Banks Swamped By Wave Of Personal Debt

[whoami]

Times article:

Banks swamped by a wave of personal debt

The banks are braced for big losses on mortgages and personal loans

Amanda Coleman has been finding work more stressful. As an adviser at the Consumer Credit Counselling Service’s call centre in Leeds, she sees the sharp end of the recession.

The most common problem she sees is mortgage arrears, with families scrambling to save their homes. “We see a lot of situations where a family is trying to pay a mortgage of £800 or £900 a month on nothing more than the jobseeker’s allowance of £60 a week,†said Coleman, who has worked for the debt advice charity for five years.

“It’s hard when you are going through their affairs and realise it’s completely impossible for them to stay in the house.â€

Coleman’s clients are about to deliver the sting in the tail of the credit crunch and the next blow that will land on our battered banks. Having been thumped by losses on bad corporate loans, more of which will be revealed this week when the banks announce half-year results, they are braced for a fresh tide of losses from dud loans to individuals.

Based on estimates provided by the International Monetary Fund, lending to British consumers could cost the financial system more than £100 billion in bad debts before the recession is over.

Abbey, part of Santander, set the tone last week, revealing generally good results but warning that it had suffered a rise in provisions compared with a year earlier “attributable to residential mortgage and unsecured personal loan portfoliosâ€.

A good indicator of the shape of things to come is credit card arrears. Britons owe £1.46 trillion, according to the latest Bank of England figures. Most of this, £1.23 trillion, is mortgages, although £231 billion is unsecured consumer credit, of which, £54.5 billion is owed on credit cards.

Moody’s, the credit-rating agency, revealed last week that British credit-card companies are writing off, on average, 10% of their debts — the highest since it started tracking the data in 2001, and a 50% increase on a year ago.

This looming flood of bad debt leaves experts uncertain about the prognosis for our big banks. The headline on a recent research report by Sandy Chen, the Panmure Gordon analyst, summed up the mood: “UK banks: it ain’t over yetâ€.

It’s not only City institutions that should be worried — thanks to the bailouts of Lloyds and RBS, we are all now big shareholders, with £70 billion collectively invested. The taxpayer will have to stand behind the asset protection scheme, a £585 billion government-backed deal to catch the worst of the bad debts from the lending spree of the past five years.

All this threatens a Catch-22. Alistair Darling, the chancellor, is urging banks to lend more to stimulate the economy, threatening them with a competition inquiry last week.

The mounting losses on corporate and personal lending, however, is pushing them in the opposite direction, making them anxious to conserve cash and rebuild their balance sheets. Without the extra lending, the economy will take longer to recover, unemployment will rise, more loans will turn bad — and the cycle continues.

IN HALIFAX, about 20 miles west of Coleman’s office in Leeds, Peter Sargent, a partner in Begbies Traynor, the insolvency specialist, is just as busy. He has spent 30 years helping people sort out their debts, but the cases now passing through his office are more extreme than anything he has seen before.

“I do not bat an eyelid these days when someone comes in with £75,000 in debt on credit cards and unsecured loans,†said Sargent, who is also president of R3, the insolvency practitioners’ trade body. “In the 1990s, you would have considered £25,000 a lot.

“The recession is showing no respect for social standing. Solicitors, pub landlords, teachers — everyone is being hit. These people have had to realise that their house is no longer a gigantic cash machine that they can simply draw money out of whenever they choose.â€

Official figures to be published this Friday are expected to show another large rise in insolvencies. In the first three months of the year, there were nearly 30,000 personal insolvencies; more than 19,000 bankruptcies and nearly 11,000 individual voluntary arrangements (IVAs). Members of the Association of Business Recovery Professionals expect 139,000 personal insolvencies this year.

The figures reflect the length of dole queues and so can reasonably be expected to keep climbing. Economists predict unemployment could hit 10% — a figure not seen since the early 1990s, or even 12%, as bad as in the mid-1980s. And it is not just the unemployed who are struggling. Many companies have put staff on short weeks or cut overtime. Coleman said: “We are seeing lots of people put on reduced hours who are now three months behind with their mortgages.â€

Panmure’s Chen said the post credit crunch world had stymied consumers: “Before the credit crunch, we thought that having negative cashflows was not such a problem. Households could have refinanced with another credit card, or a mortgage at 130% loan-to-value in a rising house price environment. No longer.â€

Chen is concerned about borrowers who have failed to benefit from record low interest rates. Many of those who bought a house at the peak of the market with a small deposit now find themselves unable to get a new mortgage, trapping them on high interest rates.

Mortgage arrears are already starting to soar. The latest figures provided by Mound, one of the securitisation trusts that was used to sell HBOS mortgages to the financial markets, shows that about 7% of customers are more than 30 days behind with payments and 4% are 90 days or more behind their repayment schedule.

