Wednesday, Jan 10, 2007
The real UK "Miracle Economy"
Credit Action: UK Debt Statistics - January
Published last week, but makes some incredibly scary reading. Just a few highlights ... Average household debt in the UK is ~ £8,765 (excluding mortgages) and £52,811 including mortgages. 1.4 million adults in over £10k of unsecured debt, report that they are ‘quite likely’, ‘likely’ or ‘certain’ to declare themselves bankrupt or take out an IVA. Half the population (52%) could survive financially for just 17 days, should they suffer an unexpected loss of income. 32% of mortgages taken out by home movers in October 2006 were “interest only” mortgages ... AND YET .... the CML said 2007 will be a record year with an extraordinary £360 billion borrowed in mortgages.
Posted by uncle chris @ 09:27 PM (161 views) Add Comment
13 Comments
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1. Enuii said...
Thats the crux of the issue in a nutshell, this cyclic property boom in particular has been boosted and extended by 1 factor in particular, the interest only mortgage. The type of people who generally go this route are buying properties they can downsize from in the future when their need for a large or flash house has passed. The underlying principle is that the property will provide sufficient a return when sold to a) payoff the mortgage and b) buy another smaller/cheaper property outright. Fine in principle but probably scuppered by future low digit HPI. Taking out a huge Interest Only mortgage now at what is probably around about the peak for house prices will be a very bad short term and risky decision for the 1/3 of borrowers who are now doing it.
2. Nohpc said...
You lot are so phobic of any debt. I would argue that 8000 pounds really is a tiny amount of debt in the grand scheme of things. It's hardly a huge some of money to repay by any standards. With regards to a mortgage that is a different kind of debt as you are using it to invest in a home for yourself and family and the house you buy will definately gain in value over the long term.
I am surprised the figures are as low as this and I find them encouraging. Even including mortgages the average debt is only 50000. This is surprsiing as the average house price is almost 200000!
3. Nohpc said...
Also, a lot of people who have interest only mortgages over pay by a substantial amount. Like myself. Interest only with unlimited overpayment potential gives you a very cheap kind of offset mortagage when compared to other products and I think a lot of people taking them are the same ones who take out a 0% credit card and actually remember to transfer the balance each time.
4. Mjchum said...
Nohpc,
Yes, I'm surprised by the low mortgage debt level too. Did'nt Evan Davies recently say that 40% of all mortgages currently out there were taken out when interest rates were at 3.5%? Averages, schmaverages! Show me a distribution plot with skewness and kurtosis, now that would probably tell a different story. How has this average been generated, using what data? They've probably taken the total debt and divided it by the total population, or something meaningless like that. When considering the distribution of debt and it's effects on the nation, demographics and income groups need to be compared. Also, whether the mortgage debt was used for house buying or MEW for other purposes etc.
Friends of mine have recently been looking to buy in Kent . . . they were shocked at how many houses were on the market for less than £150k. Mind you they are from Kingston (upon-Thames, not Jamaica!)
I too doubt whether there will be an HPC, at least in 2007-2008. And yes, I am admittedly extremely phobic of debt. Never had any, never had a CC/Loan/HP but do have a 6-figure bank account and growing and only 31. Where there's muck, there's brass!!!
5. Take Me Back To London said...
Yes and no, a nine grand unsecured loan is a piece of p*** to repay if youv'e got a reasonable salary and don't have too many other outgoings. The average debt is per household and many households don't have any debt or pay a mortgage, but there is a large chunck of society that have racked debts well beyond the figures qouted.
6. Lvmreader said...
Everyone needs to read what happened on Black Wednesday in 1992. These clowns who reckon interest rates cannot go up more than 3%/year, need to see what Norman Lamont was forced to do.
http://en.wikipedia.org/wiki/Black_Wednesday...
