What is the likelihood of a repeat of the economic crisis of 2007/8 happening in Britain some time soon? Elements of that debt crisis are all too present in today’s British economy.
Figures from the Bank of England and the Financial Conduct Authority (FCA) highlight the frightening extent of a growing crisis in Britain’s personal debt. 3.1 million people have taken out one or more payday or doorstep loans this year at exorbitant levels of repayment interest. Outstanding spending on credit cards, car finance and other loans is £203 billion, just short of the £208 billion outstanding before the 2008 financial crisis.
Most British people do not have substantial savings for a ‘rainy day’. 6.5 million adults, or one in eight have no cash savings at all. Nearly a third of working people do not pay into a private pension. Rather than looking forward to a well-earned retirement, many view it with alarm and fear. The number of people ‘just managing’ financially is 14 million. The FCA characterises ‘just managing’ as those who would face disaster if they lost their job or received a large unexpected bill.
35-year mortgage terms accounted for over 15% of new loans in the first three months of this year – up from 2.7% in 2005 – which means homeowners are saddled with more debt for longer. Reports have also indicated a rise in the number of mortgages with the amount borrowed more than 4.5 times the income of the borrower, suggesting that people are taking on more debt.
If interest rates continue to rise, rising mortgage payments may put pressure on many people. A one percent rise would raise monthly repayments across all those with mortgages from today’s £544 by an average of £31.50, or 6.1 per cent. Younger households would face the biggest average increases in repayments in both cash terms (£43.60 among 25-34 year-olds) and proportional to other groups (8 per cent among 18-24 year-olds).
The Treasury’s proposal to give people in serious debt a six week grace period to seek advice does not, of course, address the fundamental issue of why people get into debt. The key reason is the attack on workers through austerity, a deliberate low wage economy via wage restraint and poor quality jobs through to the lack of investment in infrastructure, housing and training.