Arturo de Frias, banking analyst at Evolution Securities, said negative equity was starting to become a problem. He warned that as many as 10% of all mortgages could default and in each case the banks could lose 30% of their money. That would equate to bad debts of £40 billion on UK mortgages — £3 billion more than the government pumped into RBS and Lloyds last October in the first stage of the bank bailouts.

HOW the banks deal with these problems remains unclear. Very few of the callers to the Consumer Credit Counselling Service are being threatened with repossession, even if they have defaulted on mortgages. Where possession orders have been served, they are mostly being postponed by the banks. The Council of Mortgage Lenders recently cut its estimate of the number of repossessions this year from 75,000 to 65,000.

“The banks are quite understanding, so long as they know what’s going on,†said Coleman. “This time last year they were moving for a repossession as soon as a mortgage went three months overdue. Now they’re leaving people in their house as they can’t even sell the properties at auction.

“They seem to take the view that the house will be better looked-after and more likely to get a decent price at a future auction if they leave people in it. So you have a number of families who now feel that they are sitting on a timebomb, wondering when they will be kicked out on the streets.â€

It is not all bad news. Figures last week from Nationwide building society showed a 1.3% increase in house prices last month, the third rise in as many months. They have now gone up by 4.4% since February.

There are powerful forces operating in both directions for consumers. While earnings growth has been squeezed by the recession, falling interest rates have brought a bonanza for many households.

The latest official figures show average earnings, including bonuses, rising by 2.3% a year, significantly weaker than in recent years. Earnings are staying ahead of both consumer price inflation, at 1.8%, and the retail prices index, which includes mortgage rates and is down by 1.6% in the past year. Set against that, real earnings are growing by about 4%.

This may explain why retail spending is holding up. Figures from the John Lewis Partnership on Friday show department store sales in the week to July 25 up 6.3% on the year.

Howard Archer, chief European economist at IHS Global Insight, said: “With sharply reduced mortgage payments, lower utility bills and generally increased discounting boosting purchasing power, many people are currently more able and willing to step up their discretionary spending.†The CBI’s latest survey of the distributive trades also suggested spending was stronger than predicted.

While households and businesses have been repairing balance sheets by “deleveragingâ€, the evidence is that companies have been cutting back more aggressively. Bank lending to companies has dropped 1.2% over the past year and, while the saving ratio among households has risen, it has yet to hit 10% as in previous recessions.

With so much of the banking sector supported by the government, bad debts now have a wider impact than in the past.On Friday, Fitch, the credit rating agency, issued a report on the UK economy. It confirmed Britain’s sovereign debt rating as AAA, with a stable outlook, but it also warned of the costs of bailing out the banks.

The upfront costs were likely to be £145 billion, it said, coming down to a net figure of £40 billion, 3% of gross domestic product, over time.

“Stabilising the banking system has been very expensive and contributed to the rapid deterioration in UK public finances,†said David Riley at Fitch. “However, it is likely that the Treasury will ultimately recover most of the costs by imposing levies on the financial services sector and selling its holdings in Lloyds and RBS.

“Although the net fiscal cost of support for the banking sector over the long run is likely to be moderate, the repayment of government loans and sale of shareholdings in RBS and Lloyds will be spread over several years,†he added.

Taxpayers as well as shareholders will be paying close attention as we begin the banks’ reporting season.

Cost of borrowing leaps

Faced with having to pay a raft of extra fees on top of a 9.9% interest rate on his £5,000 overdraft with NatWest, Peter Reeve, a quantity surveyor with Estimating Surveying Services in Bedford, finally lost patience. A few weeks ago he decided to pay off the lot using credit cards.

“I had just had enough,†he said. “They were crippling me with interest rates, maintenance fees, service charges and arrangement fees. It was unfair and unreasonable.â€

The good news is that the banks are finally starting to lend money to small businesses again.

The bad news is that the interest charged on lending has soared. To add to the misery, every new loan is accompanied by numerous other unexpected charges, making the total cost of borrowing extremely high.

Stephen Alambritis, spokesman for the Federation of Small Businesses, said: “Banks have begun to lend money to small businesses but they are coupling this with a hike in charges. Whereas the cost would previously have been 0.5% of the loan, for example, now it could be 2%. They are also reviewing small-business accounts every other month rather than twice a year, and charging £300 each time.

“We are seeing banks charge an arrangement fee, a facilitation fee, an audit fee and a review fee, over and above the interest on the loan. It means that small businesses are really put under pressure.â€

He added: “The banks are trying to get as much money in as possible so they can pay off the government and cut the ties with them.â€

Phil McCabe, of the Forum of Private Business, said: “Small businesses are angry, frustrated and upset. Our research shows that the cost of lending is increasingly restrictive, as the banks are charging all sorts of unexpected fees for arranging lending plus interest rates that are way above base.

