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Debt levels hidden?

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Visited new friends last wknd... Early 40s, 3 kids aged 1 to 10. Household income I reckon £60k to £100k. Bought 5 bed detached in august last year for £510k. They were essentially FTBs as previous flat is being let out.

Lovely house but no signs of any decoration etc... Needs a lot doing but perfectly live-in-able. Talking about putting a big extension on the side but will take 2 yrs before financially viable.

My wife told me after they regularly need handouts from family, e.g. when car recently packed up.

Another example... My neighbours (mid 30s, household income about £60k) bought 2 bed terrace for about £225k last year. Have done the whole place up, but can't do kitchen as have maxed out the credit cards.

This all made me wonder how much debt people have? Are all these apparently well off families at risk of collapse if IRs go up?

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What I think is quite risky is to take on such large amounts of debt over many future years based on an income today that may not be there tomorrow but the debt commitments will be......not so many guaranteed jobs with growing incomes about as once was...... anything can happen. ;)

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9 minutes ago, Nickos said:

Owe the bank £10,000 against a £250,000 house, your problem. Owe the bank £200,000 against a £250,000 house, their problem.

How is that the bank's problem? Stop paying the mortgage and they will repossess, sell the house and get their £200k back.

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47 minutes ago, Dorkins said:

How is that the bank's problem? Stop paying the mortgage and they will repossess, sell the house and get their £200k back.

It should be, however since the crash the banks try not to. It's for that very reason we're seeing this personal debt bubble. People  feel devoid of responsibility for their borrowings. No changes in IR for nearly a decade has created that. I think it's for that reason central banks are baulking at raising rates, they know that even the slightest tick up will cause a massive effect. The longer they hold off the worse this situation becomes.

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30 minutes ago, interestrateripoff said:

No it's the taxpayers problem.

No it's the first time buyers problem. When the first time buyers run out, *then* it's the taxpayers problem.

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4 hours ago, hiace_drifter said:

This all made me wonder how much debt people have? Are all these apparently well off families at risk of collapse if IRs go up?

What other option is there? Live within your mean?

That won't get your street cred in the image driven UK.

The semblance of wealth is wealth to the British pleb.

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In my view a lot of jobs in the £40-60k bracket are in danger, both in the public and private sector.

 

Maybe because the production of the product / service the employee is managing has been offshored, so in the long term it makes sense to offshore the management (alot of people in IT gleefully charging towards offshoring don't get this).

 

Maybe due to automation.

 

Maybe to public sector 'cuts'

 

It's anecdotal, but met someone at a party formerly working for Birmingham city council on £40k (he told me this) in some sort of economic development role.

He was made redundant due to evil cuts, spent 2 years on the dole, and is now in some sort of admin / clerical role not too far above minimum wage.

Edited by reddog

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7 minutes ago, reddog said:

In my view a lot of jobs in the £40-60k bracket are in danger, both in the public and private sector.

Well, this is definitely true in engineering.

The oil downturn has put 200k+ folk out of work, and in that has removed perhaps £15bn in taxable wages from the economy.

The jobs that are left all face serious cuts in wages, benefits and perks. Average incomes are down 20-50% across the board.

Heck, in most parts of the UK, a good engineering job is in the region of £40k.

Engineering jobs in the UK are disappearing at an alarming rate, and yes, a lot of it from automation. The trend isn't a good one.

For me, the first step in saving British Engineering is to legally protect the title of Engineer and Technician.

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16 hours ago, cashinmattress said:

What other option is there? Live within your mean?

That won't get your street cred in the image driven UK.

The semblance of wealth is wealth to the British pleb.

The funny thing is the family with the large detached are not flashy in the slightest, but for some reason they seem happy to take on massive debt in order to buy a house. 

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It's epidemic. I know loads like this.  People think the last 10 years is the new normal and will continue forever.  People seriously think they can just work till they're 70 uninterrupted and it'll all be fine, no illness, redundancy etc.  Just keep meeting the monthly payments...

I don't know how some of the people I know (and I know what debt they have) sleep at night.  Especially with kids etc...

Living the middle class dream one monthly payment at a time!

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I honestly believe people don't question their own spending or debt appetite enough. They think if a bank offers them a mortgage it must be safe. Or the EA tells them the asking price so it must be right. Or the government gives them a HTB loan... They must know what they're talking about.

