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Sancho Panza

£1,430,000,000,000 (That's £1.43 Trillion): Britain's Personal Debt Timebomb

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i 20/11/13

'Britain faces a timebomb as the cost of living crisis forces more people into crippling debt they will not be able to repay, according to a major study published today. The Centre for Social Justice (CSJ) think tank, founded by Iain Duncan Smith in 2004, warned that two of the flagship policies he is implementing as Work and Pensions Secretary - the “bedroom tax” and universal credit - could plunge more people into debt. It revealed that more than 5,000 people are already being made homeless each year because they cannot pay their mortgage or rent.

The study, “Maxed Out,” said that despite the return to economic growth, personal debt in the UK totals £1.43 trillion, close to its all-time high. Average household debt stands at £54,000 - almost twice the level a decade ago. Although much of it stems from mortgages, the report warned that poor people were hit hardest as unsecured consumer debt almost tripled in the last 20 years to nearly £160bn.

According to the CSJ, households owe the equivalent of 94 per cent of the UK's economic output last year. Only Ireland has a higher ratio of personal debt to GDP amongst European countries.

Privately, ministers are worried that, while interest rates have been held at a record low of 0.5 per cent, less personal debt has been repaid in the UK than countries like the United States. The Bank of England will consider raising rates when unemployment falls from its current 7.6 per cent rate to 7 per cent, triggering a rise in mortgage rates for millions of home-buyers.

The CSJ said more than 26,000 UK households have been classed as “homeless” by local authorities in the past five years, and warned that the number could increase if interest rates rises. Some 3.9m families do not have enough savings to cover their rent or mortgage for more than a month.

Another timebomb is the number of people retiring before they have paid off their mortgage. About 40,000 interest-only mortgages are due to mature each year between 2017 and 2032 where the householder will be over 65. Between now and 2020, a third of the shortfalls on endowment mortgages will amount to more than £50,000.

Although the CSJ backed the principle of the “bedroom tax” imposed on tenants in public housing, it said the “spare room subsidy” should not have been removed unless they had refused a “reasonable offer” to “downsize” or work longer hours. It warned there had been “genuine confusion” about the impact of the change and discovered that some local authorities are failing to fully allocate their share of the £25m set aside for discretionary housing payments.

“The potential short-term impact of removing the spare room subsidy on rent arrears is concern in relation to the threat of problem debt,” said the report. There was evidence of some “property swaps” being put on hold until tenants had paid off all their rent arrears, which risked more debts piling up.

pg-1-debt-graphic.jpg

The CSJ, which originally proposed the merging of benefits into a universal credit, expressed concern that switching to monthly payments might fuel debt problems. Pilot schemes found that 17 per cent of tenants got behind with their rent and the CSJ warned: “Unnecessary and unmanageable debt would severely undermine the important principle behind this welfare change.”

Christian Guy, the CSJ's director, said problem debt has “taken root in the mainstream of British society.” He added: “Years of increased borrowing, rising living costs and struggling to save has forced many families into a debt trap that is proving very difficult to escape. Some of the poorest people in Britain are cut off from mainstream banking and have no choice now but to turn to loan sharks and high-cost lenders.”

Today's study found that payday lenders have grown their business from £900m in 2008-09 to more than £2bn. The number of people using illegal loan sharks has risen to more than 310,000 each year. “Their use of violence and intimidation terrorises people and communities, enforcing a 'veil of silence' that allows them to escape detection,” said the report.

Warning that debt is rising “at an alarming rate”, the CSJ concluded: “Unless proactive steps are taken, problem debt in the UK will continue to grow unabated. The current levels of debt are worrying because they not only have severe financial implications,but also more wide-ranging impacts on people's mental health, family stability, and ability to work. These are especially pronounced amongst low-income households and the vulnerable.”

Dr John Sentamu, the Archbishop of York, said yesterday that food banks will “not go away any time soon” amid a “new and terrible” rise in poverty. He told the General Synod of the Church of England that the number of people being admitted to hospital with malnutrition is a “dark stain on our consciences.” The Independent revealed on Monday that the number of cases treated at NHS hospitals has almost doubled since the economic downturn.'

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This is my baby :)

DEBT UK

I have more of an interest in this subject than I do in the prices of property, and my interest goes back to the start of the 2000's when the numbers were seriously scary, but like all the wars we now join/cause/start we have become desensitized to the scale and size of what we are now in. Nobody talks about it anymore and we allow it to get bigger and worse because "thats just the way it is".

Something/someone is going to call their debts in one day, if it only happened on a small scale in the UK it would go under, I would even go one further and say if the UK was just to not allow debt to go higher and flatlined for the next 5 years it would go under.

Kicking the can...

Quite,the figures are off the scale and we have indeed become desensitized to them in the same way that we,as a society,have begun to view the welfare state as a right not a privilege.

I genuinely hope I'm on holiday somewhere nice,when the 'smell the coffee' moment arrives.

I remember when Gordon Brown was borrowing £30 billion per annum in the noughties to ahem.....'invest'...in the UK and thinking that was off the scale.Those days seem so innocent now, as I'm sure were his intentions.

It makes me laugh when you see all the CB's digging the hole deeper to get us out of the hole.You couldn't really make it up,could you?

Edited by Sancho Panza

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Why, it's practically Government policy to increase the reach and security of personal debt obligations.

Any chat about personal debt levels should be viewed with this in mind.

It's ironic that the last few governments have been elected by the very middle classes whose lives they're destroying.

Edited by Sancho Panza

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Sky 20/11/13

'A report is warning of the impact of a debt trap on the poorest in society, with unsecured debts nearing £160bn in the UK.

