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nimmmm

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I recently attended a conference put together by PriceWaterhouseCoopers about personal credit and personal insolvency in the UK. I thought I would share some of the observations and perdictions with you as they are pretty frightening.

1. Consumer Debt doubled in the past 5 years. It is set to increase by 9% per annum going forward. This is still less than the US.

2. UK consumer debt on credit cards stands at around £56bn, which is equivalent to the annual GDP of Argentina. The UK has 55% of all of the debt in the EU on its credit cards. The figure for total consumber credit is higher at £189bn in 2005, having increased 50% over the last 5 years. Thankfully the growth rate has started to tail off.

3. In the past year, the number of people entering into an Individual Voluntary Arrangement with their crediors has doubled to 30,000; PWC predict this will double again next year to 60,000.

4. The Finance Industry in the UK will write off £3bn this year on account of Bankrupcties and IVA's. Next year this is predicted to rise to £4.5bn.

5. Increasing regulation means that credit cards are becoming less profitable. The credit card companies are likely to respond by raising interest rates and reintroducing annual fees.

6. The number of people going bankrupt will match the per capita figure in the US, if the increase continues at its current rate, in 4 years time.

7. Of the people requesting debt counseling from the CCCS (52,000 last year), the average salary surplus monthly was £215, the average amount of debt owed was £29,000.00. Of the people entering formal insolvency (bankruptcy or an IVA) with PWC, the average debt was £40,000.00.

9. The typical bankrupt is between 30 and 50. The 20 to 30 age bracket is the fastest growing for insolvency. 82% of people stated that the reason for their bankruptcy was "living beyond their means."

:o:o:o

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What's to be said, this starkly illustrates the shift in attitudes toward debt.

While to us older ones here who can remember things such as the Dollar Premium, HP with higher minimum deposit and shorter fixed repayment periods and savings with a Building Society before a mortgage would be considered, this may seem madness, debt as quite acceptable has been internalised by this society.

Illustrates the success of the marketing machines, for lifestyle, products and the finance industry, together with the removal of legislation that controlled levels of lending.

"You've never had it so good".

Keeps the wheels of commerce turning I suppose.

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Thanks for the post. It provides a good summary of how the big picture of UK personal debt is panning out. Sadly, the bad debt figures here are still a drop in the bucket compared to the recent vast profits made by the UK banking sector. How many more years of exponential growth in insolvencies before the banks start to feel the pinch?

For real life stories of how this is playing out on the ground, The Motley Fool "dealing with debt" board is enlightening. This post took my breath away:

In-laws came to us last week in tears and disclosed that "they thought they had a debt problem." They didn't seem to know the full extent. From advice here I suggested that the first thing they must do was prepare a Statement of Affairs and I helped them with this over the weekend.

The result:

(Assets House/Car £250,000)

(O/s Mortgage/Loans £210,000)

Joint Monthly Salary £3300

Mortgage Repayments £1400

Pers Loan Repaymts £ 600

Fixed(ish) Expenses £1000

Other Expenses £ 700 - So Deficit over Salary = £400 pm

Then the crunch:

They have 40 (yes, 40) credit cards with a total outstanding of £150,000+ and minimum monthly repayments of around £3,000.

In other words, a total monthly deficit of £3,400 just to maintain the situation.

They have been surviving by robbing Peter to pay Paul on existing and new cards. They have concealed the situation from everybody and seem to have been in denial about the growing catastrophe for years...

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Thanks for the post. It provides a good summary of how the big picture of UK personal debt is panning out. Sadly, the bad debt figures here are still a drop in the bucket compared to the recent vast profits made by the UK banking sector. How many more years of exponential growth in insolvencies before the banks start to feel the pinch?

For real life stories of how this is playing out on the ground, The Motley Fool "dealing with debt" board is enlightening. This post took my breath away:

They earn £50K and have presumably been living an £80K lifestyle for 10 years (assuming that little equity and the credit card debts). Their fault. Let 'em lose the lot and start again. The biggest problem with credit is that so many people are stupid. Other people make money out of credit (borrowers) by careful use of it.

