UK’s ‘bad bank’ warns 1% rate rise could sink 15,000 customers

Thrugelmir

Sapphire wrote: »

So why d'you reckon there is such a different attitude to spending than there used to be? My grandparents and parents, for instance, never got into debt and were never overdrawn – this despite originating in families that did have wealth initially (lost during the war).

The advent of credit cards and interest free credit. Once upon a time you could get discount for paying in cash. Then companies found that selling finance gave them a better profit margin than the product itself.

When a garage has a sale on. See what they offer you if you say cash deal. Won't be interested. Last time my partner changed her car. The main Ford dealer actually told her to repay and instantly cancel the agreement on getting the car. We didn't even upset the salesmen by going elsewhere. As his commission was based on hitting targets for selling finance agreements not cars.

Sapphire

Thrugelmir wrote: »

The advent of credit cards and interest free credit. Once upon a time you could get discount for paying in cash. Then companies found that selling finance gave them a better profit margin than the product itself.

When a garage has a sale on. See what they offer you if you say cash deal. Won't be interested. Last time my partner changed her car. The main Ford dealer actually told her to repay and instantly cancel the agreement on getting the car. We didn't even upset the salesmen by going elsewhere. As his commission was based on hitting targets for selling finance agreements not cars.

That's really bad. I'd never go for such an agreement – it would give me a nervous breakdown because I'm so nervous about security. I tend to pay cash for everything, and I don't get into debt. Perhaps it is to do with having direct experience with people who lost absolutely everything, and knowing what it is like to be poor (really poor) as a consequence? It's something that few people in our current society have experienced (though they may complain about being poor), and it can also happen very quickly, to people who think they are secure and affluent, through no fault of their own…

Actually, I lie, I did occasionally go into debt by at the most £200–£300 on a card when I was getting a steady income (rather than working freelance, as now), but I only did it when I knew that I could easily pay it back. Even so, that made me nervous.

economic

Sapphire wrote: »

That's really bad. I'd never go for such an agreement – it would give me a nervous breakdown because I'm so nervous about security. I tend to pay cash for everything, and I don't get into debt. Perhaps it is to do with having direct experience with people who lost absolutely everything, and knowing what it is like to be poor (really poor) as a consequence? It's something that few people in our current society have experienced (though they may complain about being poor), and it can also happen very quickly, to people who think they are secure and affluent, through no fault of their own…

Actually, I lie, I did occasionally go into debt by at the most £200–£300 on a card when I was getting a steady income (rather than working freelance, as now), but I only did it when I knew that I could easily pay it back. Even so, that made me nervous.

i use a credit card for all my purchases unless there is a fee to do so. this is because i get cashback. i make sure it is paid off every month so no interest is incurred by having a direct debit setup. i am also very careful with my money and am constantly reminded that time = money and i have spent my time to earn this money so wasting money is equivalent to wasting time.

Sapphire

economic wrote: »

i use a credit card for all my purchases unless there is a fee to do so. this is because i get cashback. i make sure it is paid off every month so no interest is incurred by having a direct debit setup. i am also very careful with my money and am constantly reminded that time = money and i have spent my time to earn this money so wasting money is equivalent to wasting time.

Yes – I know people who do that, but I'm not sure if I could trust myself to pay the money back every month. I'd probably forget, then end up paying interest, and all.

I do like spending money, but prefer to do it safely, within my limits of nervous tolerance, and it tends to be on oddball things such as one-offs made a long time ago, bought very much from time to time.

I did buy another iPhone recently, but paid cash for that as well – only bought it because it is useful for work. Don't do things like social media or anything like that. Is MSE classed as social media? It's the only thing I engage with, comments wise.

michaels

antrobus wrote: »

You are contradicting yourself. You state that these "loans originally came from Bradford and Bingley and Northern Rock who were some of the loosest in their underwriting criteria", i.e. the loans were to cheap. Now you are claiming they were too expensive.:)

Too cheap for the level of risk hence the haircut when selling some f the book, too expensive for the borrowers to afford a 100 basis points increase in the rate payable hence the warning. No contradiction.

BobQ

15000 is a fairly small attrition rate, irrespective of how bad it might be for individuals.

I have little sympathy for those who have borrowed more than they can realistically afford. Its hardly news that interest rates will most likely rise sometime, if they have not allowed for this possibility they are borrowing more than they should.

Nobody had much sympathy for the larger number of savers who have suffered paltry interest rates on their savings to subsidise those who borrowed more than they should.

Sapphire

ilovehouses wrote: »

If you want a new car and want to pay cash you go into the dealers, get a discount for taking their finance, go home, cancel it and pay it off with cash.

:money:

Yes, but – I don't wanna car! Don't need one and not a priority for me. :T

antrobus

michaels wrote: »

Too cheap for the level of risk hence the haircut when selling some f the book, too expensive for the borrowers to afford a 100 basis points increase in the rate payable hence the warning. No contradiction.

Yes, that's the point I'm making. "Too cheap for the level of risk". Had the lending been priced correctly from the get go, then there would have been no (or much less of a problem) from the point of view of the lender.

The fact that some borrower who takes out a 'risky' or 'sub prime' loan might find difficulty in repaying the loan in the future, or even default, is simply part of the normal course of business. It should not be an issue for the lender.

antrobus

BobQ wrote: »

15000 is a fairly small attrition rate, irrespective of how bad it might be for individuals....

Yes, 15,000 isn't a lot of people. And that's the top end of the estimate that between 5% and 10% of their borrowers who would "struggle".

The Evening Standard article states that;

Its residential mortgage book is now 148,000 accounts with outstanding debts of £19.5 billion. That means nearly 15,000 loans worth towards £2 billion would be in jeopardy from a jump in rates according to UKAR’s figures.

and then adds

If repeated across the UK, that would represent a serious crunch.

Which is a bit wrong, since the remaining UKAR loans are unlikely to be representative of the typical lender's portfolio.

UKAR's residential mortgage book at 31 March 2017 was actually £18.9 billion. There is another £0.6 billion of commercial loans and unsecured loans. That £18.9 billion is 33% BTL, 24% Self-Cert, 15% Together, and 28% Standard. But in any event, that £18.9 billion is secured. Even if 10% of that, or £1.9 bn becomes "at risk" because of interest rate rises, it's not going to be big problem for UKAR.

Malthusian

Sapphire wrote: »

So why d'you reckon there is such a different attitude to spending than there used to be? My grandparents and parents, for instance, never got into debt and were never overdrawn – this despite originating in families that did have wealth initially (lost during the war).

Plenty of their contemporaries did get into debt. Or would have done if credit was as easily available as it is now. You are comparing your own family with random people you read about in the newspapers.

I read about lots of stabbings in the news but my grandparents never stabbed anyone. Why oh why do people nowadays think that stabbing people is socially acceptable?