“There has been a small increase in the availability of lending but that has been more than offset by the increased cost and it is having an impact on cashflow.â€

[interestrateripoff]

Too many over-extended to live the dream.

Now the dream is going to turn into a nightmare, this should never have been allowed to happen but everyone enjoys being rich living in an asset going up by double digit figures yoy.

[olliegog]

'It is not all bad news. Figures last week from Nationwide building society showed a 1.3% increase in house prices last month, the third rise in as many months. They have now gone up by 4.4% since February.' quote

the stop on repossessions and the above VI double speak are distorting the picture of what is really happening.

[CviewUK]

Ask a CCCS counsellor a question

http://forums.moneysavingexpert.com/showth....html?t=1231527

[Guest Parry aka GOD]

'It is not all bad news. Figures last week from Nationwide building society showed a 1.3% increase in house prices last month, the third rise in as many months. They have now gone up by 4.4% since February.' quote

the stop on repossessions and the above VI double speak are distorting the picture of what is really happening.

What's this 'stop on repossessions'?

[crashologist]

Expect the bank shares to rise on this news.

[shedfish]

It is not all bad news. Figures last week from Nationwide building society showed a 1.3% increase in house prices last month, the third rise in as many months. They have now gone up by 4.4% since February.'

bl00dy genius. the problem being debt, they celebrate more of it

[ccc]

bl00dy genius. the problem being debt, they celebrate more of it

It is staggering isn't it ? The thing that got us into this mess in the first place ? It is going up again - allegedally. So this is good news

The brainwashing in this nation is truly remarkable.

[scottbeard]

It is staggering isn't it ? The thing that got us into this mess in the first place ? It is going up again - allegedally. So this is good news

The brainwashing in this nation is truly remarkable.

I can only presume it's a homeowner writing for other homeowners to read. Everyone else sees it as bad news.

[Georgia O'Keeffe]

Ask a CCCS counsellor a question

http://forums.moneysavingexpert.com/showth....html?t=1231527

jesus, thast really reads like a whos who of feckwittery, reading stories like that really hjighlight just how much greed and stupidity theres been in the UK over the last decade, all to be paid for by the UK Taxpayer, i dont understand why anyone solvent would actually choose to stay in the UK over the coming decade

[Guest Parry aka GOD]

jesus, thast really reads like a whos who of feckwittery, reading stories like that really hjighlight just how much greed and stupidity theres been in the UK over the last decade, all to be paid for by the UK Taxpayer, i dont understand why anyone solvent would actually choose to stay in the UK over the coming decade

[Guest KingCharles1st]

"Based on estimates provided by the International Monetary Fund, lending to British consumers could cost the financial system more than £100 billion in bad debts before the recession is over."

Awwwww--

And just how much did the Banks suck out of the economy and Mr and Mrs Insignificant pre 2007?

[Lord D'arcy Pew]

Ships have a plimsoll line painted on their hulls, this shows the maximum safe loading of the vessel. It has been said by some that our economy is well able to weather the approaching financial storm, but any financial plimsoll lines that did exists have long since been painted over. Self regulation allowed the British economy to be loaded to the gunwales with a cargo of debt and the barometer tappers were ignored or ridiculed.

Now the water is lapping onto the decks!

Edited August 2, 2009 by Lord D'arcy Pew

[HPC001]

Well, at least my own current debt is pretty much insignificant...student loan and thats it.

[interestrateripoff]

Ships have a plimsoll line painted on their hulls, this shows the maximum safe loading of the vessel. It has been said by some that our economy is well able to weather the approaching financial storm, but any financial plimsoll lines that did exists have long since been painted over. Self regulation allowed the British economy to be loaded to the gunwales with a cargo of debt and the barometer tappers were ignored or ridiculed.

Now the water is lapping onto the decks!

That's because the ship was going to grow and get bigger so loading up with debt wasn't an issue.

[R K]

jesus, thast really reads like a whos who of feckwittery, reading stories like that really hjighlight just how much greed and stupidity theres been in the UK over the last decade, all to be paid for by the UK Taxpayer, i dont understand why anyone solvent would actually choose to stay in the UK over the coming decade

Indeed. It is simply beyond belief how the banksters have kept their licences and avoided long jail terms for their feckwittery, avarice, hubris, mendacity, fraud and usery.

Juding by the comments from Alambaritis on the layers of additional charges, fees, reviews etc they have just gone into over-drive.

The banksters are now totally out of control - hollowing out every debtor and business they have got their talons into.

They should all be fully nationalised forthwith, broken up and perhaps in 10-15 years when taxpayer has done with them re-floated, with long prison sentences for any bank board member during the last decade that participated and continues to participate in this fraud.

