Monday, May 22, 2006

1 million Britons struggling to pay debts

Guardian: Debt problem soars as 1m face threat of bankruptcy

A million people in Britain could be on the verge of bankruptcy, while one in five adults - or eight million - have unsecured debt of more than 10,000, according to a report out today.

Posted by paulm @ 09:21 AM (1210 views)
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28 Comments

1. Sebastian said...

Ah, reminds me of a front page I saw the other day that boasted how brits were busy spending a hard earned 1 trillion pounds on luxury goods an holidays! Using words like "You earned it!"...

Monday, May 22, 2006 09:39AM Report Comment
 

2. Magnifico said...

If I was one of these people heading for bankruptcy, I would borrow as much as possible and stash it away under my mattress. What's the point in trying to service a debt you know it's going to financially cripple you for life, when the alternative is so alluring.
We all know who's going to pick up the bill in the end...
Oh and how on earth does the system let a single person run a debt of 350k on 64 different credit cards ( see article) is it because there is no System?

Monday, May 22, 2006 09:40AM Report Comment
 

3. Inbreda said...

There needs to be a set maximum earnings multiple set by the government. For example, if the person with 350k on 64 credit cards only earns 15k per year then 3 * 15 = 45k. The credit card companies that lent the remaining 305k should have absolutely no legal recourse if the individual defaults. The banks need to pay for their own stupidity.

Monday, May 22, 2006 09:49AM Report Comment
 

4. uncle tom said...

When it comes to debt, survey data is pretty hopeless as it relies on people telling the truth, and actually knowing how much they owe - which many underestimate.

My own approach, taking the total amount lent and working out where it's all going, suggests that the number of people whose finances are probably beyond salvation is in the order of 2 million, with many more heading in the same direction.

The scale of the problem is such that when I crunch the numbers I find myself thinking 'that can't be right' - but having gone over the detail countless times - I keep coming back to the central issue - that the banks are going to suffer an immense loss - several times more than they have made provision for.

The timebomb ticketh...

Monday, May 22, 2006 09:55AM Report Comment
 

5. Superruss said...

if the banks havent made a big enough provision, when do i start to think about liquidating my savings. And what do i buy with them!?!?! AAAARRGGHH!

Monday, May 22, 2006 10:44AM Report Comment
 

6. Twopper said...

Once again it amazes me that this sudden big news! The government & lenders have watched this situation build up - but all the time that it has been supporting the economy and making lenders huge profits they are happy to slaughter the lambs. Now all of a sudden it is the avarage man in the street who has caused this problem & now he must be re-educated! So relaxed lending regulations, idiotic goverment policy, lenders fighting to give us money (and Carol Vorderman aswell) has had nothing to do with this!!!

This makes me so ANGRY!!

Rant over - thank you for listening.

Monday, May 22, 2006 10:55AM Report Comment
 

7. The Bald Man said...

Loans departments earn their bonuses by lending money. Collection is someone else's problem!

Monday, May 22, 2006 11:08AM Report Comment
 

8. harold said...

Inbreda, true the banks should pay for their stupidity, and there is clearly a problem with a system that allows someone to borrow 20+ times their salary. However, to say that the banks have should have absolutely no legal recourse if the individual defaults, is not correct either. Surely people must be responsible for their actions, and therefore responsible morally and legally for their own debt. It's not just the banks that are stupid - both parties are; both should pay.

Monday, May 22, 2006 12:08PM Report Comment
 

9. talking rot said...

I see this article has got the Doomsters out again!

As much as I would personally like a HPC, this is not going to cause it. A number of factors will be needed. For starters, will interest rates go up by a whole 1% or more in the next year? Probably not. Will unemployment dramatically rise to 3 millions? Probably not. Will the UK's economy crash? Probably not. Are we seeing thousands of people loosing their homes and the Banks trying to sell hundreds of repossessed properties. Errr NO. There are risks to the UK economy but no, we are not at "tipping point" yet. This article reports "900,000 people across Britain have sought help from a debt solutions company." I think there are 22 million people of working age so that means 21.1 millions HAVE NOT sought help from debt solutions companies. Is some one trying to tell me that so many repossessed homes will be dumped onto the market by the Banks that a house price crash will occur? This is an article, YET AGAIN, which does not give a clue how many of the grossly indebted people own their home and will be made to sell it.