It calculated that essential bills had increased by 25% since 2007 and 3.9 million British families did not have enough savings to cover their rent or mortgage for more than a month,

Households in the poorest 10% of the country were found to have average debts more than four times their annual income, with their average debt repayments amounting to nearly half their gross monthly income - pushing more people towards payday lenders and loan sharks because banks were reluctant to lend.'

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Sky 20/11/13

'A report is warning of the impact of a debt trap on the poorest in society, with unsecured debts nearing £160bn in the UK.

It calculated that essential bills had increased by 25% since 2007 and 3.9 million British families did not have enough savings to cover their rent or mortgage for more than a month,

Households in the poorest 10% of the country were found to have average debts more than four times their annual income, with their average debt repayments amounting to nearly half their gross monthly income - pushing more people towards payday lenders and loan sharks because banks were reluctant to lend.'

That's right.....the problem is they can't borrow from the banks :unsure:

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Sky 20/11/13

'A report is warning of the impact of a debt trap on the poorest in society, with unsecured debts nearing £160bn in the UK.

It calculated that essential bills had increased by 25% since 2007 and 3.9 million British families did not have enough savings to cover their rent or mortgage for more than a month,

Households in the poorest 10% of the country were found to have average debts more than four times their annual income, with their average debt repayments amounting to nearly half their gross monthly income - pushing more people towards payday lenders and loan sharks because banks were reluctant to lend.'

EAs are adding 50K to asking prices of 3 beds round my way over what was being asked 3 months ago - makes sense when so many people are fecked.

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EAs are adding 50K to asking prices of 3 beds round my way over what was being asked 3 months ago - makes sense when so many people are fecked.

Nice. An orgy of EA drunkenness fuelled by cheap credit. The government’s official response? Refill the punch bowl and pump up the jam!

I predict UKPLC is in for a serious hang-over.

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I predict UKPLC is in for a serious hang-over.

UKPLC has already got a hangover. That's why they are trying hair of the dog.

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What is worrying is where you pht any sterling savings you might have? Into stocks? PMs? Overseas property? UK property?

In theory you want you cash in non sterling assets but where?

If you believe recession is imminent then short sterling and go long the dollar. A worldwide recession will mean fewer dollars exported for trade. Fewer dollars in circulation = rising price, everything else being equal (i.e. unless Janet Yellen goes nuts.)

Despite QE, since July 2011 the dollar has appreciated >6% in real trade-weighted terms.

MW-BM728_dollar_20131008094340_MG.jpg

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£11bn a year gone in interest income.

Billions in interest lost due to Bank of England policy

People in the UK have lost around £68 billion in interest since 2007 as a result of the Bank of England’s record low Base Rate and quantitative easing (QE) programme, according to a new study by the McKinsey Global Institute.

....

The record low Base Rate, combined with a lack of supply, means house prices are 15% higher than they otherwise would have been, potentially offsetting the squeeze on incomes for many. Of course, unless you sell your home, remortgage or release some of the equity from it, you won’t tangibly feel the effect of that increase.

In fact, with a relatively mild housing market downturn, but no crash, followed by a recovery, the report says the collective wealth of UK homeowners has actually been boosted to the tune of £602 billion over the past five years.

However, it notes that the majority of that increase in wealth is felt by people who already have significantly greater assets. In other words, the rich are getting richer. The Bank of England has argued that without its intervention unemployment would have been higher, growth would have been lower and businesses would have gone under.

....

The report ends by sounding a warning about the end of this era of low interest rates and QE. It predicts that for every 100-basis point increase in the Base Rate, for example from its current low of 0.5% to 1.5%, it will cost households an extra £11 billion in mortgage repayments.

http://uk.finance.yahoo.com/news/billions-interest-lost-due-bank-122643242.html

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It's just another "Why we cannot raise interest rates" article.

Keep rates low and banks can write off a lot of the debt from the arbitrage between poor saving rates and higher mortgage rates.

Yup, here's a couple of excerpts from the source document, which glosses over the issue of mortgage debts being by far the greatest amounts. It's all about the monthly payment, innit:

P40:

The rapid growth of mortgages over the past two decades has contributed the largest total

amount to Britain’s personal debt. However it is not as concerning as the rise in consumer

debt over that same period. Unlike mortgage debts, which are tied to the value of a house,

unsecured consumer borrowing is at higher interest rates and is more likely to spiral out of

control, driving people into problem debt.

P42:

This situation, as with mortgage debts in general, is significantly influenced by the Bank of

England’s interest rate, to which many mortgages are linked.141 As noted earlier, for the

foreseeable future the Bank of England has maintained to keep this rate low.142 However,

it will eventually have to rise from its current level of half a per cent, to somewhere closer

to the long-run average of around four or five per cent, which could lead to an increase in

problem mortgage debt.

Document:

http://www.centreforsocialjustice.org.uk/UserStorage/pdf/Pdf%20reports/CSJ_Serious_Debt_report_WEB_final.pdf

Maybe carrying £100k of secured debt might make repaying a car loan a bit of a burden? It all starts from mortgage debt imo.

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Yup, here's a couple of excerpts from the source document, which glosses over the issue of mortgage debts being by far the greatest amounts. It's all about the monthly payment, innit:

P40:

P42:

Document:

http://www.centrefor...t_WEB_final.pdf

Maybe carrying £100k of secured debt might make repaying a car loan a bit of a burden? It all starts from mortgage debt imo.

'Unlike mortgage debts, which are tied to the value of a house,

unsecured consumer borrowing is at higher interest rates and is more likely to spiral out of

control, driving people into problem debt.'

It's almost surreal.

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Thank goodness student loans aren't debt or the figure would be touching £1.5 trillion.

Thanks goodness student 'loans' aren't loans but a tax and aren't designed to be repaid but written off.

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