Wednesday, Oct 17, 2007
people paying mortgage on credit cards!?
sky news: ALARM AS CREDIT CRUNCH HITS HOMEOWNERS
gosh....and this is happening with historically low interest rates and at the peak of the market....wonder whats around the corner?
Posted by taffee @ 06:27 AM (1479 views) Add Comment
28 Comments
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1. su said...
This is awful! Credit is far too easy to obtain and this article seems to be saying that young people are more prone to going for the credit option to solve their problems. I wonder if young people have become more used to relying on credit since the govt replaced student grants with student loans - sending the signal that borrowing is OK.
2. lvmreader said...
Borrowing is OK, provided the multiples are low (manageable) and that you have fore-knowledge of the future and diversified revenue streams (i.e. not in just one job which requires you to be at one place).
Other than that, borrowing is chattel slavery for the worker.
3. Whatever said...
debt IS modern day slavery.
the West, with its democracy and so called freedom, advertises itself like a hollywood flick, full of bling bling, nice houses, 4x4 jeeps and a rosy 9-5 job. the reward ? financial slavery to the banks.
what sort of a country has been created,when you can't even afford a roof over your head and people are borrowing money to pay borrowed money.... is a very sad state of affairs.
4. David Smith's Sub Prime. . . said...
more than a million households using credit cards to pay their rent or mortgages in the past year.
I have a really bad feeling about this..........
5. tyrellcorporation said...
Su...'This is awful'
No it's not it's effing laughable! Who in their right mind thinks paying off a mortgage with a credit card is a good idea?
These people are morons, they shouldn't have houses if they can't afford them - period!
6. mrmickey said...
Yes I think what were going to see is a kind of financial survival of the fittest with the dumb and ignorant going to the wall, that should be about 70% of the population then.
7. Landedgentry said...
Barclaycard et al will have to write off even more bad debts.
8. planning4acrash said...
Put into a trap, people are using credit cards to avoid defaulting so that their credit score remains high enough to refinance a new fixed rate.
About student loans, rates went up from 2.4 to 4.8% this year, I was lumped with a £600 interest charge. This is a quiet scandal which will result in many graduates sleepwalking into 15-20k debts that they can't pay off and that stop them from saving up a deposit for a house.
9. su said...
Tyrell. With all due respect, I think it's awful because it is definitely not a good idea to pay off a mortgage with a credit card.
Not everyone has a high level of intelligence and young people are particularly vulnerable because they also lack experience. They therefore look to their elders for guidance how to behave. And what do their elders - who are supposed to be more intelligent and more wise - tell them? Buy, Buy Buy! Get on the property ladder before it is too late!
Ignorance is not bliss - it can be very harmful. I do think there is a place for financial education in schools. Not everyone has parents who are financially clued in and I do think children should be taught that credit cards should be treated with a great deal of caution.
One or two Paracetamol tablets are helpful to treat a fever, but a couple of packets could be dangerous. Credit cards are not harmful in themselves, but to over-use them definitely is!
10. mrmickey said...
su real financial education in school and not just how to fill a loan applications would be a disaster for the banks & the government, once everybody realised that the system is loaded against them there would be bankers swinging from lamp posts and GB would be cleaning the bogs at Paddington station.
11. su said...
Mrmickey. Would that be such a bad thing? There is nothing so levelling in society as cleaning toilets! :-)
12. Ddsupreme said...
Using new debt to service existing debt is becoming increasingly common, and this report should really come as no surprise.
We will probably see it in the next 5 to 10 years, after much naval gazing about how so many people managed to accumulate so much debt, but one of the simplest measures which could have been implemented to prevent Britain becoming the European champion of unsecured debt would have been a central debt register for each individual.
As it stands today, credit card companies have no visibility of how much debt an individual has on their other credit cards or personal loans; yes, they have access to their credit report, but when people are using one new credit card to service all their other debts, they can continue to maintain a clean repayment history when in fact the reality is an inevitable spiral towards default.
If an existing credit card lender will decline an application for an increase of £1,000 on an existing credit card, due to a borrower being maxed out and only keeping up minimum repayments, how can a new lender happily offer a new card with a £5k limit to the same individual? As a borrower, continual offers of further debt often validate their misguided belief that their situation is not as dire as it actually is.
13. bearshare1616 said...
I have got a couple of colleagues who have BTL's and are only receiving 2/3 rent v interest only mortgage. They have given up life to finance these deals with one of them now financing the mortgage with several credit cards. He spends all week switching balances from one to another and there is never any money for even one night out a month. In spite of this they all still maintain that their property is a sound investment - 'In the land of the blind, the one eyed man is king' !!