Perhaps the best analysis from this article is that consumer spending will slow and the UK economy will become sluggish - just like the German economy but without the powerful exporting element. This isn't news though. One of the more interesting pieces of news I've read today is posted on this site from an importer of Chinese goods. If Chinese goods rise in price then there are a lot of new issues to be considered. That's news. (My thanks to Uncle Tom).

I just hope there is sufficient moral fibre to make adults responsible for their own actions - no one forced these people to take out vast loans.

Monday, May 22, 2006 01:01PM Report Comment
 

10. Waitingfor Thecrash said...

talking rot is talking rot. This is the tip of the iceburg. Where is the trillion in debt then? If not with the rest of the 21.1 millions who are still trying to hold on......and therefore....here is the bit.....NOT SPENDING....so that leads to :

"Probably not. Will unemployment dramatically rise to 3 millions? Probably not. Will the UK's economy crash? Probably not. Are we seeing thousands of people loosing their homes and the Banks trying to sell hundreds of repossessed properties."

and then yes we will see the above. What thisn shows us is that the lend cycle is coming to an end and we have been running on air for a couple of years....does anybody know where the ground is??

Monday, May 22, 2006 01:08PM Report Comment
 

11. bidin'matime said...

Waiting for the crash is right what weve seen is a credit-fuelled growth in the economy and asset values, which will go into reverse in due course. Like the guy with the 64 credits cards, the government and the rest of the population could in theory keep borrowing more and more, but whilst the nations economy can cope with the odd idiot, eventually (like him) you just have to stop printing money and (unlike him..) start paying back and pay-back time is very near

Monday, May 22, 2006 01:25PM Report Comment
 

12. The Bald Man said...

As much as I hope the scenario in talking rot's posting does not happen I do not feel the economy is as robust as the spin put out by the government.

Monday, May 22, 2006 01:26PM Report Comment
 

13. Ticktock said...

waiting & bidin are right.

Rots 'probably not' answers to the (correct) questions he poses are false. Unfortunately the doomsters are sometimes right, and this time we should all be very worried indeed

Also, this quote....

I just hope there is sufficient moral fibre to make adults responsible for their own actions - no one forced these people to take out vast loans.

....is also incorrect. When council housing is no longer available, and rental costs are higher than many families net incomes, then people are indeed 'forced to take out vast loans'. Furthermore, by devaluing the currency (against gold), flooding the labour market with cheap labour,restricting pay increases to a spurious inflation targets and raising the cost of living/tax by over 30%+, you also 'force people to borrow in order to exist.
The middle class borrow to fund consumption. The working class borrow to survive. While there is undoubtable blame to be laid a the door of reckless borrowers and, perhaps, nieve borrowers too, it should not be assumed that all people with debts have been jet-setting around the world and buying big TVs, many have simply been failed by government and mislead by financial institutions.

Monday, May 22, 2006 01:59PM Report Comment
 

14. Devils Advocate. said...

As much as I would love a crash Talking Rot has made some valid points. I am not an economist far from it but no one seems to be able to put a finger on what they think will happen.

Yes I agree that the country is saddled with massive debt, but how much do interest rates need to go up before the crash. Also if interest rates do rise when and by how much. Surely if rates rise and the economy slows down then the rates will just stabilise or fall. What factor will make the MPC continue to raise rates by say 1% and cause serious problems.

Monday, May 22, 2006 03:26PM Report Comment
 

15. European-bear said...

Talking rot is so wrong. Without a big economic shock (are we seeing one starting in the last week), the outlook is relatively benign and will prevent a rapid crash with the thousands of repocessions flooding the market. But even if the economy keeps bounding along, there is still sufficient debt mountain combined with negative rental returns for BTLs to start forcing sales in a saturated market. Then the decline could be slow but never ending with many false dawns but a constant winding down of prices of 3-5% every year for a decade or more (until fundamentals of affordability and p.e. ratios of rentals return to normal). Not a dramatic crash, but a slow and painful one. And the first stage is the slowing down of price increases (already happened), followed by no price increases (probably now) to a slow and unending decline (starting 2007-2008).....

