loans by every UK adult is £27,638 (including mortgages). This grew by £200 in February 2007.

The average interest paid by each household this year is approximately £3,425 each year.

The average unsecured consumer borrowing via credit cards, motor and retail finance deals, overdraft loans and unsecured personal loans rose to £4,526 per UK adult at the end of January 2007.

Britain’s personal debt is increasing by £1 million every 4 minutes.

This paints a strong picture of the average UK consumer’s ability to manage their debt.  While many households are struggling under debt, many analysts believe that a good debt management councillor will serve most UK consumers better than an IVA firm.

The UK banks are preparing to defend their market against the same problems seen in the US sub-prime market.

Will the US situation hit the UK? Boulger of mortgage broker John Charcol does not think so. ‘But it is something the regulators will be taking into account. A lot of borrowers in the US were on short term ‘teaser’ rates and suffered payment shock when they moved to the standard rate.’

This is something that many UK consumers are being faced with. Despite the UK’s belief that their market is immune, there are parallels between the markets.

‘In the UK it is looking more and more likely that the Bank Base Rate will peak at 5.25%. I would put it at a 50-50 chance. Even if the economy does suffer because of what is happening in the US, we will be less susceptible to a downturn as we have lower exports to the States.

‘In addition we don’t have the same high proportion of sub-prime borrowers on 100% home loans. But if there is any tightening of lending criteria it is going to happen in the sub-prime and adverse markets,’ Boulger says.

Boulger believes that ‘the lenders have found that credit scoring is a very efficient predictor of those borrowers who will default,’ Boulger says. ‘You can never be certain, but I don’t think in the short-term what is happening in the US will affect lending criteria here.’

This is dividing the market into two segments, those who will strengthen the market by investing in property to build wealth, and those who will undermined it by borrowing mortgages which they cannot repay.

Consumers who are considering renting their first home can relax.  The younger landlords are showing that they are as responsible, or more so than the corporations, and less likely to be looking at the buy-to-let market as a get rich quick scheme, or a place to make an unscrupulous ‘quick buck.’

The National Landlords Association (NLA) said that the booming buy-to-let market is seeing younger landlords have an ‘increasingly professional attitude.’ New figures from the Mortgage Trust state that one third of the new buy-to-let investors are between 26 and 35 years-old.

Many of these people are taking advantage of house auctions, easy to obtain mortgages, and soaring rents, to build profitable wealth generating portfolios.

The NLA’s comments are in response to the government’s new Tenancy Deposit Protection (TDP) scheme, which is designed to protect tenants from unscrupulous landlords.

The law, a part of the 2004 Housing Act, now states that landlords are accountable for the proportion of their tenants’ deposit they withhold at the end of the tenancy.

Richard Gard, public affairs officer for the NLA said: “I’ve noticed that it’s the young buy-to-let landlords who are very keen to find out their responsibilities; they realise that they’ve got responsibilities and they also want to know their rights.

“We’re really emphasizing that landlords should join a reputable landlords association, such as ours. If not ours, then there are others out there.

“The cost of joining an association aren’t that high and there are benefits. At the very least, landlords can find out what’s coming up and what the legislation requires of them,” he added.

The trickle effect has finally hit the UK economy as consumers tighten their belts after four, almost successive, interest rate hikes. However, analysts are still reminding consumers that the interest rate has not hit the ‘breaking’ point of 6 per cent, nor has it hit the levels it did a decade ago.

Despite high spending in the retail sector last January, there are now reports which indicate that consumers are not spending as heavily as they once did.

Nationwide’s Consumer Confidence index is slightly higher than last month, as reported in Reuters.

“The index seems to be showing that consumers are responding to the three increases in interest rates. All of the indices are well below the levels recorded before the first rise in rates,” said Nationwide chief economist Fionnuala Earley, reports Reuters.

“Consumer sentiment remains fairly downbeat, but underlying feelings about jobs and income have not collapsed which suggest a fairly stable economic background,” she added.

However, there is good news for consumers who are trying to reduce their debt.  The Bank of England increased the interest rate in an attempt to lower the inflation rate.  While the interest rate impacts the economy, short term, a high inflation rate would create problems for years to come.

This leaves consumers who are trying to build wealth a window of opportunity to take advantage of the buy-to-let or residential housing market.

This is a good time to start a new business in many sectors except retail.  It is still relatively easy to apply for a secured loan that can be used to set up a business.

The number of homeowner loans, mortgages, that were approved in December 2006, was down to 113,000 approvals from 129,000 in November.

Alone, these figures may be interpreted as evidence that the property market is about to slow, except for the fact that demand still outstrips supply, especially in the area of buy-to-let, and eco-friendly homes.

