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jmf

Debt Hangover / Economist

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http://www.economist.com/world/britain/dis...tory_id=9410631

Real disposable income grew last year by just 1.3%, the slowest since 1982 and less than half its average rate in the past two decades. So far this year, retail-price inflation has outstripped increases in average earnings, leaving workers worse off.

According to Morgan Stanley, an investment bank, debt-servicing costs are at their highest as a share of disposable income since the recession of the early 1990s (see chart). Mortgage borrowers used to get generous tax relief on their interest payments but this was phased out during the 1990s and abolished in 2000. When this is taken into account, the debt-servicing ratio is close to its previous peak when the base rate stood at 15%.

cbr568md1.gif

The borrowing binge of the past few years explains why people are having to shell out so much even though interest rates are still far lower than in the early 1990s. Since 2000 household debt has soared from 110% of disposable income to 160%. Taking on bigger loans seemed affordable when credit was cheap. But now borrowers are saddled with higher debt repayments and are vulnerable to relatively small increases in interest rates.

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Since 2000 household debt has soared from 110% of disposable income to 160%. Taking on bigger loans seemed affordable when credit was cheap. But now borrowers are saddled with higher debt repayments and are vulnerable to relatively small increases in interest rates.

Wow. That is a massive increase in just 7 years.

F

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http://www.economist.com/world/britain/dis...tory_id=9410631

According to Morgan Stanley, an investment bank, debt-servicing costs are at their highest as a share of disposable income since the recession of the early 1990s (see chart). Mortgage borrowers used to get generous tax relief on their interest payments but this was phased out during the 1990s and abolished in 2000. When this is taken into account, the debt-servicing ratio is close to its previous peak when the base rate stood at 15%.

cbr568md1.gif

The borrowing binge of the past few years explains why people are having to shell out so much even though interest rates are still far lower than in the early 1990s. Since 2000 household debt has soared from 110% of disposable income to 160%. Taking on bigger loans seemed affordable when credit was cheap. But now borrowers are saddled with higher debt repayments and are vulnerable to relatively small increases in interest rates.

So debt to income is at it's highest since the early 1990's

It's close to it's previous peak when interest rates were 15%

So essentially the gearing of any [fraction of a percent] rise in interest is massive in comparison to the early 90's.

This would suggest a crash certainly is more likely than a soft landing IMO

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Moin again from Germany,

looks like the best times are behind the UK consumer

ukaustinys9.jpg

I´ll think the BOE will stop at 5,75%. From a German point of view the debt and housing data that

is coming from the UK is just unbelievable (and almost unknown in public).

But at least last week i have seen the first German TV report on London property prices which forces ordinary people that are desperate (dumb) enough to buy (outside London) to commute several hours a day......

Edited by jmf

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So debt to income is at it's highest since the early 1990's

It's close to it's previous peak when interest rates were 15%

So essentially the gearing of any [fraction of a percent] rise in interest is massive in comparison to the early 90's.

This would suggest a crash certainly is more likely than a soft landing IMO

Essentially considering IO mortgages for comparison 1% on top of 15% is a 7% price hike; 0.25% on 5.5% is 5% so the steps the BOE tend to take these days have slightly lower impact.

If BOE raise today then that is 1.25% on top of 4.5% i.e. 28% increase over a year !

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