personal debt, & ongoing risks...

lemonjelly

I have posted before about this, & I remain concerned that the personal debt in the UK is yet to fully play out its impact on the UK, & potentially the global economy. This is mainly because it is a set of circumstances which evolved over a period of 10-15 years and developed into a mindset for many in society.

A number of other threads have highlighted the M4 money supply issues, & areas for concern in relation to these figures. My knowledge/understanding of these figures is limited, but I am grateful to posters like Generali, purch, tomterm8 & others who post useful & enlightening information on these threads. Consumer borrowing is down (by a small %age) in comparison to business borrowing (which has fallen by a comparably large %age). Business appears (to me) to have pulled back from borrowing at this time, possibly for a variety of reasons - the credit on offer is not as good value, cost, plus they may well be looking at alternative ways of efficiency savings.

My feeling is that consumer borrowing will continue to fall. People will need to adapt to having restricted access to credit, and/or more expensive credit. How this will impact on people will depend on their employment circumstances, & how well they manage personal cash flow.

That said, the numbers are - to me - still worrying. According to the money advice trust, current stats are:

Average household debt in the UK is £8,716 (excluding mortgages). This figure increases to £18,159 if the average is based on the number of households who actually have some form of unsecured loan. The average household debt in the UK is £57,944 (including mortgages).
Total UK personal debt at the end of May 2010 stood at £1,460bn. The twelve-month growth increased to 0.9%. Individuals owe more than the total amount the whole country produces in a year.

Given that these figures are averages, it is worrying that some people could really be on the cusp of some significant difficulties. The bit I've put into bold is really worrying.

Government is also concerned by these issues methinks. The National Housing and Planning Advice Unit (NHPAU) commissioned Professor John Muellbauer, assisted by Dr. Janine Aron, to develop a model aimed at improving understanding of the drivers of mortgage arrears and possessions. This is the summary of their report, which can be used to predict how arrears and possessions (sometimes termed ‘repossessions’) may move over the next few years in different economic scenarios.

The report is available here ; http://www.communities.gov.uk/publications/housing/modellingarrearssummary

Grant Shapps is also concerned - see his press release http://www.communities.gov.uk/news/corporate/1643931 I note our host here is also involved.

CML predictions of 53,000 repossessions is not a sign we've turned the corner yet as far as I'm concerned.

Plus, I can't help but wonder how long it will take us, as a society, to get away from the consumerist mindset of spending & borrowing that we've stumbled into.

Thoughts?

Bullfighter

Well, I know that Generali for one disagrees with me on this, but I see this contributing to the current scenario of cost biflation whereby items bought with credit drop in price, and items purchased with 'cash' go up.

Really2

Bullfighter wrote: »

Well, I know that Generali for one disagrees with me on this, but I see this contributing to the current scenario of cost biflation whereby items bought with credit drop in price, and items purchased with 'cash' go up.

What items purchased with credit have dropped? houses did but cars have not.
For the first time ever we saw second hand car values go up.
You can usually get a discount for cash, which you cant get when using credit.

Can you give some examples where this is happening? I really struggle to think of cases where cash has been more expensive than credit on purchasing.

Lotus-eater

lemonjelly wrote: »

Plus, I can't help but wonder how long it will take us, as a society, to get away from the consumerist mindset of spending & borrowing that we've stumbled into.

Thoughts?

I don't know is the easy answer to that. Are we not moving slowly away from it already, maybe we're being forced to by lack of lending, maybe people aren't wanting to borrow so much.

Wherever I go it is being said that we all borrowed too much in the past few years, the government tried the easy let down option, low interest rates and (by design or by accident) lack of lending. I believe mortgages are being paid back at a rate higher than the last 10 years or so.

So have people been saved from themselves? Should interest rates now be raised, then we can get rid of the few who still want to borrow loads and the rest of us can be more stable.

If there is still a huge amount of people who are up to their neck in debt, how on earth will it ever get better?

Is it all down to interest rates.




* I'm not sure any of the above makes any sense, please correct if necessary.

tincans

lemonjelly wrote: »

Plus, I can't help but wonder how long it will take us, as a society, to get away from the consumerist mindset of spending & borrowing that we've stumbled into.

Thoughts?

Housing will stagnate (at best) for 5 years
Credit will remain expensive, particularly for poorer risks.
It will take 10 years for the number of cars sold to come close to the previous peak.

It probably took almost 30 years to complete a cultural change from saving to borrowing, I doubt if this will be reversed any time soon.

chucky

tincans wrote: »

Housing will stagnate (at best) for 5 years
Credit will remain expensive, particularly for poorer risks.
It will take 10 years for the number of cars sold to come close to the previous peak.

It probably took almost 30 years to complete a cultural change from saving to borrowing, I doubt if this will be reversed any time soon.

not just related to credit but a couple of other things too - a two-tier society is quite a possiblity

Bullfighter

Really2 wrote: »

What items purchased with credit have dropped? houses did but cars have not.
For the first time ever we saw second hand car values go up.
You can usually get a discount for cash, which you cant get when using credit.

Can you give some examples where this is happening? I really struggle to think of cases where cash has been more expensive than credit on purchasing.

You've given one yourself, the second hand car market is very firm at the cheap end which is more likely to be a cash purchase. I also sense that new car prices are trending down - though I can't find any data on this at the moment.

Energy costs are broadly on an upward trend, houses are ticking down.

Overall I see that we are currently in a money supply deflationary period, with money velocity slowing and credit contracting (banks are obviously desperate to rebuild their coffers against 'potential' massive losses in property & loan defaults and retain their capital adequacy compliance), however I believe this will have to be countered (again) very soon by governments through additional massive QE and money creation. I fear the overshoot will be rapid and violent.

tincans

chucky wrote: »

not just related to credit but a couple of other things too - a two-tier society is quite a possiblity

I think we are already there. There's a world of difference between people who can access mainstream credit easily, have some equity, savings and pension provision, and those without.

I don't have to drive far to an estate where there is no butcher, baker, estate agent or bank, but there is an off licence, "cash converters", bookmakers & "claims" solicitor.
The school is immaculate (huge refurb in last 5 years) but is operating at about 25% capacity - it is in special measures.


Similar areas all over my city and accross the UK.

Really2

Bullfighter wrote: »

You've given one yourself, the second hand car market is very firm at the cheap end which is more likely to be a cash purchase.
Energy costs are broadly on an upward trend

Good to see most people have £12,000+ available cash.

Energy is actually falling and home energy has been falling for over a year.

looks like everything is fine if that is the case! got any better ones.

Most of the things we have talked about are caused by currency devaluation, if the £ had not devalued we would be in deflation.

I can see no evidence at the moment of biflation (relating to credit & cash), we are seeing some inflation on goods and services and have seen asset deflation.
IMHO neither has been related to credit or cash accept house prices.

PasturesNew

I paid cash for my 2nd hand car. Splashed out; instead of spending £2-3k which is enough for a car, I spent £6500 (less £1k trade in). I hope it will last me 10 years. Last car lasted 9 years and there was nothing wrong with it except I wanted to change it for a different style of car to meet a different set of needs/wants criteria.

Really2

PasturesNew wrote: »

I paid cash for my 2nd hand car. Splashed out; instead of spending £2-3k which is enough for a car, I spent £6500 (less £1k trade in).

But you have more in the bank than most family's PN so credit would be an extra cost to you.

I would say a fair proportion of cars of under 7 years old are purchased on credit, unless people have the cash, but then if that is the case it sort of goes against the thread.