If they are intelligent, please tell me how neither of them spotted it. I have no sympathy at all and the worst hing is that they will get away with it by going bankrupt and walking away. People this stupid ought to be made to repay practically every penny - or at least be denied the option of walking away and living on the social. Take responsbility people.

Reading it in more detail, they spend, spend, spend and then come cap in hand to family to keep them going - I am afraid this has two solutions and one of them is 14million to one.

Edited by Rachman

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If they are intelligent, please tell me how neither of them spotted it. I have no sympathy at all and the worst hing is that they will get away with it by going bankrupt and walking away. People this stupid ought to be made to repay practically every penny - or at least be denied the option of walking away and living on the social. Take responsbility people.

I take it you're in favour of the new bankruptcy laws recently introduced in the States then?

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I can't agree. Making bankruptcy harder will only encourage the banks to lend more. What we need is easier bankruptcy laws. That might make the banks pay more attention to who they are lending too.

How on earth does one couple accumulate 40 credit cards and £155K of unsecured debt unless the lenders are being negligent?

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I can't agree. Making bankruptcy harder will only encourage the banks to lend more. What we need is easier bankruptcy laws. That might make the banks pay more attention to who they are lending too.

How on earth does one couple accumulate 40 credit cards and £155K of unsecured debt unless the lenders are being negligent?

I have about £180K of credit on my 8 cards - I have a balance of nil (actually small positives because of the way the payments get paid out). I spend on them, but I pay it off. I keep the cards because there may be a day when I need them (7 of them live in the safe at home).

If you tighten credit, you tighten bankruptcy laws and you make it impossible for someone who's not done their damnedest to pay their debts back to ever get credit again then you start to stop people. At the moment, they are simply weak willed. stupid, reckless or terminally optimistic or an ostrich in the way they spend.

I work damned hard and I see contemporaries of mine driving faster cars, flasher holidays, more bling on 20% of my wages - I know where the cash is coming from to pay for them. Why should people be able to live the life, then walk away and start again - it's not fair or reasonable to the rest of us who have to bail them out (directly or otherwise, we support their debts).

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Our bankruptcy law are fairly relaxed now - term of bankruptcy down from 3 years to 1 year with over 50% being discharged in under 1 year. The average length of bankruptcy is now 7 months.

The frightening question is, when and how is this all going to end? If interest rates rise, that will only make the repayment position for debtors worse. Credit card companies are going to raise their rates independently of the Bank of England anyway. I cannot see much cheer ahead given that salaries seem to be rising at slightly ahead of inflation. Only interest rate rises will stop people borrowing.

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Our bankruptcy law are fairly relaxed now - term of bankruptcy down from 3 years to 1 year with over 50% being discharged in under 1 year. The average length of bankruptcy is now 7 months.

The frightening question is, when and how is this all going to end? If interest rates rise, that will only make the repayment position for debtors worse. Credit card companies are going to raise their rates independently of the Bank of England anyway. I cannot see much cheer ahead given that salaries seem to be rising at slightly ahead of inflation. Only interest rate rises will stop people borrowing.

It makes me wonder if I should buy gold with my savings (over a period of time and over the counter). Wrack up huge debts (by withdrawing cash from credit cards to buy gold over the counter) then declare myself bankrupt. Leave it a few years then sell my gold.

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high interest rates do nothing to stop borrowing. Unless you consider 30% pa not a high rate? As has been said, making bankruptcy really easy, a little rap on the knuckles, and broadly understood throughout the population (maybe a good few episodes of eastenders or sommat) with an additional kicker of costs going against the lenders + a fine for irresponsible lending where appropriate.

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Our bankruptcy law are fairly relaxed now - term of bankruptcy down from 3 years to 1 year with over 50% being discharged in under 1 year. The average length of bankruptcy is now 7 months.

The frightening question is, when and how is this all going to end? If interest rates rise, that will only make the repayment position for debtors worse. Credit card companies are going to raise their rates independently of the Bank of England anyway. I cannot see much cheer ahead given that salaries seem to be rising at slightly ahead of inflation. Only interest rate rises will stop people borrowing.

