The UK attitude toward debt has received a major shift over the past few years. Where once the UK was seen as a nation that held up thrift as being virtue and considered debt a vice, it has now changed to owing £1.3 trillion on mortgages, credit cards and other loans.The main cause of this growth in debt is the British obsession with house ownership, making up 80% of the borrowing. Figures for the number of repossession orders granted in the first three months of 2005 have reached nearly 26,000, which is the highest figure since 1995.
The Consumer Credit Counselling Service (CCCS) reports that calls from people worried about debt have been increased by 50% compared with last year.
The Chairman of the CCCS, Malcolm Hurlston, said:
"The consumer is spending less and repaying less. There are early signs here that the whole consumer-driven economy may be moving into lower gear.”
In the past, homeowners have been the main victims of previous recessions due to their reliance on credit, however, this time it seems the young are most at risk.
"We are seeing lots of younger people coming to us for help," said Frances Walker, from the Consumer Credit Counselling Service ( http://www.cccs.co.uk/ ), "They are often very heavily in debt as they have been able to borrow far more than in the past. The trouble is they have no assets, so when they get into difficulty they have nothing to fall back on."
It is not only the young who are being affected however, as the number of houses exchanging hands each month is gradually decreasing, and high street sales are poor – traditional signs that consumers in general are beginning to suffer.
With a number of the UK’s main lenders, including Barclaycard, HSBC, HBOS and the Royal Bank of Scotland, recently being warned about bad consumer debts, it seems that consumers need to take on more financial responsibility for themselves, rather than relying on the providers to protect them.
Independent financial adviser, Alan Steele commented, “Debt has always been a problem for a minority of people. One of the current problems is the willingness of bank managers to hand out loans and credit cards, which means this minority has increased, but the majority are coping with their debt.”
Free information on credit cards including costs, from comparison websites like Moneynet ( http://www.moneynet.co.uk ) or Moneyfacts ( http://www.moneyfacts.co.uk/)can help consumers check for the lowest rates and best deals on their loan and credit requirements, thereby reducing the risks of incurring high interest charges due to mis-selling by providers.
The introduction of tougher codes of practice imposing stricter standards on the way products are sold, and the use of financial information from qualified financial advisers will also help to protect consumers against possible debt induced problems.
In an interview with the BBC, the debt charity, National Debtline (http://www.nationaldebtline.co.uk/), stated, "We are not in an early 1990s scenario yet, but large numbers of people are living up to and beyond their incomes."
Organisations like the National Debtline, Citizens Advice, CCCS (http://www.cas.org.uk/) and Business Debtline (http://www.bdl.org.uk/) are available to the public to provide information, in the unfortunate event of debt escalating out of control; however it is much better to prevent the situation from getting to that level in the first place.
Mortgage sales hit problems
The housing market has been buoyant over the past few years, but mortgage providers and first-time buyers are both now facing a tough time. Following announcements from the Bank of England that there has been an overall decline in the total number of UK home-buyers, and a declaration from the Financial Ombudsman Service (FOS) that the number of disputes concerning mis-sold mortgage endowments has now hit record levels, it seems that mortgage lenders are facing a bleak time. Add to this the results of a new survey, by the Edinburgh Solicitors Property Centre, which shows potential first-time buyers fear that they may never get onto the property market, and you start to see a worrying picture of the housing market emerge.
Alliance turning towards the financial dark side
Following in the footsteps of many of its high street competitors, Alliance and Leicester has announced that it will no longer accept new customers onto its Online Saver and Direct ISA accounts. The interest rate for the Online Savers account is also being cut from 5.35% to a straight 5%.
How to score with credit
With a massive £1.3 trillion of personal debt in the UK, obtaining credit and staying financially afloat are daily dilemmas for the British consumer. Many major banks, including Lloyds TSB, have recently declared an increase in the number of customers experiencing repayment difficulties, with the need for better financial advice and support has never been more important.
