2007 recession

spl2nh

Am fearful about the looming recession in 2007 and just wondered will this have any effect on the debt I owe on my visa's. Will the banks put interest rates up, or minimum payments up etc?

DontDoDebtKids

Some people will always say that we are in a recession or that there is one just around the corner. I'd ignore it as hot air.

Besides, it doesn't directly impact on your debts.

What does, potentially, impact your debts are interest rate rises. The general concensus (again, not always right) is that interest rates will go up to about 5.25% by/in 2007.

That said, credit cards charge WAY more than this (greedy sods) so, actually, I wouldn't expect them to increase their interest rates much if at all unless the interest rates REALLY went up (10% - unlikely!).

What will change is the amount of interest on non-fixed rate mortgages, so if you have a mortgage, expect to pay more.

Hope this helps.

sanfrancisco

DontDoDebtKids wrote:

Some people will always say that we are in a recession or that there is one just around the corner. I'd ignore it as hot air.

Besides, it doesn't directly impact on your debts.

I think the OP is being really sensible thinking ahead. They will suffer less that others who think it is all hot air.

I personally think there maybe a recession nest year. If there is it will impact your debts in many ways. It will likely increase the rate you pay and yes, the cc companies could increase min payment as they all start to !!!! themselves, because there is so much outstanding debt. It will also make your job more insecure, so possibility of unemployment. With general unemployment rising, it will also be likely that taxes will rise.

So...what can you do. Pay off the debts asap. Try to save as much as possible. Do some extra training for your job or think about moving to a more stable career.

I think OP is very sensible for asking this question, and even if nothing does happen (which it will eventually, 2008, 2009, 2020???) you will be in a great position. Nothing lost, everything gained. You can't put a price on peace of mind.

lil'H

I think for all of us on here the realisation of our true budgets and the urgency to pay of our debts as quickly as possible. Yes we should realise the impact a recession may have, but if we are all truely cutting our outgoings, shifting our debts and maximising our incomes as much as possible then there isn't much more we can do to prepare if there was to be a recession. Only my opinion though!

lil'H

DontDoDebtKids

sanfrancisco wrote:

I think the OP is being really sensible thinking ahead. They will suffer less that others who think it is all hot air.

I very much agree there is some merit in being prepared, if only to have an idea of what to do if there is a recession. Paying off your debts now is always a good frame of mind, be times lean or fat!

sanfrancisco wrote:

It will likely increase the rate you pay and yes, the cc companies could increase min payment as they all start to !!!! themselves, because there is so much outstanding debt.

Is this what happened last time? I don't really know. The banks are already worried about there being too much outstanding debt that may turn out to be bad debt and are acting accordingly. Equally, all the claims for unfair bank charges have led to some of them hiking other charges, like their rate of interest on cards. Case in point: Egg hiking from 16.9% to 20.9% for some customers.

I'm not sure, however that you can make the direct logical connection between recession = card payments go up. You are welcome to show me how that works. I just can't see a causal connection.

sanfrancisco wrote:

It will also make your job more insecure, so possibility of unemployment. With general unemployment rising, it will also be likely that taxes will rise.

I agree that it will probably mean that jobs would be more insecure.

lazy&indebt

Do you think that the self employed and the smaller firms are more at risk from job loss than if you are emplyed by a large company or are we all at risk?

Also, my OH is in thr process of finding a house to purchase...is it the wrong time to buy?

spl2nh

Re: lazy&indebt. IMO now is not a good time to buy, as for example the US housing market is at its lowest for ten years and a US recession seems highly likely with predictions of the worst recession since the great depression (youll have to google for sources - I forgot where I read it!) Ultimatley if theres a slow growth in America it will have a knock on effect in the UK, hence there is a prediction of a global recession. House prices are bound to fall.

DontDoDebtKids

Do you think that the self employed and the smaller firms are more at risk from job loss than if you are emplyed by a large company or are we all at risk?

Tricky questions. OK, using a broad definition, a recession means that the economy is doing less well and so consumers spend less, which in turn leads to jobs being lost and less taxes being paid, which in turn leads to companies cutting back as well as the government cutting back or raising taxes, which again leads to jobs being lost etc etc.

Large Companies

The risk with a large company is that they "tighten the belt" and make lots of people redundant that they see as not essential.

