The governor of the Bank of England, Mark Carney, is clearly intent on keeping interest rates at their current low of 0.5% for as long as possible.
Waiting until unemployment drops below 7% may delay an increase until 2016 or, at the market-predicted earliest, the first quarter of 2015.
That’s good news for house buyers and some reassurance to people using individual voluntary arrangements or debt management plans to pay off personal debt they built up when the banks were lending like there was no tomorrow.
We’ve been hearing how the government’s Help to Buy scheme is intending to help people climb on to the housing ladder. At today’s house price to income ratios, a 5% deposit can be a daunting enough sum for young people to save, especially with wages effectively frozen.
But there is talk of a housing bubble in some quarters – a risk Danny Alexander, the Treasury chief secretary, was talking down by quoting property price rises of 0.8% in the past 12 months if you strip out London. Include the capital and the figure was 3.3%, he said.
Surveyors reported a four-year high in property sales in September and the Halifax reckons the house price increase has been a rather higher 6.2%. But that’s not a return to double figure increases and absurd 130% mortgages.
So what’s the background to fears of a bubble bursting and halting the economic recovery? Well, the impact of the US government shutdown is beyond the scope of this article, but brings its own risks. Closer to home, though, is the mountain of personal debt which seems bound to grow further without some increase in real wages and people’s ability to pay their household bills.
The Office for Budget Responsibility, created in 2010 by the coalition government as a fiscal watchdog, predicts that personal debt will reach £1,931 trillion by the first quarter of 2018.
Credit Action, the national money education charity, records that outstanding personal debt was £1.426 trillion at the end of July 2013. This is up from £1.421 trillion at the end of July 2012. These figures are close to matching the UK’s annual gross domestic output.
To put the statistics another way, Credit Action says: ‘Average household debt in the UK (including mortgages) was £54,110 in July. This is up from a revised £54,014 in June.’
The OBR’s predictions, it points out, ‘would mean that average household debt would reach £73,284 (assuming that the number of households in the UK remained the same between now and Q1 2018).’
Summer feel good factor
A summer feel good factor might explain the increase of £1.3 billion in lending to individuals by banks and building societies in July. Secured lending was up £0.7 billion and unsecured lending by £0.6 billion.
The flip side of the coin, Credit Action reports, is that banks and building societies wrote-off £3.67 billion of loans to individuals over the four quarters to Q2 2013. In Q2 2013 itself they wrote-off £694 million (of which £371 million was credit card debt) amounting to a daily write-off of £7.61m.
Every day in the UK:
- 282 people are declared insolvent or bankrupt (based on Q2 2013 trends). This is equivalent to one person every 5 minutes 7 seconds.
- 1,317 consumer county court judgments (CCJs) are issued with an average value of £2,766.
- Citizens Advice Bureaux in England and Wales dealt with 7,824 new debt problems every working day during the year ending March 2013.
August’s increase of £76 million in spending on credit cards alone brought the first rise in household unsecured lending for four years, according to the British Bankers’ Association. It said this was a sign of growing consumer confidence.
But there must be, for the staff of debt management charities and collection agencies still dealing with the fallout from the last economic boom and bust, a nagging doubt that we are storing up problems for the future. For the politicians, though, an interest rate rise in 2016 that might trigger a deluge of debt defaults is safely after the date of the next general election – 7 March 2015.
That’s why it’s as important as ever for businesses to manage their exposure to unsecured debt and unpaid accounts, a task in which S J Collections can help and advise.