Credit and Debt

  • total UK personal debt now equal to £1.4 trillion (@130% of disposable incomes);
  • the debt burden, and restricted access to fair and affordable credit, disproportionately affects vulnerable consumers ;
  • 2.3 million use home credit, paying  APRs of between 180-500%;
  • 165,000 use illegal loan sharks;
  • sub-prime market is characterised by higher APRs, unfair contracts such as huge penalty charges for arrears (FIC research found that penalty fees for in arrears can be £50 per month plus £30 per missed item), while there is evidence of major misselling;
  • sub-prime arrears up to 20 times mainstream level, sub-prime lenders quicker to repossess;
  • on some measures, total debt servicing costs are higher than in 1990s, first time buyers spend 34% of post tax income servicing mortgage debt, house price earnings ratio now record 5.4 times;
  • over 1/3rd of mortgagors spending more than 20% of pre-tax income servicing mortgage debt;
  • consumers are being hit by a perfect storm of events – record levels of personal debt, the credit crunch, the ending of 3 million plus fixed and discounted rate deals over two years, and increases in utility/ household bills – expected to lead to substantial increase in arrears and repossessions (we estimate repossessions could rise to 50,000 for 2008)
  • credit crunch and risk averse behaviour by mainstream lenders will lead to increase in non-standard/sub-prime markets –  on some measures, 1 in 3 households will be classified as non-standard risks, more consumers will be priced out of/ denied access to affordable credit;
  • other developments such as growth in equity release, sale and rent back schemes and debt consolidation companies in response to growth in problem debt expected to cause major consumer detriment.