The 21st century, only just started remember, looks as if it will be the Asian century as the 20th was the USA century.

We may be seing the last hurrahs in the West.

Perhaps subconsciously people actually realise this and, in effect, are saying s@d it, I'll live the good life while I can.

The current Government seems to be in a similar position to some of the population with it's spending growth looking to be running out of steam and new ways to find tax revenues being eagerly promoted.

Looking at the changes in the last say 10/15 years who would hazard a guess as to what the UK will be like in 20 years time?

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making bankruptcy really easy.

Er no, that will encourage serial bankrupts and running up debts, you DON'T want BR to be easy, you want it as tough as possible, maybe not to get, but as sweeping as it can be in its ability to take the BR's assets. These are currently hardly hard luck stories, they are mostly profligate imprudent wasters who are expectin you and I to bail them out.

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Er no, that will encourage serial bankrupts and running up debts

Or discourage banks from lending to them. If the bank knew I could elimate all my debts tomorrow with no consequences, would they lend money to me?

Personally I think we should make bankrupts work off their debts, but I can see that making bankruptcy even easier could be beneficial if banks acted rationally. Of course the odds of banks acting rationally in an era of fiat money are slim.

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Iirc, the Government promoted the new bankrupty laws as aimed at helping entreprenuerial enterprise in the commercial world.

Oops, another of those "secondary effects".

I wonder at what level of personal bankrupties will the lenders start lobbying for changes to law?

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Thanks for the post. It provides a good summary of how the big picture of UK personal debt is panning out. Sadly, the bad debt figures here are still a drop in the bucket compared to the recent vast profits made by the UK banking sector. How many more years of exponential growth in insolvencies before the banks start to feel the pinch?

For real life stories of how this is playing out on the ground, The Motley Fool "dealing with debt" board is enlightening. This post took my breath away:

F**K ME. :ph34r::ph34r::ph34r:

How can people get so indebted??

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I wonder at what level of personal bankrupties will the lenders start lobbying for changes to law?

The OP states that we are about four years behind where the US is currently.

Last year, after intensive lobbying from the credit card insdustry, the US passed a law making bankruptcy harder.

So I guess the answer to your question is three years!

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I have about £180K of credit on my 8 cards - I have a balance of nil (actually small positives because of the way the payments get paid out). I spend on them, but I pay it off. I keep the cards because there may be a day when I need them (7 of them live in the safe at home).

If you tighten credit, you tighten bankruptcy laws and you make it impossible for someone who's not done their damnedest to pay their debts back to ever get credit again then you start to stop people. At the moment, they are simply weak willed. stupid, reckless or terminally optimistic or an ostrich in the way they spend.

I work damned hard and I see contemporaries of mine driving faster cars, flasher holidays, more bling on 20% of my wages - I know where the cash is coming from to pay for them. Why should people be able to live the life, then walk away and start again - it's not fair or reasonable to the rest of us who have to bail them out (directly or otherwise, we support their debts).

I agree with the sentiment of what you are saying, but the solution you suggest is worse than the problem itself.

If the banks actually stood to lose by lending huge sums of credit to people *they know damn well* do not have

the means to repay. They wouldn't do it.

The dirty little secret here is that they create credit out of thin air. To them its credit to us it's debt.

Our entire money-system is a debt based money system. The government can never pay back its debt because to

do so would mean extinguishing the money supply. 97% of money in circulation started out as a debt,

created out of nothing.

You seem to have the idea that credit generally is a good thing, but should be tightly controlled.

It isn't. If nobody had access to credit prices would simply fall into line with the

money supply that was available in the economy.

And the economy would become more meritocratic than it is at the moment.

Edited by Dr Doom

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It isn't. If nobody had access to credit prices would simply fall into line with the

money supply that was available in the economy.

And the economy would become more meritocratic than it is at the moment.