Monday, May 22, 2006 03:32PM Report Comment
 

16. Sebastian said...

Whats the betting that the first reported price falls will be of 0.1%? If prices don't carry on rising to infinity and beyond that is...

Monday, May 22, 2006 04:19PM Report Comment
 

17. talking rot said...

Oh hello. I hope this posting will not result in a posting-ping-pong between realists and doomsters. Thank you all for your comments - I still don't buy it though. I think I've been reading this Blog for 2 years or so and have see predictions of economic chaos repeatedly - so where is the House Price Crash guys? Could I ask you to cast your minds back to the mid to late 1970s please - that was a period of dire economic conditions. I recall something about the IMF refusing to lend UK Plc cash and Thatcherism grew out of the wreck.

Watingfor TheCrash: Please read Devil's Advocate's post. I have yet to read an article on debt which gives figures AND their corresponding margin of error; what is the statistical variance? So interest rates go up, people cut back on spending, growth falls, inflation falls, so interest rates come back down. Compared to other periods of history, UK Plc is not about to fall into a chasm of mass-population bankruptcy.

Bidin'matime: "... credit-fuelled growth in the economy and asset values, which will go into reverse in due course." You are probably right but it is the nature and speed of the reverse which matters. What do you mean by pay-back time? Banks will want to spin out the time periods that debt is repaid over so they won't be withdrawing their loans in a hurry; the longer they have debtors, the more money they make. Do you mean that interest rates will rise (if so, please see above). Or do you think banks will start tightening lending criteria? With the level of competition within the market high and rising, this currently does not look likely. I am interested how you define 'pay back time'?

Ticktock: Firstly, doomsters eventually proved right - so please, tell me what constitutes a crash? A House Price drop of 5% over 1 year? 20% over 3 years? Thing is, if I invested 100 in widgets and the price of widgets then rose so the value of my investment rose to 500, would I be bothered if it then crashed to 400. Errr. No. I would still have 4 times more then when I started. So that's not a crash then. Perhaps a crash should be defined as when current market value is lower then purchase value. Secondly, you make the point that not all the poor are spending money buying luxuries and I completely agree with you; not all do. I shop in Aldi, Pennywise, Supersaver, Co-Op and Sainsbury's. Try looking at what people are wearing and what they are putting into their shopping baskets. Individual financial responsibility and nous is a very wide spectrum.

European-Bear: Have I missed something? Where is this saturated market that BTL-ers will be trying to panic sell their properties in? Admittedly the market isn't moving much but there are no signs of panic selling yet. What you say could feasibly happen - but it isn't happening today. It will take a number of factors to align: rising interest rates; High unemployment; falling Sterling; falling employment etc. These risks haven't occurred yet. When the facts change, I'll change my mind ....

There is a risk of group-think on this Blog. As much as I'd like a House Price Crash, it is not happening now and will not happened tomorrow. 'House-Price-Crash fatigue' is a rising UK phenomena.

Monday, May 22, 2006 05:23PM Report Comment
 

18. bidin'matime said...

Trot - I've used the phrase 'Pay back time' to have a double meaning

People can't keep borrowing forever we have a whole generation of people facing retirement with debt for some years now they have assumed that they will be able to repay this with the future increase in the value of their homes, but as reality sets in, they will be looking for other ways and the only conclusion will be to stop spending and start repaying now!

The other meaning is perhaps political Crash Gordon deserves all he gets as he takes over as PM

Monday, May 22, 2006 06:50PM Report Comment
 

19. Crashedoutandburned said...

These people are the good economy - spending away on the imported tat exactly as programmed. Good on them for having consumer confidence.

