Thursday, Sep 14, 2006

Latest UK Debt Figures - how the bubble will burst!!!

in2perspective: Latest UK debt figures

At the end of July 2006 the total UK personal debt was 1,237bn. The growth rate increased to 10.5% for the previous 12 months which equates to an increase of 105bn. Total secured lending on homes has exceeded 1 trillion (1,000 billion) and in July 2006 it stood at 1025.4bn. This has increased 11.2% in the last 12 months.\r\n

Posted by nearly30 @ 10:57 AM (511 views)
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22 Comments

1. nearly30 said...

Hope this is of interest! Can anyone offer any suggestion as to where all this 'spare' cash is coming from? Equity release and re-investment!! Or just plain or 'bubble-economics' at play?

Thursday, September 14, 2006 11:04AM Report Comment
 

2. little professor said...

Very interesting site. Thanks. The graphs section is also very good - check out http://img223.imageshack.us/img223/121/housepricetoearningsratiolargepngvk5.png and then tell me we're not due a crash soon.

Thursday, September 14, 2006 11:18AM Report Comment
 

3. nearly30 said...

little professor - nice graph - WOW!!!

What can I say - current reposessions stand at just over 8,000 - compared to nearly 40,000 for the last crash.

If the graph, coupled with the general stats, is anything to go by - then we are in for a seriously bad time of it!

Gordon B may think he has solved the boom & bust - but it's more like smoke & mirrors - he may have created an even bigger bust!!!

Welcome to Enron-style Economic Politics!

It's a HPC Jim - but not as we know it - try 1920s style!

Thursday, September 14, 2006 11:30AM Report Comment
 

4. the bald man said...

Over the last 6 months I have been pointing out that the economic miracle has been based on consumers borrowing against the value of houses, not on any fundamental structural improvements. Taxes have been extracted from consumers to waste on government spend. Now debt levels are unsustainable the crunch comes. Interest rates rise, credit tightens and taxes will have to rise on those left in employment.
The VI's encouraging excess lending against overpriced assets have a lot to answer for!

Thursday, September 14, 2006 12:39PM Report Comment
 

5. miniftse said...

This graph is tosh and nothing to worry about what so ever. Plot house prices over this graph, plot earnings over this graph, plot inflation with this graph, and you'll realise its nothing to worry about whatsoever.

Thursday, September 14, 2006 12:52PM Report Comment
 

6. little professor said...

miniftse - why is it tosh?

Try this graph - house prices over the last 30 years, in real terms i.e. adjusted for inflation. Again, very worrying

http://img157.imageshack.us/img157/3174/realinflationadjustedhousepriceslargepd7.png

Thursday, September 14, 2006 01:02PM Report Comment
 

7. Waitingfor Hpc said...

how can anyone see that garph of earnings to huse prices as anything but an indicator of the fact that house prices have gone up far more than earnings whcih either means we are all in for mega pay rises or house prices wil come down.

Thursday, September 14, 2006 01:37PM Report Comment
 

8. waitingfor hpc said...

how can anyone see that garph of earnings to huse prices as anything but an indicator of the fact that house prices have gone up far more than earnings whcih either means we are all in for mega pay rises or house prices wil come down.

Thursday, September 14, 2006 01:38PM Report Comment
 

9. inbreda said...

I think the point miniftse was trying to make is that it is not house prices that come down, but inflation and salaries that go up.

If anything the graph show that there is no problem buying now because the price will stay the same and if inflation increases massively, the amount of your debt relative to your increasing wages becomes very small.

Thursday, September 14, 2006 01:52PM Report Comment
 

10. waitingfor hpc said...

well lets all stop dreaming - if wages rise in line with house prices (double over 2 years) the UK will be even less competitive and even more of our jobs will be in China / India / Eastern Europe. We are already an expensive place to live and this is a GLOBAL economy.

Thursday, September 14, 2006 02:08PM Report Comment
 

11. autopilotengage said...

Hmm, all down to measures of inflation though i suppose. If inflation, or more specifically "CPI" increased dramatically, IRs would rise and nominal house prices would likely decrease inbreda? Uncertain times ahead for sure...

Thursday, September 14, 2006 02:15PM Report Comment
 

12. miniftse said...

The graph has a shortened x axis meaning the peaks and troughs are exagerated. Real (accounting for inflation), is VERY different to real house prices. In the real world accounting for inflation isn't really an option for joe bloggs on the street. Avg house in 1990 was 50k, average house in 95 was 50k, it didn't go below 50k between 90-95 it stayed at pretty much the same level, but look at the affordability graph and people assume house prices went down in this time. Sure it was better to buy in 95, opossed to 90, but (and its a big but) if you were looking to buy in 90 and waited till 95 you would have been worse off than if you had bought in 90 and started making repayments, slowly eating into your debt, in 95 you would have been in a much better position to take advantage of the increase in affordability.

Thursday, September 14, 2006 02:25PM Report Comment
 

13. miniftse said...

sorry i meant y axis!

Thursday, September 14, 2006 02:56PM Report Comment
 

14. Sam. said...

intresting miniftse,

I agree totally - about buying in 90 as apposed to buying in 95, but what would have happened if you were paying intrest only as so many are these days (as so many were, paying into those wonderful endowment schemes)

how would you have saved any money in those five years?

