Consumer debt hit an all-time high last year

[youngsyr]

crankedup said:

youngsyr said:

superkartracer said:

youngsyr said:

superkartracer said:

youngsyr said:

crankedup said:

JagLover said:

BOE "cracks down" on excessive personal debt....which they have caused with their own policies.

Price money properly and you would be far less likely to see such rapid growth in consumer credit.

Trouble is, as we know, if the BOE raised the rate untold people would go bankrupt and lose thier home. Just how many people are living on the edge?

I see this assumption bandied about all over the place - as you seem to think it's universally accepted, do you have a source or even a number of just how many people will go under given say a 1% or even 2% increase in interest rates?

Millions - http://uk.businessinsider.com/theresa-mays-jams-jo...

Nice try - there isn't one mention of the word "interest rate" or "debt" in that entire article.

So, I'll ask again: how many people will go under given say a 1% or even 2% increase in interest rates?

I suspect people's exposure to the BoE base rate is significantly lower than many people believe.

Gives some insight into debt , don't forget a rise affects businesses and that costs everyone.

No doubt, but given how widely it seems to be accepted that an X% rise in interest rate would screw "millions", where is the analysis to back that belief up?

As above, I suspect it is massively overplayed and that's before we even discuss the likelihood of interest rates going up anytime soon.

With the debt taken on at such a low level of interest rate applied it will only take small increments of % increase to have an effect upon the debt repayment sum.

That's simply not true - and I suspect is a part of the falsely assumed belief.

For a debt of £10k at 2% APR and a 5 year term, the monthly repayment is £175.

Same debt, same term, but double the interest rate to 4%, the monthly repayment is £184.

So, a doubling of interest rate leads to an increase in the monthly payment of just 5%.

Try it for yourself:

http://www.thisismoney.co.uk/money/cardsloans/arti...

[sidicks]

youngsyr said:

That's simply not true - and I suspect is a part of the falsely assumed belief.

For a debt of £10k at 2% APR and a 5 year term, the monthly repayment is £175.

Same debt, same term, but double the interest rate to 4%, the monthly repayment is £184.

So, a doubling of interest rate leads to an increase in the monthly payment of just 5%.

Try it for yourself:

http://www.thisismoney.co.uk/money/cardsloans/arti...

The issue is more for those on interest only mortgages, where an increase in the rate from (say) 3% to 4% would see a 33% increase in monthly payment.

[markcoznottz]

Ridgemont said:

skahigh said:

crankedup said:

As a 'baby boomer' in my younger days we had no such thing as debt, other than a mortgage perhaps. If you wanted a new tele it was down to Radio Rentals to hire one! Or maybe put down a deposit and take on HP (hire purchase). New cars were few and far between for young people back in the 60s and 70's, most were old bangers held together with fibreglass patches or pudding. No such thing as credit cards or monster loans because you just had to have something NOW,
Better days? Well better than the 40s and 50s.

Eh?

Quite...

Living on Tick
Living on the never never
Hire Purchase

Ignore the source: http://www.worldsocialism.org/spgb/socialist-stand...

the key quote is valid:

article said:

Robert Roberts’ The Classic Slum describes life in Salford in the first part of last century. The pawnshop was an essential part of the local community; many people were dependent on the short-term loans offered, with women often pawning the family’s ‘best’ clothes on Monday until the following Saturday. There was a social hierarchy among the working class, with skilled workers at the top, and various ‘disreputable’ individuals at the bottom; and position ‘was judged not only by what one possessed but also by what one pawned’. True destitution meant pawning not just clothes but also pots and rugs, and finally not being able to redeem what had been left with the broker. The interest charged was usually a penny in the shilling per week; sky-high, but less than the moneylender, who charged threepence in the shilling per week.

Debt and loan financing was endemic. It didn't resemble the whizzy world of PAYG loans but was essentially the same dynamic.
Ironically the things that were largely responsible for that world gradually fading away, was the Council House Right to Buy schemes, and the massive explosion in credit cards from the early eighties. The Boomers weren't therefore fiscally more prudent: they were able to tap entirely new lines of credit, and equity that previous generations were unable to.

Been trying to find total credit card debt for 1981, I'm sure it was around £1 billion.

http://webarchive.nationalarchives.gov.uk/20160105...

[youngsyr]

sidicks said:

youngsyr said:

That's simply not true - and I suspect is a part of the falsely assumed belief.

For a debt of £10k at 2% APR and a 5 year term, the monthly repayment is £175.

Same debt, same term, but double the interest rate to 4%, the monthly repayment is £184.

So, a doubling of interest rate leads to an increase in the monthly payment of just 5%.

Try it for yourself:

http://www.thisismoney.co.uk/money/cardsloans/arti...

The issue is more for those on interest only mortgages, where an increase in the rate from (say) 3% to 4% would see a 33% increase in monthly payment.

OK, so how much of a problem is that?

It seems to accepted that millions will be screwed by a minimal interest rate increase,. That makes great tabloid headlines, but how true is it?

Where's the analysis?