I have a spreadsheet that estimates our household income for next 30yrs. Its very basic... Just current salaries going up by 1% a year. My wife's hours going up as kids go to school etc. Against that I can plot mtg repayments as % of take home. When the in laws say "just buy a house, it's good value, £1500 pm is not a lot" I can categorically say that we cannot safely take on/repay that debt. I show them the spreadsheet... They think I'm some kind of crackpot... What with all his numbers and whatnot. They are incapable of seeing that the hoards of debt junkies are in the wrong... They presume I am in the wrong because I haven't followed the masses!

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On 11/11/2016 at 6:09 AM, hiace_drifter said:

Visited new friends last wknd... Early 40s, 3 kids aged 1 to 10. Household income I reckon £60k to £100k. Bought 5 bed detached in august last year for £510k. They were essentially FTBs as previous flat is being let out.

Lovely house but no signs of any decoration etc... Needs a lot doing but perfectly live-in-able. Talking about putting a big extension on the side but will take 2 yrs before financially viable.

My wife told me after they regularly need handouts from family, e.g. when car recently packed up.

Another example... My neighbours (mid 30s, household income about £60k) bought 2 bed terrace for about £225k last year. Have done the whole place up, but can't do kitchen as have maxed out the credit cards.

This all made me wonder how much debt people have? Are all these apparently well off families at risk of collapse if IRs go up?

Lets take a mid point in your income - 80K.

The max mortgage they should be thinking about is ~ 200k.

For Mr UK Average, their income is pretty much over at 40. No real bumps up in income, kids a drag on what you can do.

They are fck on letting out the flat- all that flat income will be taxed away.

Th bigesst problem for both these two is hat Trump appears to have broken the 30 year bond bull market.

Borrowing costs look like rising. Not a lot, but to 5-6% for a mortgage.

 

 

 

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1 hour ago, hiace_drifter said:

They think I'm some kind of crackpot... What with all his numbers and whatnot. They are incapable of seeing that the hoards of debt junkies are in the wrong... They presume I am in the wrong because I haven't followed the masses!

They, deep down, know you're right - BUT you go against the concencus and that scares the shit out of them.

i posted a couple of months ago about a relative sticking the new kitchen (20k!) on the mortgage.  He KNEW it was mental but did it anyway, Mrs happy though as its now on Facebook so everyone thinks they're loaded etc...

We were recently discussing debt, housing etc and he honestly believes he'll be working till 70. I asked the killer question - but will anyone want to employ you at 70?  Cue an awkward silence...

These people all know they're ******ed they're just praying the plates keep spinning.

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I'm a partner in a business which me and my partners founded.  We are constantly amazed at the lifestyles a couple of our employees seem to have (flash cars, weekly meals out at top end restaurants, larger houses than most of the partners, exotic holidays and skiing trips) which are far "better" than we partners enjoy.  These guys are constantly up against it cashflow wise (ie. asking for us to pay expenses weekly rather than monthly, and almost suicidal if they don't get the maximum annual bonus, one of them opted out of the employee pension scheme and expected us to pay the employers contribution to him as monthly salary).

It's all "instant gratification" - because they seem to believe its the lifestyle they "deserve" - and it's all funded on the most eye watering levels of debt.  I explained to one of them (who was pushing to be made partner) that there was simply no way he could afford it.  My Partners and I put our life savings into the business to start it and worked unpaid for a year to get it off the ground, we also took a 50% pay cut for a couple of years when the recession made life a bit tricky - how's he going to match that commitment when he can't even wait 20 days to get refunded for a rail ticket and lunch with a customer?

 

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12 minutes ago, Exiled Canadian said:

I'm a partner in a business which me and my partners founded.  We are constantly amazed at the lifestyles a couple of our employees seem to have (flash cars, weekly meals out at top end restaurants, larger houses than most of the partners, exotic holidays and skiing trips) which are far "better" than we partners enjoy.  These guys are constantly up against it cashflow wise (ie. asking for us to pay expenses weekly rather than monthly, and almost suicidal if they don't get the maximum annual bonus, one of them opted out of the employee pension scheme and expected us to pay the employers contribution to him as monthly salary).

It's all "instant gratification" - because they seem to believe its the lifestyle they "deserve" - and it's all funded on the most eye watering levels of debt.  I explained to one of them (who was pushing to be made partner) that there was simply no way he could afford it.  My Partners and I put our life savings into the business to start it and worked unpaid for a year to get it off the ground, we also took a 50% pay cut for a couple of years when the recession made life a bit tricky - how's he going to match that commitment when he can't even wait 20 days to get refunded for a rail ticket and lunch with a customer?

