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Young Borrowers 'stoking The Next Bubble'

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The cohort of delinquents from the Brown years continues to pay down debt, taking the net lending figures negative. But behind them Osborne has engineered his own cohort of soon-to-be delinquent borrowers even more extended than Gordo's.

http://www.telegraph...dit-crunch.html

By by Richard Dyson

3:30PM BST 23 Aug 2013

Mortgage data from the British Bankers' Association shows total lending continues to shrink as repayments exceed new borrowing across the book. While approvals for new loans grew 30pc on last year, according to the BBA's data published today, and while gross lending also increased, combined mortgages outstanding shrank by £100m to give a total mortgage tally of £780bn.

Mortgage-Lending--_2651771c.jpg

This trend - apparent in the "net" borrowing figure in the graph, above - has been a feature of the market for 18 months. The BBA said "higher repayment continues to generate the contractions in borrowing stocks seen over the past year and explains the subdued picture of net borrowing."

But the overall picture of contraction hides pockets of strong borrowing growth, especially among younger buyers. Two weeks ago the Council of Mortgage Lenders' figures showed a 30pc surge in first-time property buyers, with 68,000 first-time loans advanced in the three months to end-June 2013, up from 49,000 in teh samer period of 2012.

The number of loans is historically low but high house prices means the average sum advanced - £117,000 in July - was almost as high as has ever been recorded. The all-time high for the average first-time mortgage was in July 2007, at the pinnacle of the housing market, when the figure reached £118,999.

The clash between this picture of expanding lending at the bottom of the housing ladder and the total decline in mortgage balances is causing some commentators to fear borrowing "hot spots", likely to focus around borrowers in their thirties and early forties.

Richard Jeffrey, chief investment officer at fund manager Cazenove Capital Management, has warned debts now being amassed could be unsustainable and result in a re-run of the crisis. He said: "The reason the UK recession was so deep was that the household sector had previously got itself into dire financial straits – encouraged, it may be added, by a protracted period of below-normal interest rates. Debt-to-income levels rose to unprecedented highs leaving borrowers massively squeezed when interest rates rose and again when real incomes were squeezed by persistently high inflation."

Speaking of new Bank of England Governor Mark Carney's decision to keep rates low until unemployment fell, more or less regardless of other economic indicators, Jeffrey said: "It would seem bizarre that almost by definition one of the measures of success of current policy will be a renewed increase in the debt-to-income ratio. It would be easier to defend the government's commitment to make more mortgage finance available to households were this to be at sensible interest rates. Sadly, we have in the making, at least for a proportion of households, the next credit crunch."

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Here in Ireland you cannot borrow more than about 3.5 times the main earners wage, that is keeping prices anchored to the floor.

Ireland will go far if the banks decide to keep to this and add a few repos to the bonfire. As far as I am aware the UK is still lending an unsustainable 5.5x main salary in the 'hope' of further wage rises.

Correct me if I am wrong.

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The high repayments data points to Nationwide continuing to hoover up remortgaging activity, as koala_bear has revealed previously.

The BBA seem to have it backwards when they blame a drop in personal loan balances on increased card debt-I doubt many would choose the latter, perhaps more likely the bank rejects a loan application and scoops the extra interest when the spending is put on cards instead. I find it hard to believe that card balances can go much higher, at typical interest rates of 1%/month, equating to about a tenner/month for every adult in the land although most of this burden will fall on a small subset of these, without the risk of defaults rising. I'd be keen to see what fraction of these balances are distressed.

I suppose the bottom line is that banks continue to deleverage, irrespective of what is said by PR. Even the most blatant of electoral givesaway, HTB, can't change that.

Should say I've not looked at the spreadsheet yet so all based on seasonally-adjusted figures.

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How are delinquent loans treated in the graphs...are they removed from the measured mortgage pool thereby adding to the apparant balance infered by repayment, or is there little actual repayment, just write offs?

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Here in Ireland you cannot borrow more than about 3.5 times the main earners wage, that is keeping prices anchored to the floor.

Ireland will go far if the banks decide to keep to this and add a few repos to the bonfire. As far as I am aware the UK is still lending an unsustainable 5.5x main salary in the 'hope' of further wage rises.

Correct me if I am wrong.

That's the Republic, I assume. I had a quick look on daft.ie. The prices seem reasonable but not low, imo. Like NI. The north of England has prices about the same. I'm writing in broad terms. I'm going to wait a few more years. :blink:

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The UK government are simply doing what every UK government has done since 1979 and ensuring that enough of each generation are sucked into the debt trap that ensures ongoing obedience to the HPI = good philosophy.

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.....Oh I see, the hypocritical young borrowers are seeing to it they become the next boomers pricing their own flesh and blood out of ever owning property........or doing them a favour? ;)

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increased card debt

Maybe it's because I have just taken out one of those 0% cards but there seems to be a lot around these days. but it is the cheapest way to borrow money if you are disciplined.

I wasn't going to bother taking out another First Direct regular savings account at 6% when my 8% one finishes,But now I am thinking I may as well and take out another 0% credit card to run along side it.

OK I only make about £100 but it isn't that difficult to do no more difficult than writing this post.

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