Is the UK Debt bubble about to burst?
After the global financial crisis, bank bailouts, and home repossession, governments and regulators vowed to never let it happen again. Consumers wouldn’t find themselves struggling to pay their loans and lending criteria was tightened - especially around mortgages.
While it made it tougher for people to get on the property ladder and small businesses struggled to raise cash, making sure people weren’t borrowing beyond their means is a fundamentally good idea. The problem is that memories are short and borrowing is back in vogue.
Subsequently, some experts are warning that Britain’s enormous debt bubble is on the brink of bursting. Spenders have embarked on a marathon borrowing binge, racking up unsecured debts of £198.4billion on cards, car finance and overdrafts.
That is the highest figure ever recorded by the Bank of England aside from 2008 - the year banks collapsed and the recession began.
Consumer groups and politicians have condemned banks for offering ultra-low rates to lure customers into deals, and they demanded that City watchdogs rein in the spending spree before it is too late. Figures from the TUC show the average UK household now owes a record amount of debt, even before mortgages are added to the bill. According to them, the average household is sitting on £12,887.
Mortgage debt has also increased 2% in the past 5 years. The government did help to revive the mortgage market after the banking crash. However, as more than 40% of mortgage borrowers have never experienced an increase in interest rates, the fear is that many in this group would be unable to cope and pay their bills.
Some might only be able to make repayments with dramatic cutbacks in other spending, but this has knock-on effects for the economy. Others might face repossession or need forbearance by their lender, increasing the lender’s liabilities.
Our own business has seen all of this before and the current trend in the economy is extremely concerning to say the least.
According to the Insolvency Service, the number of people applying for insolvency has jumped to its highest level in three years. Personal insolvencies in England and Wales totalled 24,531 in the first three months of 2017, up 15.7% higher than the same period last year. Personal insolvencies for Northern Ireland during this period totalled 713.
What should I do?
Undertake a financial review of your finances.
If you know money is tight, spend some time now, today, tonight, this weekend, working out how tight things are going to be over the weeks and months ahead. Knowing what cash you have to spare can help you start to put a little aside to cover you if something goes wrong or your monthly bills are to increase. Lets face it, that’s what is likely going to happen.
If you have expensive forms of credit and you’re not paying them off during free deals, then don’t use them anymore and pay off the debts when you can.
If your finances are over extended then downsize your spending while you can.
Check your mortgage paperwork to determine and understand your mortgage agreements and make financial plans now for rate increases. It always amazes us that many of the people we see in this scenario, never look at their mortgage agreements and many don’t understand what kind of mortgage product they have committed to at times.
ASK FOR HELP - Try not to wait any longer, if you have a financial issue, or are concerned about any of the matters mentioned in this piece, simply ASK FOR HELP NOW.
What we can do to help?
Since 2010, GDP Equity Experts have helped 100’s of families deal with debt related issues and in particular property debt related issues. We would be very concerned at this point as we know over 600,000 people are currently living in negative equity and many struggling month to month to keep up with their mortgage payments.
As a result, it is very important to take advice in this regard from a regulated team of debt advisors to plan for the future.