 

You really ought to supply this man with a company credit card. :D

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Stagnant wages + house price inflation + debt = slow death of the middle classes. I'm always surprised when I meet people like this first hand but we've been sweeping this growing trend under the rug for well over a decade.

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37 minutes ago, Exiled Canadian said:

I'm a partner in a business which me and my partners founded.  We are constantly amazed at the lifestyles a couple of our employees seem to have (flash cars, weekly meals out at top end restaurants, larger houses than most of the partners, exotic holidays and skiing trips) which are far "better" than we partners enjoy.  These guys are constantly up against it cashflow wise (ie. asking for us to pay expenses weekly rather than monthly, and almost suicidal if they don't get the maximum annual bonus, one of them opted out of the employee pension scheme and expected us to pay the employers contribution to him as monthly salary).

It's all "instant gratification" - because they seem to believe its the lifestyle they "deserve" - and it's all funded on the most eye watering levels of debt.  I explained to one of them (who was pushing to be made partner) that there was simply no way he could afford it.  My Partners and I put our life savings into the business to start it and worked unpaid for a year to get it off the ground, we also took a 50% pay cut for a couple of years when the recession made life a bit tricky - how's he going to match that commitment when he can't even wait 20 days to get refunded for a rail ticket and lunch with a customer?

 

If I had an employee living high on the hog like that, I would be going through their expense claims with a fine tooth comb, and auditing their company work very thoroughly indeed in search of fraud.

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9 minutes ago, onlooker said:

If I had an employee living high on the hog like that, I would be going through their expense claims with a fine tooth comb, and auditing their company work very thoroughly indeed in search of fraud.

I agree. This sounds extravagant even for the high levels of debt available in this country.  Longer term I'd be wondering if they were a good fit for the company - unless they are a top notch sales guy or similar.  

Edited by StainlessSteelCat

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33 minutes ago, StainlessSteelCat said:

I agree. This sounds extravagant even for the high levels of debt available in this country.  Longer term I'd be wondering if they were a good fit for the company - unless they are a top notch sales guy or similar.  

Most of the sales guys I know seem to get hooked by other sales guys easier than most. Though they know most of what they spout is BS, they seem to believe other sales guys BS. Its a mental deficiency.

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People have strange ideas of luxury and what they deserve. Our annual 2 weeks camping trip to France is our luxury... Pre-erected tent, a fridge! Beach every day, pool twice a day, running around on the grass, catching hermit crabs on the sand. We count down the days until the next trip as soon as the previous one ends. It's cheap and cheerful but makes our family so happy... I get choked up just writing about it! But for many it has to be glitzy/expensive etc etc.

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32 minutes ago, Northern Welsh Midlander said:

Most of the sales guys I know seem to get hooked by other sales guys easier than most. Though they know most of what they spout is BS, they seem to believe other sales guys BS. Its a mental deficiency.

This is a very good point and it something I have observed before but not put it into words.  Perhaps one of the qualities needed to be an effective salesperson is that you need to be able to suspend disbelief and this can back-fire on you.

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On ‎11‎/‎11‎/‎2016 at 10:15 AM, Nickos said:

Owe the bank £10,000 against a £250,000 house, your problem. Owe the bank £200,000 against a £250,000 house, their problem.

I don't know if things have changed recently, but back in 2010 a friend of my wife's lost a good tenant on her investment property and, since she was on a low wage and had absolutely no savings, she was instantly in a situation where she could not pay her ( interest only- naturally) mortgage.

The bank was not in the slightest concerned. My wife actually saw the letter sent to her friend by the bank, and it basically said," No problem, pay us when you're back in a position to do so."

It took her 4 months to find another tenant.

I was utterly amazed that the bank was so nonchalant about it, but apparently it is so potentially dangerous for a bank to foreclose and take a loss on the loan that they are willing to make it very easy indeed for the mortgagee to resume payments whenever they are able to.

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3 hours ago, onlooker said:

If I had an employee living high on the hog like that, I would be going through their expense claims with a fine tooth comb, and auditing their company work very thoroughly indeed in search of fraud.

There's no way he can defraud us, and don't worry all expenses get a thorough review.......

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