1 in 3 robbing peter to pay paul.
Scary statistics have just been published that will make many weep.
In what can only be described as the debt snowball, the continuing financial strife affecting families accross the land seems to be going from bad to worse.
The charity creditaction have just produced their facts and figures report for March 2009 and Trumpo has picked out the juicy bits.
The most shocking statstic is that 5.3 Million, yes thats 5.3 Million people spend more than they earn each month. Now I can’t imagine that over 5 Million people are living the high life ! so I would hazzard a guess that these people are using credit to keep the roof’s over their heads and food on the table. Im sure its no coincidence that a similar figure of 5 Million are expected to be in negative equity by the end of 2009.
I suppose if these financially distressed families are doing this then they are attempting to try and work their way through this credit crisis and in this respect then reducing interest rates will have the desired effect and make the overall cost of their credit more affordable. This can actually be illustrated by the fact that new lending in January 2009 was down to £1.1Billion from 2008 £8.4 Billion, and I would suggest that many people are using the lower interest rates to actually reduce their overall debt position.
We do have a major improvement, and this will be as a direct result of the Banks running out of money to lend, in that instead of personal debt increasing by a cool £1 Million every 5 minutes in 2008 it’s now every 40 minutes as at Jan 09. Maybe not lending any more money is the way to get the economy back in shape ?
The Citizens Advice Bureau are receiving over 7,000 new enquiries regarding debt everyday, and thats just counting the ones that get through! I dont know if you have ever tried to get hold of somebody at Citizens Advice, its probably easier to arrange a meeting with the Queen!
So the masses of over indebted cosnumers are now turning to Debt Management businesses, and with a further 1 million people expected to loose their job this year, I imagine along with pawn broking and debt collection businesses, this sector will thrive for many years to come.
Over indebted homeowners are now under the greatest pressure, with continuing declines in property values, millions more people will now be falling into negative equity, when you add this to the statistic that 902,000 borrowers have missed a mortgage payment deadline in the last six months, the reposession figures are going to go through the roof, mainly I imagine with homeowners in unaffordable unsecured debt and in negative equity, just giving the keys back will be their only option
I could go on and on, but I wont !
What Trumpo would like to see is a fresh start for all – I dont know how we do it, but we need to start again.
A good war used to create a new world order, but thankfully thats not on the cards, maybe it is that we are in the heart of the financial world war, and it looks like China and the USA are the superpowers battling it out?
Which side are you on – you decide, Trumpo loves Turkey and Apple Pie !!!!
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March 24th, 2009 at 11:09 am
Hi Trumpo
Lower interest rates are only helping to a degree. A high percentage of mortgages were on the back of fixed rate lending, a result of the race by lenders to offer ‘deals’.
The problem is that, unlike many years ago when mortgages were for a standard 25 year term, you were not expected to re-mortgage every 2/3 years and the lenders ALWAYS changed their rates in line with Base Rate changes (sluggishly sometimes I appreciate), lenders now accept re-mortgaging as the norm and charge huge front end fees to keep rates apparently competitive. Now they are building huge margins for the medium term for any new or re-mortgaged loan.
The Credit Card companies are in another world. They have been able to charge 10, 15 or 20% ABOVE B o E Base rate for so long now that their reaction to higher arrears is to INCREASE rates despite Base being at it’s lowest ever level. This is just going to exacerbate the problem.
Moving on I find it incredible that the Chairman of the FSA, Adair Turner should be considering ‘micro’ regulation of mortgages. No 100% LTV and a cap on income multiples. The problems in the mortgage markets have been brought about by the lack of understanding and regulation at the MACRO level not with the consumer end. Problems in sourcing mortgage funding at the wholesale level are not going to be affected in even the medium term, by changing the underwriting criteria on new lending.
Whilst arrears on most types of borrowing will undoubtedly rise, as a result of the economic downturn, it is not the job of Government (aka the FSA) to define underwriting strategy. (The over-reaction of lenders means that one needs a 40% deposit to get a half decent rate anyway and the lenders are locking in very high margins for the future as well)
The thought of bureaucrats, at the FSA or some other Govt. body, saying who can borrow and on what terms fills me with horror.
As far as CDO’s were concerned the FSA didn’t even know what the banks were doing, let alone whether or not is was risky!
Now they are looking to Regulate-Regulate-Regulate.
Kind regards Trumpo
Jim Payne
March 26th, 2009 at 10:45 am
Jim
yet again a very thorough and competent entry, I am concerned that such a small minority of us actually understand what went wrong.
Im sure the tories havent got a bloody clue what to do, and Gordon and Co are dealing with issues reactively, so its very much a case of keeping your head down and pedalling harder than ever.
The credit card companies are going to take a monumental battering, and I expect the peformance of the book will require an ever increasing margin to offset against the defaults.
I think by the end of this year we will have a banking structure akin to the 70’s i.e. Captain Mannering style.
One thing is for sure, we are going to “back to basics” lending principles and for the long term this can only be good thing.
Yours
Trumpo