No, it would not, wealth would be tied up in the hands of the very few and we would be into a new feudalism.

How do you buy a business, the price is far more than you have stashed, you put some down and borrow the rest - how do you buy a house ?

The problem for the banks is not tightening supply (it's not that hard to regulate their lending in future) EXCEPT the debt's already out there - you can turn off the taps tomorrow, but it will take some banks down as the debt is already there. The trick is how to carefully manage the supply to strangle increased debt and to bring levels down (which could take 100 years...... or more in a worst case) - how do you get the banks interested in that approach when they make a lot of money at the moment out of the debt ? They won't do it, so you use carrots or sticks, sticks alone don't work.

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No, it would not, wealth would be tied up in the hands of the very few and we would be into a new feudalism.

It already is largely, and its getting worse.

How do you buy a business, the price is far more than you have stashed, you put some down and borrow the rest - how do you buy a house ?

You accumulate capital by usual means, i.e. working.

The thing that people don't see is that expanding the money supply does not make things more affordable.

Say we are having a game of monopoly, the money supply is fixed and so are the prices of all the properties.

If we find another monopoly set and evenly distribute the money in there to all the players,

does that make anyone better off?

No, the prices of everything will simply be bidded up 200%. Exactly the same thing with our credit-based

money system except the process is not quite as obvious.

The problem for the banks is not tightening supply (it's not that hard to regulate their lending in future) EXCEPT the debt's already out there - you can turn off the taps tomorrow, but it will take some banks down as the debt is already there. The trick is how to carefully manage the supply to strangle increased debt and to bring levels down (which could take 100 years...... or more in a worst case) - how do you get the banks interested in that approach when they make a lot of money at the moment out of the debt ? They won't do it, so you use carrots or sticks, sticks alone don't work.

I think to suggest a solution to this situation you first have to understand the problem,

and you clearly do not understand the problem.

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i see people accumulating debt all the time for purely keeping up with the jonses reasons.

The job i do i go to peoples houses and price some building work, the exact same job as a lot of bigger companies offer credit terms on.

And often i will price up a job say at 1200 pounds, and dont get the call back to accept, next i see one of the big companies that offer ceridt terms outside there house doing the job instead.

My work is excellent and as good if not better than many of the big firms.

so why then dont they pay me 1200 for the job and instead pay the bigger firm 3000 for the same job?

the answer is i dont offer credit.

The same thing happens in the car selling buisness, i think on every occasion i could get the 7k car on a forecourt for 5k instead anywhere with cash, but they dont want the likes of me, they want the people on credit.

cash is a dirty word in the used car selling game, they could only achieve the higher prices they charge for the cars by offering credit, as anyone with cash wouldnt pay them.

the practically chase cash buyers off the premises like there some kinda dirty plague.

you pay for credit much more than the apr on it.

intrest free credit is basically a way to put the credit charges on the up-front fee, hence always more expensive, buisness loves it

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Just to revive this one briefly:

Originally predicted that APR rates on credit cards were set to increase;

this is now happening:

/ixuknews.html'>http://www.telegraph.co.uk/news/main.jhtml...1/

ixuknews.html

Some further information on mortgage repayability:

Mortgage repossession orders made 1991: 73,900 (ONS)

Mortgage repossession orders made 2005: 70,844 (DCA)

Now, mortgage companies have not enforced their orders in such

high numbers as they did in 1991 (in fact nowhere near as much),

but you have to wonder whether the people with orders made can

pay off the arrears. Think of what effect even a 1/4% rise in interest

rates will have.

Bankruptcy & IVA orders 1992 (the height): 36,749 (ONS)

Bankruptcy & IVA orders 2005 (Seas Adj): 67,584 (http://www.gnn.gov.uk/environment/detail.asp?ReleaseID=199374&NewsAreaID=2&NavigatedFrom

Department=True)

What is more is that bankruptcy numbers for Q1 2006 were up

51.2% on the corresponding quarter of 2005.

Surely this is all going to feed into House prices at some stage.

These figures are fightening! :ph34r:

Edited by nimmmm

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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