Smaller Firms and the self-employed

It depends more on what these entities do. Smaller firms, logically, have less "non-essential" people just by virtue of them being smaller. I suppose the risk to smaller firms, and the self-employed, is merely that both consumers and the government will spend less and so they'll either have less income, directly or indirectly through larger companies that directly interface with the public/government, or their business will dry up as it is seen as "non-essential".

Who is at risk?

So I suppose we're all technically at risk. Some industries fare better than others - things that are easy to cut back on will probably go first: advertising, marketing, managment consultants. Retail will be affected, probably, as less customers means less money to pay staff with. Recession-proof industries are probably things like accountancy, lawyers, finance (to a certain extent), defence.

Also, my OH is in thr process of finding a house to purchase...is it the wrong time to buy?

Yikes. This is also a tricky question because everyone you talk to will give you a different answer depending on their bias! The facts are generally agreed as: house prices are high at the moment relative to all their traditional yardsticks - the most prevalent being multiples of earnings.

Arguments for prices increasing: not enough houses; buy-to-let has meant that many houses have been purchased for letting that would otherwise have been bought by first time buyers, meaning more people want fewer houses; they aren't building enough new houses; mortgages are still cheap.

Arguments for prices decreasing: very few first time buyers, so people can't move up the property ladder; buy to let is now unaffordable, as rent doesn't cover mortgage interest in a vast majority of cases; interest rates seem to be on the up, so people will start feeling the pinch.

As you can see, it's a tricky call.

My feelings are that if you want to buy a house for yourself to live in, if you buy now then it will be expensive but if you plan to live there for the rest of your life then what does that matter?

If you plan to "play the game" and buy the house and move up the property ladder in a few years then you may get caught if the market does go down.

As for investing in buy-to-let, I think that bubble has been missed. Whether people have the stamina to sit out any market dip is an interesting question. Everyone asked in surveys says: "yes, I plan to keep my BTL for <insert a few decades>" but will they really?

lazy&indebt

Thank you DDDK! My OH is planning on buying to live for 2 or 3 years and then move up the ladder further! Do you think it's a case of 'if it happens' or 'when it happens'?

david_hellier

I think inflation will be the main driver of the next recession. Inflation will be driven by higher oil and gas prices. So it's not just higher interest rates we need to watch, it's our overall outgoings.

As far as credit card companies are concerned they will charge enough to make sufficient profit, currently about 300% profit margin on the base rates.

The next recession will be the worst since the Wall Street crash because the main difference is that we are all so saddled with personal debt, which wasn't the case in the last major one of the 70s when there was some room for movement and people could ecomomise successfully and get through. Also the trend for energy prices is now up and will never go down. Last time it was due to war. Wars usually end. However we will see ever increasing prices due to increasing depletion of oil and gas.

Now is not the time to be in property or shares. Batten down the hatches.

Pobby

david_hellier wrote:

I think inflation will be the main driver of the next recession. Inflation will be driven by higher oil and gas prices. So it's not just higher interest rates we need to watch, it's our overall outgoings.

As far as credit card companies are concerned they will charge enough to make sufficient profit, currently about 300% profit margin on the base rates.

The next recession will be the worst since the Wall Street crash because the main difference is that we are all so saddled with personal debt, which wasn't the case in the last major one of the 70s when there was some room for movement and people could ecomomise successfully and get through. Also the trend for energy prices is now up and will never go down. Last time it was due to war. Wars usually end. However we will see ever increasing prices due to increasing depletion of oil and gas.

Now is not the time to be in property or shares. Batten down the hatches.

Sadly.I have to agree.Another problem I think is the very low interest rates that we have in the West.If anything,I think it distorts the economy.In my life time interest rates have averaged around 8%.

Because of low rates,borrowing has been cheaper leading in part to high house prices and greater personal debt.So how much does the bank have room to adjust rates upwardly without bringing the whole lot down.My guess it could go another half % without too much problems.If it needs to increase say to 6% then I believe things will go belly up.Certainly I have attempted to play it as safe as possible.My stock investments went to cash at about 6,000 points and apart from pension plans I have one investment left there and that is invested mainly in cash and bonds.

I think there is little more I can do.As for investing in property right now,I think that is a big no no.