[Hayek]

youngsyr said:

The youth of today, eh?

Tell me: what difference does it make if you buy something now on interest free credit and pay it off over 30 months or you save up over 30 months, earning negligible interest, and buy it at the end of that time - apart from the obvious that you get to use that item 2 and a half years earlier?!

Difference is if things go tits up for you in those 30 months, if you were saving up to buy that something you'd probably be able to keep your head above water. Your comparison only works in a world where st doesn't happen.

[crankedup]

sidicks said:

youngsyr said:

That's simply not true - and I suspect is a part of the falsely assumed belief.

For a debt of £10k at 2% APR and a 5 year term, the monthly repayment is £175.

Same debt, same term, but double the interest rate to 4%, the monthly repayment is £184.

So, a doubling of interest rate leads to an increase in the monthly payment of just 5%.

Try it for yourself:

http://www.thisismoney.co.uk/money/cardsloans/arti...

The issue is more for those on interest only mortgages, where an increase in the rate from (say) 3% to 4% would see a 33% increase in monthly payment.

Which is why I mentioned earlier in this thread that people lost thier homes in the 90s owing to a rise in interest (coupled with a devaluation of house prices) which I didn't mention. Also multi card carrying people using one card to pay another.

[youngsyr]

Hayek said:

youngsyr said:

The youth of today, eh?

Tell me: what difference does it make if you buy something now on interest free credit and pay it off over 30 months or you save up over 30 months, earning negligible interest, and buy it at the end of that time - apart from the obvious that you get to use that item 2 and a half years earlier?!

Difference is if things go tits up for you in those 30 months, if you were saving up to buy that something you'd probably be able to keep your head above water. Your comparison only works in a world where st doesn't happen.

For many people sh!t won't happen and for those for whom it does, they'll just have to deal with sh!t for a while. That's life, it's not the end of the world.

[garagewidow]

Hayek said:

if you were saving up to buy that something you'd probably be able to keep your head above water..

and I wonder how many people would actually carry through that purchase with the cold hard cash in their hand?

the trouble with having things before you've paid for them is what happens when it is worn out,redundant or a more aesthetically pleasing model comes along before you have paid off for it.?consumer manipulation is a very dangerous thing,car manufacturers being a case in point with a model uplift say every 2-3 years just in time for the end of your 3 year lease arrangement.

[garagewidow]

youngsyr said:

For many people sh!t won't happen and for those for whom it does, they'll just have to deal with sh!t for a while. That's life, it's not the end of the world.

trouble is for those whom the st is happening more of them are becoming bankrupt than ever before.
it never used to be a thing in the 70's or 80's only happening to bust co.owners and well off people that invested badly.now it is becoming an easier way out and 'accepted'

[youngsyr]

garagewidow said:

youngsyr said:

For many people sh!t won't happen and for those for whom it does, they'll just have to deal with sh!t for a while. That's life, it's not the end of the world.

trouble is for those whom the st is happening more of them are becoming bankrupt than ever before.
it never used to be a thing in the 70's or 80's only happening to bust co.owners and well off people that invested badly.now it is becoming an easier way out and 'accepted'

"more of them are becoming bankrupt than ever before"

Do you have a source for that?

[menousername]

So - interest rate rises wont make much impact to most people. Not many people are gong bankrupt, nobody is stretched etc etc. If that is the case why are rates still so low?

2008 through to the present time is what happens when things go south for a few people while the majority shouldnt be affected, apparently.

We are talking about record consumer debt (consumer debt which has been propping up our consumer-led economy until now) which came about due to interest rates near-as-makes-no-difference 0%, which was done in response to the last credit bubble popping.

Of course when I say last I mean current - because all of the above is 2008 being played out- in slow motion perhaps but still.

So, I am no economist, but when thhe BOE is talking about the need for credit tightening, in an economy that is in large consumer/retail driven, with inflation on the march and wage growth stagnating, without even talking about brexit, if spending dries up has the potential to be bigger than few people defaulting on CCs or car finance.

Or maybe that will all justify keeping rates where they are and credit availability loose and easy. Who knows where it ends up

[garagewidow]

youngsyr said:

"more of them are becoming bankrupt than ever before"

Do you have a source for that?

yes I grew up in the 70's and 80's.

[youngsyr]

garagewidow said:

youngsyr said:

"more of them are becoming bankrupt than ever before"

Do you have a source for that?

yes I grew up in the 70's and 80's.

One anecdote =/= evidence.

[Ari]

youngsyr said:

garagewidow said:

youngsyr said:

"more of them are becoming bankrupt than ever before"

Do you have a source for that?

yes I grew up in the 70's and 80's.

One anecdote =/= evidence.

He's quite right I'm afraid. I grew up through the same period and it just didn't happen to individuals. And if it did it was regarded as pretty serious and pretty shameful to be honest. And the ramifications were long and life changing. Forget obtaining any kind of credit in the foreseeable future.

There were no special arrangements where you just pay off 1/4 of what you owe and lets pretend the rest never happened either. People were expected to pay back the money that they owed. Radical, huh?