- anyone got a graph showing house/rent ratios in the 90s I mean what would have happend to rents and renters over that period?

Thursday, September 14, 2006 04:17PM Report Comment
 

15. C'mon Correction said...

miniftse - if the market was flat now (and it has been for the last 2 years here in south wales) for the next 5 years- with the cost of renting being much cheaper than owning (215 a month in my case - i've done the maths)- then you would be wise to wait for 5 years and receive compound interest along the way before you buy. On top of the 215 difference between interest only and all the other costs of owning compared to my rent, I would also be saving the 'repayment' part you mention BUT also earn interest on that too.

So no you wouldn't be worse off if you bought now instead of waiting.

Thursday, September 14, 2006 04:32PM Report Comment
 

16. inbreda said...

Please don't anyone think that I have become an optimist.

I personally do not believe that the same will happen this time round as happened previously.

I do not think that wages will follow house prices. I think the Govt/BoE are fiddling inflation figures to justify low rates.

I think what will happen is:

Our currency will crash.

This will make going on holiday much more expensive, but it will allow massive wage inflation (i.e. instead of being able to live on a fiver for a month in India you'll need 500 quid, but ti will be OK because your salary will have gone up accordingly, so you won't notice the difference).

Likewise, it will cost you 500 quid for a loaf of bread.

Houses will then be affordable and debts will be (relatively) reduced.

The losers will be the foreigners that held investments in GBP (i.e. China), as converting it back into their home currency will reduce it to nothing.

This might be why foreign investors own so much of London.

If anyone is waiting for a HPC then I guess there's going to be a point of instability where peoples wages aren't keeping up with inflation and they default on their mortgage. The beauty of being a STR is that you can sit back, relax, and see what happens before taking the plunge. A BTLer has to hope they can make it through the choppy waters. I would rather not be in their shoes. Take Ms Begg as an example.

These are the reasons that if you have savings you should get them out of GBP and into foreign currency or gold. The huge spike in gold prices recently must mean that the markets are thinking the same way??

Maybe I'm misunderstanding the whole thing - I am after all simple - but reactions would be welcome.

Thursday, September 14, 2006 04:35PM Report Comment
 

17. the bald man said...

Reply to Miniftse: This is a massive asset bubble. Yields are non-existent. Affordibility is low. Look at what is happening in the US.

I know inlation can erode debt in the long term but interest repayments still have to be made on the debt in the short term. These increase as interest rates rise. In your calcaulation of price differences between 90 and 95 you have taken no account of the intertest cost, which from memory was quite high.

Inbreda: Your scenario of currency and inflation looks much like the 70's!

Thursday, September 14, 2006 05:05PM Report Comment
 

18. Sam. said...

inbreda, good point. yes I've read that about the 70's recession,.

From what I understand one major cause for currency crashes is reduced demand for them - cannot see that happening, what I think will happen is that when the value of the pound goes down(without crashing). we will join the Euro. I think that's just a matter of time.

Also me being simple too, but. How does a currency crash without Deflation or High inflation?

Thursday, September 14, 2006 05:19PM Report Comment
 

19. nearly30 said...

to support the bald man - the article does say that "Half the population (52%) could survive financially for just 17 days, should they suffer an unexpected loss of income" - this does not bode well in a climate of job insecurity and increasing inflation [be it RPI or CPI].

The question is whether the current gap between rich and poor is large enough in the UK to create such a sudden 'bang' HPC scenario?

Are we more likely to see - as we probably are - sales being broadly flat for a long time (led by non-sustainable but medium strength middle-class equity - albeit house/personal debt non-equity), house prices rise ever on as people look to housing as a more profitable pension and the stock market still trying to get as much spare cash out as it can (further mergers & acquistions) - meanwhile with the Govt/BOE with its head in the sand keeping interest rates low - looking on at a very weak cyclical dead-cat bounce in the FTSE (cannot get above 6000) - then again is the 6000 mark the psychological trigger for a sharp downturn - dare I say it recession?

Thursday, September 14, 2006 07:44PM Report Comment
 

20. bidin'matime said...

Perhaps I could get you to look at the forum topic on this subject at http://www.housepricecrash.co.uk/forum/index.php?showtopic=33413 and add your comments.

The question of inflation intrigues me, as it seems the only way they could avoid a crash, but it would need a reversal of the independence of the BOE or a gradually increasing inflation target. The latest interest rise was an opportunity for the government to say 'oh it's okay, let it go to 3%', but they didn't. This gives me confidence that the hyper-inflation scenario is highly unlikely, or that interest rates would be raised to a point where HPC would be assured, so that prices would come crashing down to meet rising income levels half-way or below.

Thursday, September 14, 2006 07:58PM Report Comment
 

21. Rimmer said...

Whats all this talk about inflation? Let me make one thing very clear wage and price inflation in the UK will remain at or close to 2%, interest rates may rise above 10% to achieve that but inflation will be kept under control.

Thursday, September 14, 2006 09:05PM Report Comment
 

22. bidin'matime said...

Rimmer - is that tongue in cheek? I'd love to think it was that easy.

Thursday, September 14, 2006 09:44PM Report Comment
 

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