Wednesday, Nov 29, 2006

Why the UK's bad debt boom is just beginning

MoneyWeek: Why the UK's bad debt boom is just beginnning

The OECD is reassuring people that although the US housing downturn has marked the end of a decade-long [property] boom that also occurred across much of the rest of the world, the impact will be less pronounced in other countries.

"It is comforting to note that in many countries households seem well prepared to cope with the consequences of a downturn in housing markets ... household balance sheets are generally sound and debt-servicing burdens still moderate, although some low-income households may be overstretched."

Were not sure which countries the OECD is talking about, but if consumers in the UK have sound balance sheets, its news to Barclaycard who have announced that bad debts are on the rise. And it's likely to get worse.

Posted by mary @ 10:41 AM (436 views)
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1. indiablue19 said...

So true. Obviously these folks don't bank at Barclay's, who just took a 1.5 BILLION bad debt write-off and who have previously upped Barclaycard interest on all of us who DO pay enough and on time. Our own rate went from 10.99 to 16.99 literally overnight to compensate for the usurious penalties Barclay's was barred from charging to dead-beats. The former rate had been ours for YEARS and suddenly wasn't sensible from the Barclays' point of view. Obviously a knee-jerk reaction to something. Could it be massive insolvencies? Once again proving that prudence is not only unfashionable but downright stupid. And these idiots want me to believe further fairy stories about "sound balance sheets"? Oh please, don't insult the common intelligence.

Wednesday, November 29, 2006 09:20PM Report Comment

2. sirgoogle said...

Once the mortgage defaulting starts then the Mortgage rates will go up.

It will be really interesting to see what occurs when the terms for the fixed rates end. I had one of these new fangled mortgages in the laste 80s - fixed for a year - so everything looked OK for the year. But I got hit - base rates rose over one of the years - and consequently at the end opf the term the mortgages lept from 9% to around 14.5% in one go as the Bank tried to recoup the losses.

The banks never lose out. With a fixed rate - you will still pay the aggregated loss incurred over the term if the base rates go up.

I suspect that with so many of these fixed mortgages now that we will not see the full impact of rate rises for up to 5 years (as many people go for this term).

IF it looks like the IR rises are having no effect from month to month it may well be this factor. The only thing that can stall inflation is credit card IR rises as that is the only IR affected on a month to month basis. The interesting period will be once the fixed terms start to be reassessed - and these interest rates may well jump much higher than the base rate jumps just to help the banks recoup their losses.

Thursday, November 30, 2006 04:35AM Report Comment

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