"On September 16 the British government announced a rise in the base interest rate from an already high 10% to 12% in order to tempt speculators to buy pounds. Despite this and a promise later the same day to raise base rates again to 15%, dealers kept selling pounds. Major currency traders like Goldman Sachs knew what the British Government was trying to do and knew that the international money markets would eventually prevail against the efforts to prop up the pound. This amounted to a major transfer of wealth from the government to the speculators, both individuals and investment banks.
By 19.00 that evening, Norman Lamont, then Chancellor, announced Britain would leave the ERM and rates would remain at the new level of 12%."
7. Lvmreader said...
We need to see people who are manipulating the market for their own benefit JAILED.
Starting with Kirstie Allsop.
8. talking rot said...
I thank NoHPC for his views but such views are why it is necessary to be so wary at this time.
"You lot are so phobic of any debt. I would argue that 8000 pounds really is a tiny amount of debt ... "
Yet average GROSS wage in UK is £22K and lower in many parts of the country. So being in unsecured debt over 1/3 of your salary is a tiny amount of debt? Sadly those with a high debt:wage ratio are those most likely to be on lower incomes or high high out goings perhaps working families, with little opportunity to tighten the belt. The next generation of tax payers still have to be fed!
Most importantly, it is easy to pay your debts during the good times; how many people will remain able to pay off debts when economic times turn bad? Or does NoHPC believe there is no longer such a thing as an economic cycle?
Debt adversion is a state of mind that balances risk likelihood against potential impact. Ever been caught in a rainstorm without a coat NoHPC?
9. Nohpc said...
Most people could pay off 8000 pounds in a year if they stop spending on anything but essentials and save it all. Even at 22 thousand. Look at any of the savings porno shows that are on TV these days. It is the low income people that spend like there is no tomorrow. Middle amount earners save more and spend less.
10. George Monsoon said...
Yep, base rates will probably need to rise dramatically when the speculators start to sell big time. Unless you are a real moron, I would not rule this out in the near future....
We all know its more or less certain that base rates will remain on hold this month. I bet there will be an anouncement that they expect to be putting the baserate up very soon though.
Come on...!! I need some interest on my savings, get that baserate up to about 12% so I can use the extra interest on a deposit for a repossessed house that used to belong to MR nobrain X5 moron.
11. george monsoon said...
Yep, base rates will probably need to rise dramatically when the speculators start to sell big time. Unless you are a real moron, I would not rule this out in the near future....
We all know its more or less certain that base rates will remain on hold this month. I bet there will be an anouncement that they expect to be putting the baserate up very soon though.
Come on...!! I need some interest on my savings, get that baserate up to about 12% so I can use the extra interest on a deposit for a repossessed house that used to belong to MR nobrain X5 moron.
12. talking rot said...
George M
We've both been feeling alittle glum of later. Perhaps today's news will have cheered you as much as it did me!
13. inbreda said...
NoHPC - the reason the average is so low is that there are a lot of people who didn't pay a lot for their house and have been paying off the mortgage since. Assuming mortgages are 25 years, then it is only the last 5 years that prices have rocketed and have been stupidly high. So 80% of people with mortgages will have only small mortgages. the amount of debt is skewed VERY heavily to those that bought recently. Let's remember that the HUGE surge in house prices has been down to recent (last 5 years) purchases only. It is the 20% of mortgage holders that have huge debts that have speculated on housing and paid stupidly high sums of money for property, and all that is required for prices to fall back again is for this same 20% to be unable or unwilling to pay stupid sums of money. The average may be 8k, but the average amongst those who will have the biggest effect is much much higher. It is these people who will be unable to pay off their IO mortgages and will be forced to sell their property for less than they paid. Then we will hear about negative equity.
Consider that there can be a massive amount of negative equity, but it still only (mainly) affects those that bought recently. The effect will still be plummeting prices.
I'm happy for you that you manage to overpay on you IO mortgage (why have an IO mortgage then???), but personally I find it much better to earn interest on my savings. I feel a lot wealthier and free that way. I'm sure you'll understand in 20 or 30 years (maybe) once you are no longer a slave to your debts.