Monday, May 22, 2006 08:10PM Report Comment
 

20. Ticktock said...

T.Rot,

Imagine your widget cost, not 100 pounds, but 100,000, and that you had paid for your widget by borrowing the money from a bank. As your widget rose in value to 500,000 you felt very rich indeed and decided to re-structure your original widget finance arrangement in order to help pay for the 'rich persons' lifestyle that, having worked so hard, you now feel you deserve. After all, your wages are falling fast (in real terms) and cannot provide you with the middle class utopian lifestyle that you have been sold, and which you deserve.
Having made such a killing, you decide to 'restructure' again, safe in the knowledge the interest rates will always remain low, and widget prices only ever rise. After all, Kirsty and Phil said so, and the banks are so accommodating with loans for widgets these days.
Several 4x4s later,You now owe the bank $490,000 and your widget is worth 500,000, and........realise it or not yet, you are in deep deep trouble.

Monday, May 22, 2006 09:03PM Report Comment
 

21. Retiredbanker said...

Talkingrot.
The UK economic position was indeed dire in 1970. However North Sea oil was just coming on stream.
The IMF did indeed bail this Country out, but we were forced to accept humiliating conditions. We effectively
lost control of how our oil and gas reserves were exploited, with the result that foreign companies will have
stripped-out our priceless resources in just over 40 years.
The Government ( see DTI website ) admits that by 2020 North Sea oil & gas are all over.
My advice to all young people is to get some sort of qualification and emigrate. Better not delay as other countries
with more sense than us, are already starting to "close the doors".

Monday, May 22, 2006 09:06PM Report Comment
 

22. talking rot said...

bidin'matime

Thanks. It is a very bleak picture of the future you paint. Pensioners with debt is not good. It would be poetic justice for Crash Gordon do deal with the political fall out from his mis-management. I think he would define news ways of measuring success and wealth instead.

Monday, May 22, 2006 10:52PM Report Comment
 

23. Blindleadtheblind said...

read this article and then compare with recent comments from BOE below. Now which direction do you think this guy is hinting at...and how fast? Qtr point rises will be a distant and pleasant memory...

Paul Tucker, director of markets at the Bank of England, yesterday warned that the recent climate of ultra-low interest rates and low volatility may have prompted investors to become dangerously complacent about underlying risks in the financial market.

In particular, an explosion in the use of structured financial products, such as credit derivatives, may have distorted market interest rates - and left investors mis-pricing risk, he said

Tuesday, May 23, 2006 04:56AM Report Comment
 

24. European-bear said...

Rot...I do not believe there will be a rush of forced sellers for the BTL market, thats not what I said. Just a realisation that there is no profit and hence time to get out (increase supply), and new entrants will be fewer as they have heard prices are stagnant (i.e. no capital gains to make money), that will decrease demand. FTBs are only able to buy by borrowing at ever high multiples of income due to relaxing of lending practices, and that is a classic pyramid. No I do not see a dramatic crash without an economic shock, but the realities of supply and demand will eventually cause a correction. Fundamentles= FTB how do they afford it, rental income cannot cover debt repayments......

Tuesday, May 23, 2006 07:28AM Report Comment
 

25. talking rot said...

Ticktock

OK - I buy your point. But the caveat remains: No trouble if interest rates stay low. Whether we think it is a valid measure of inflation or not, the BoE sets interest rates according to the CPI. This has yet to show inflation above target. So interest rates stay low and our equity-rich couple continue to have excessive 4x4s.

Tuesday, May 23, 2006 09:21AM Report Comment
 

26. Devils Advocate. said...

"I have yet to read an article on debt which gives figures AND their corresponding margin of error; what is the statistical variance? So interest rates go up, people cut back on spending, growth falls, inflation falls, so interest rates come back down. Compared to other periods of history, UK Plc is not about to fall into a chasm of mass-population bankruptcy."

No one has yet been able to answer the question raised above.!!

I do not believe there will not be a crash but on the otherhand Talking Rot has made some very valid points that no one seems to be able to answer. All I want to know is what will cause a HPC. All the time interest rates are low then the housing market will be supported. Does anyone know what will cause them to rise. And if not will there be a HPC without higher rates??

Tuesday, May 23, 2006 10:00AM Report Comment
 

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