14. Sold My Soul To The Never Never Never said...
This is one of the saddest things I have read on here and I'm hoping that it's exaggerated. We have become such a sick, greedy, must have and therefore can have Society that has been perpetrated by the POST WAR Baby Boomers. We need a house price crash right now to get back a sense of reality. Gordon's mantra was PRUDENCE but it looks like it never happened - MY GOD - how we've been brainwashed!
15. su said...
@bearshare1616
I can understand why people thought BTL was a good idea a year or so ago, but I do not understand why people are still holding onto these properties when they cannot afford them! Even the media is at least beginning to suggest the housing boom is over.
Overstretching yourself to keep your own home might be borderline madness, struggling to keep a BTL is completely crazy!
16. Icarus said...
Several weeks ago astute commentators were saying that people were displacing their mortgage problems onto credit cards and that this would show up as a crisis before the year ends. But the problem of being overstretched to pay the mortgage is not confined to FTBs, people with poor credit histories or the lower end of the house market. When house prices were going crazy and lenders were getting ever more lax it was a temptation for everybody, rich and poor, to buy the most expensive/valuable property possible (i.e. to overstretch themselves) because that way they made a bigger profit when the price of that property increased by x%.
17. tyrellcorporation said...
I actually think there is now a sort of weird honour at stake with the BTL brigade. If they say they are selling up they almost perceive this as capitulation or that the bears have 'won'. Like a nutty religious sect after the leader is revealed to be an ex-curtain ring salesman from Ohio - the disciples keep chanting and threading coloured beads while the building burns around them and the leader drives off in his Ferrari!
18. confused76 said...
SU,
some BTLs are deluded and think that by holding on their city centre flats they will be cashing in huge capital gains in the future.
others are plain and simply into negative equity now.
19. confused76 said...
By the way, this story was front page on the London Metro this morning, and I was looking around in the tube at some pretty worried faces all reading this free newspaper. Apparently I was among the very few in a good mood
20. confused76 said...
here is the reference
http://www.metro.co.uk/money/article.html?in_article_id=71019&in_page_id=36
21. sold 2 rent 1 said...
It's the same as the dot-com bubble bursting.
I know friends who watched over 2 years saw their shares worth £5,000 turn into £100.
Amature investors seem to refuse to sell at any loss. They get too emotionally involved.
Professional investors detatch themselves emotionally and employ rigorous stop-loss limits.
Sarah Beeney, on property ladder, would tell her TV amature developers every week not get emotionally involved with the property redevelopment.
Every week, they would over spend for that very same reason.
22. planning4acrash said...
Only a few weeks ago the front page of the Metro was talking about boom time. I really feel that those shoddy papers pollute my mind whenever I open them, semi-dazed on the way to work!
23. doomwatch said...
Listening to PQMs right now; Economy never been more stable. 10 years of low employment, no more boom and bust.
Wish I was an MP for a day. Brown would stuttering so much, they'd need to extend PMQs into the night.
I'd like to chin Eton Dave also.
24. su said...
S2R1. said "Amateur investors seem to refuse to sell at any loss. They get too emotionally involved."
I think you have a good point there!
Everyone has different strengths and weaknesses, and while emotional involvement may be a strength in a caring profession, I can see it could be a weakness in areas of finance.
Confused & P4ac.
Your experiences show that many people are influenced by what they read in the papers. I remember being told (at school) that people who went to Uni learned how to think for themselves, as opposed to school where you didn't need to think in order to learn.
25. crash bandicoot said...
The words of wisdom I hear from my amateur BTL friend is that the only people who had negative equity last time round were the ones who panicked and sold. Those who hung in there have seen their mortgage fall back below the value of their property. Of course this ignores the fact that many who tried this approach went bust and were repossesed, and significantly there were no BTL "investors" in those days. But this is a glimpse into the rationale being employed here.
26. voiceofreason said...
If this 6% figure is true.
Then if half of those cannot remortgage in time, then 3% will end up in repossession in 6 to 12 months.
3% of homes repossessed in 2008 would be a truly massive jump from the normal repo rate of about 0.15%.
Can we believe these figures ? 3% sounds a bit unlikely !
27. sold 2 rent 1 said...
voiceofreason,
"3% sounds a bit unlikely"
Maybe not. We are seeing a final blow-off of an 80 year debt cycle.
I am expecting a crash on the scale of 1948-1955.
If 1 in ten of those 6% default then that puts the repo rate at 0.6% (quadrupling in 12 months)
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