The Nationwide building society said that house price growth slowed in January, following recent interest rate rises. However, it still grew 1.8 per cent, maintaining an annual 10 per cent increase.

However, people who are anticipating putting their home on the market are still enjoying a ‘seller’s market.’  December is traditionally a quiet month for house buying..

However, approvals are regarded as an important indicator of short-term trends in the housing market. The market expected a short term drop after the Bank of England increased interest rates four times in approximately six months.

Investors are not worried. They still point to the fact that interest rates are still far below historical numbers, and that they are still below the ‘wealth building’ break-off point of six percent.

At £10.6bn the money lent in the form of homeowner loans during December was another record, even though the banks approved less loans, reflecting the strong rise in house prices in the past few months.

The investors are not worried. There is still plenty of room to take out a secured loan to improve a home, or prepare it for the buy-to-let market, and make a substantial profit, especially in the London areas.

There are new reports that indicate there is a risk that the UK’s housing market is overvalued and heading for a “downward adjustment”, according to the International Monetary Fund (IMF).

The IMF stated that they used several indicators that suggest that the house price growth will continue to increase and that properties are “likely overvalued”.

“In light of estimates that house prices are already overvalued, this would increase the subsequent risk of an abrupt downward adjustment,” the IMF stated.

Nationwide claims that the average house price in the UK has reached £174,706 in February.  The annual house price inflation rose to 10.2 per cent.

A spokesman for the Treasury said that the economy has experienced economic growth for 58 successive quarters and that the UK continues to meet “strict” fiscal rules, according to a report in the Telegraph.

There are several intangible indicators that will have an impact on the housing market. The most prevalent indicator is the introduction of environmentally friendly homes.

The introduction of these new homes will have a direct impact on the types of homes that will continue to increase in value.  These news homes emit less emissions and fewer product waste.

Britain has already seen the introduction of eco-towns that are hailed as prototypes for future developments.  Currently, 45 councils have already instigated plans to create eco-homes.

Consumers who are interested in building wealth are looking at methods of improving their current homes, before selling them, so they will receive the bonus sale’s value of having an eco-home.

The charity Consumer Credit Counselling Service (CCCS) advised 50,472 people between June and December 2006.  This is a 66% increase in the number of people with debt management problems that it helped  during the same period in 2005, to 30,450.

The CCCS said this is due to the fact that they are expanding the services they offer UK consumers. However, the charity also points out that single people in the UK as now the most vulnerable to debt related problems.

A Debt Counsellors survey claims that  22 per cent of married consumers do not tell their spouse about their debt problems,  and 27 per cent have kept debt problems a secret from the person they are living with.

There are several venues that believe many of the problems single people face are caused by their partner’s ‘hidden’ debts.  Many of these consumers may expect to separate assets when they divorce.  However, more and more, UK consumers are finding that their wealth is swallowed up by hidden debts, and that all the couple has to separate are debts.

This problem will only grow as recent figures suggest that 1 in 5 UK consumers are considering bankruptcy.  This translates to almost 9 million consumers who feel that their debts are so high they must declare bankruptcy.

However, the number of people who are having trouble repaying their debts has dropped by 7 per cent from last October.  The number of people who have problems paying their monthly debts and bills has dropped 40 per cent.

The Bank of England is not expected to increase the interest rate after increasing it to 5.25 per cent.

“The index seems to be showing that consumers are responding to the three increases in interest rates. All of the indices are well below the levels recorded before the first rise in rates,” said Nationwide chief economist Fionnuala Earley, reports Reuters.

“Consumer sentiment remains fairly downbeat, but underlying feelings about jobs and income have not collapsed which suggest a fairly stable economic background,” she added.

Chief economist at Nationwide Fionnuala Earley said the consumer confidence index seems to show that consumers are starting to respond to recent increases in interest rates. Consumer confidents remain downbeat, but feelings about jobs has not collapsed, which suggest a stable economic background, she added.

Nationwide believes that the Bank of England’s increase in interest rates could be the main reason for the fall.  It continues to claim that few consumers feel that “now is a bad time” to make major purchases.

Economic analysts feel that the central bank will hold the interest rates at 5.25 per cent as it takes a decision this Thursday.  While the UK consumer still maintains confidence in the economy, if the Bank of England increases their interest rates again, and consumers lose confidence, the ripple effect will be felt throughout all sectors of the economy.

However, there is no indication that the Bank will increase interest rates beyond the benchmark 6 per cent.  A 6 per cent interest rate is still manageable by most consumers, while allowing them the freedom to borrow a loan for wealth building purposes, and maintaining a reasonable expectation of profiting.