FT: UK Households fight debt mountain

Discussion in 'Bankruptcy' started by kuacou, Oct 31, 2009.

  1. kuacou

    kuacou Guest

    UK Households fight debt mountain

    By Norma Cohen
    Financial Times
    Published: October 30 2009 20:50

    When Christians Against Poverty, the debt counselling charity, first
    opened its office in Bracknell just more than three years ago, its
    leaders were not even sure its services would be needed in so
    comfortable a commuter heartland.

    Bracknell, just a few miles from glamorous Ascot and in the heart of
    Berkshire’s so-called Golden Triangle, does not at first glance appear
    a community crying out for a charity dedicated to helping people live
    within their means. Until a year ago, said Andy Jackson, centre
    director, its clientele was indeed largely single parents and those on
    at least one income benefit.

    But around the time that the collapse of Lehman Brothers sent shudders
    through the global financial system all that began to change, said Mr
    Jackson, who was on his way to see a family in an upmarket part of the
    town when the Financial Times called.

    “Typically, cases are where bonuses haven’t come through at the level
    that was expected or salary increases haven’t come through as
    expected,” he said. Their ranks include a number of homeowners who
    saddled themselves with second mortgages in order to pay down higher
    interest consumer debts.

    “We have people who are locked into second mortgages where the
    interest rate goes up no matter what happens to other rates,” he said.
    “And there are people who are counting on an inheritance from someone
    who hasn’t died yet.”

    Mr Jackson emphasises that only a fraction of those who approach his
    charity are middle class professionals. Nevertheless, Christians
    Against Poverty’s experience in Bracknell and elsewhere offers an
    anecdotal underpinning to widespread economic and financial data that
    show British households are fighting to get out from under a mountain
    of debt.

    Official data show the national savings rate rose to 5.6 per cent of
    income in the second quarter of 2009 and is expected to rise further,
    in line with patterns that typically follow recessions. Just a year
    earlier it was negative.

    Michael Saunders, economist at Citi, points out how badly consumers
    need to curb their borrowing habit. At the end of the second quarter
    this year, the ratio of average household debt to income stood at just
    over 166 per cent -- in other words, people’s debts totalled more than
    half as much again as their income.

    Moreover, the data show that much of that borrowing was secured
    against housing; unsecured debt was more than 23 per cent of mortgage
    debt at the end of 2003 but that fell to 18.6 per cent by the end of

    Now, many economists believe, Britain’s recovery will be held back as
    households refrain from spending in order to repay debt. The National
    Institute of Economic and Social Research forecasts that the heavy
    debt load will lead to greater “scarring” in the UK than in many other
    nations. Even by 2011, GDP growth is likely to be no more than 1.5 per
    cent, below trend, as nominal spending is held back.

    Martin Weale, director of NIESR, said part of it involved an
    intentional build-up of savings while part was due to credit rationing
    by banks. Banks have held credit card rates steady as the Bank of
    England cut its own rate close to zero and poured £175bn into the
    banking system to stimulate spending.

    Already, that is having an effect. Bank of England data this week
    showed that even as the number and value of mortgage loans rose in
    September, net consumer credit actually fell by £262m as households
    repaid more loans than they took out. That decline was the third in a
    row and net borrowing is now below the six month average growth rate.

    Mr Jackson said his own clients borrowed for items such as cars and
    holidays -- seen not as luxuries but as non-negotiable staples of a
    middle class existence.

    kuacou, Oct 31, 2009
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