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.

Comments are closed.