[The Ayatollah Buggeri]

From the article:

The latest official figures show average earnings, including bonuses, rising by 2.3% a year, significantly weaker than in recent years. Earnings are staying ahead of both consumer price inflation, at 1.8%, and the retail prices index, which includes mortgage rates and is down by 1.6% in the past year. Set against that, real earnings are growing by about 4%.

This may explain why retail spending is holding up. Figures from the John Lewis Partnership on Friday show department store sales in the week to July 25 up 6.3% on the year.

Therein lies the problem. Presumably a lot of these people who are enjoying lower mortgage rates are also those at risk of losing their job or having to go onto shorter hours. But instead of saving the difference to insure against this contingency, they're blowing it in John Lewis. And when they do eventually get into trouble, they won't face a repo or any loss of benefits or state help as a result of them having failed to take any responsibility for planning for a rainy day. Moral hazard, pure and simple.

[HPC001]

DSS only pays mortgage interest, and only after 6 months...what do you mean, moral hazard??

Rates can be zero but last time I checked 99% of mortgages are still well above what a joint claim of JSA pays. Factor in bills etc and you've got serious problems...

[Radge]

Faced with having to pay a raft of extra fees on top of a 9.9% interest rate on his £5,000 overdraft with NatWest, Peter Reeve, a quantity surveyor with Estimating Surveying Services in Bedford, finally lost patience. A few weeks ago he decided to pay off the lot using credit cards.

“I had just had enough,†he said. “They were crippling me with interest rates, maintenance fees, service charges and arrangement fees. It was unfair and unreasonable.â€

Wahey - get a 9.9% overdraft millstone from around your neck with a 17% credit card! "Pay off the lot"? You've paid off feck all, you feckwit!

[19 year mortgage 8itch]

From the article:

Therein lies the problem. Presumably a lot of these people who are enjoying lower mortgage rates are also those at risk of losing their job or having to go onto shorter hours. But instead of saving the difference to insure against this contingency, they're blowing it in John Lewis. And when they do eventually get into trouble, they won't face a repo or any loss of benefits or state help as a result of them having failed to take any responsibility for planning for a rainy day. Moral hazard, pure and simple.

No, the problem is that state will currently bail you out providing you have less than £16K in savings. A string of benefits and mortgage help to keep you in the life to which you are accustomed. So why not enjoy your own money whilst you have the chance rather than saving it to buy beans on toast when you're jobless. The next problem is when those benefits can no longer afford to be paid. Something that people are not, so far, considering.

TBH, I find myself spending a bit extra at the moment, bought an eggbox360 yesterday , but at least I'm paying off my mortgage, saving and spending at the moment.

[HPC001]

No, the problem is that state will currently bail you out providing you have less than £16K in savings. A string of benefits and mortgage help to keep you in the life to which you are accustomed.

Did you try reading a few posts up?

Also, you'll find the welfare system is inadequate if you're aged 18-24 and\or don't have children.

[19 year mortgage 8itch]

Did you try reading a few posts up?

Also, you'll find the welfare system is inadequate if you're aged 18-24 and\or don't have children.

But they don't vote so no-one cares

BTW, mortgage interest is paid after 13 weeks nowadays

Edited August 2, 2009 by daiking

[Fairies Wear Boots]

What's this 'stop on repossessions'?

This is the government telling the banks to stop posessing after three months and wait for six instead isn't it?

Wahey - get a 9.9% overdraft millstone from around your neck with a 17% credit card! "Pay off the lot"? You've paid off feck all, you feckwit!

Yes, but didn't the overdraft have fees? So now he pays more interest but doesn't get hit by all the fees. Either that or he is numpty of the year!

[HPC001]

But they don't vote so no-one cares

BTW, mortgage interest is paid after 13 weeks nowadays

It seems you're correct. But there are some strings attached.

Rules that apply to new claims from 5 January 2009

For customers making a new claim to benefit from 5 January 2009:

* There is a waiting period of 13 weeks before help is provided at 100% of eligible mortgage interest.

* The capital limit up to which mortgage interest can be met is £200,000.

* There is a two year time limit on payment of mortgage interest but only for new Jobseeker's Allowance claims.

Of course, there's all the form filling, giving over lots of personal\financial information and being on the DWP's leash, but nobody cares about that

[SeenItAllBefore]

The latest official figures show average earnings, including bonuses, rising by 2.3% a year, significantly weaker than in recent years. Earnings are staying ahead of both consumer price inflation, at 1.8%, and the retail prices index, which includes mortgage rates and is down by 1.6% in the past year. Set against that, real earnings are growing by about 4%.

Anybody else think these earnings figures look a bit dodgy?

With many having their hours or rates of pay reduced there must be a lot of workers receiving pay rises well in excess of 2.3% to keep the average at that level. Which employers have been giving out 3-4-5% pay rises over the last year?