Now it is just a handy financial reset button. Couple of years, all clear and off you go again.

The whole concept of borrowing is very different today, as your posts clearly show. Living within your means (ie just buying things you could afford and saving for those that you can't) is boring. Just fking finance it and have it all today!

Your example of saving for a new car being a waste of money because in two years the list price would have gone up from £10,000 to £10,650 is a perfect example.

Previously if you couldn't afford the £10,000 new car, instead of banging it on a credit card you'd have bought a much cheaper secondhand car instead...

[youngsyr]

Should be a cinch to find the data to back up your opinions then, right?

[Hayek]

Does this help? Think it's referring to the right thing going under.



https://en.wikipedia.org/wiki/Bankruptcy_in_the_Un...

[speedy_thrills]

My opinion might be bias because I work within an associated industry but generally the more household debt a nation takes on the more economically successful it becomes. Household debt as % GDP. Sneering about debt is misunderstanding simple economics, credit growth is part of economic growth. If credit growth is matched by income growth all will be well but where you get into a declining, no or low income growth economy you'll end up with loans in arrears or defaulting entirely.

What's remarkable about the current housing "situation" (although the same could be said for other asset classes) isn't that prices are rising, that's actually historically quite normal. What's remarkable is that it's happening at a time when the wider economy has almost flat-lined and incomes are falling in real terms.

[markcoznottz]

Ari said:

youngsyr said:

garagewidow said:

youngsyr said:

"more of them are becoming bankrupt than ever before"

Do you have a source for that?

yes I grew up in the 70's and 80's.

One anecdote =/= evidence.

He's quite right I'm afraid. I grew up through the same period and it just didn't happen to individuals. And if it did it was regarded as pretty serious and pretty shameful to be honest. And the ramifications were long and life changing. Forget obtaining any kind of credit in the foreseeable future.

There were no special arrangements where you just pay off 1/4 of what you owe and lets pretend the rest never happened either. People were expected to pay back the money that they owed. Radical, huh?

Now it is just a handy financial reset button. Couple of years, all clear and off you go again.

The whole concept of borrowing is very different today, as your posts clearly show. Living within your means (ie just buying things you could afford and saving for those that you can't) is boring. Just fking finance it and have it all today!

Your example of saving for a new car being a waste of money because in two years the list price would have gone up from £10,000 to £10,650 is a perfect example.

Previously if you couldn't afford the £10,000 new car, instead of banging it on a credit card you'd have bought a much cheaper secondhand car instead...

So what's the end game? This modern phenom of only recovering part of the debt, presumably some poor creditor gets fked over there? It's not a victimless crime. Biggest giveaway is inflation, it's a get out of jail card for a debt based economy. Unfortunately, it means cash rich individuals will park capital in assets. A Ferrari Dino, being £275k, instead of £40k in 2007, I can't see how that helps the wider economy. At most maybe it gets detailed and serviced every two years, that's assuming any tax gets paid on those earnings.

[markcoznottz]

speedy_thrills said:

My opinion might be bias because I work within an associated industry but generally the more household debt a nation takes on the more economically successful it becomes. Household debt as % GDP. Sneering about debt is misunderstanding simple economics, credit growth is part of economic growth. If credit growth is matched by income growth all will be well but where you get into a declining, no or low income growth economy you'll end up with loans in arrears or defaulting entirely.

What's remarkable about the current housing "situation" (although the same could be said for other asset classes) isn't that prices are rising, that's actually historically quite normal. What's remarkable is that it's happening at a time when the wider economy has almost flat-lined and incomes are falling in real terms.

That only matters if you care about about overall GDP. It's not per capita either. It's also not a given that 'growth' results in increased sme profit, if it ends up in some tax haven, again not good for the general population.

[mjb1]

youngsyr said:

That's simply not true - and I suspect is a part of the falsely assumed belief.

For a debt of £10k at 2% APR and a 5 year term, the monthly repayment is £175.

Same debt, same term, but double the interest rate to 4%, the monthly repayment is £184.

So, a doubling of interest rate leads to an increase in the monthly payment of just 5%.

Try it for yourself:

http://www.thisismoney.co.uk/money/cardsloans/arti...

It's all about compounding the interest rate though, so for a moderate loan over a modest period, it's not such a huge issue. But when you start talking about house mortgages and 30 year terms, the difference gets big pretty quick. A 2% rise on the SVR of my mortgage would mean monthly repayments increasing by 27%. For households with large mortgages, that's going to hurt their finances.

When you start to look at the effects on fixed rate deals (assuming a 2% base rate leads to fixed rate deals increasing by 2%) then that would mean a 42% increase in monthly repayments to cover it. Yes, affordability is based on the SVR, but most people have some kind of deal/fix going on there, so real world disposable income is going to take a hammering. And what will people do - tighten their belts and cut out the luxuries, which is going to hurt the economy. Or they could bury their head in the sand and get into a spiral of debt to maintain the lifestyle they they perceive they're entitled to...