Individual insolvencies rocket by 57% in one year yet credit card borrowings increase

Are you calling for more government regulations to limit borrowing?

In message , Crowley writes

Yawn - Credit Cards again!

Not necessarily though it may help more people to avoid getting in it upto their necks. However it's a bit like closing the stable door after the horse has bolted. Most of the damage has already been done

Yes, it's those pesky credit cards again. Maybe they'll end up bringing the house down ? ...............................

Families pay card debt with mortgages By Edmund Conway, Economics Editor (Filed: 02/03/2006)

The amount Britons owe to banks and building societies increased by £10.5bn in January, according to figures from the Bank of England. It was the biggest monthly jump since the house price slowdown started 18 months ago.

The Bank's numbers also shed light on a growing phenomenon: households are switching their debts from credit cards, personal loans and overdrafts into mortgages. So-called unsecured borrowing is growing at

It means the total amount owed by Britons has increased to £1,168bn - comfortably above the country's annual economic output.

George Buckley, chief UK economist at Deutsche Bank, said that "debt creep" was not slowing but that the type of debt taken on is changing.

"Consumers have been substituting away from consumer credit in favour of borrowing against the value of their houses," he said. "These people are probably very worried about the need to save for their pensions and so they have paid back many of their credit card debts.

"Quite simply, the rates they can get on mortgages are about three times better. Mortgage rates are around 5pc, while personal loans up to £3,500 cost 14pc and credit card debts almost 16pc.

"Perhaps this is because the rise in bankruptcies is scaring people off unsecured borrowing and there has been a crunch on credit cards."

Families increased their credit card debts by just £195m in December - the lowest amount for eight years - the Bank's figures showed. The January figure, unusually high because it includes Christmas debts, was £733m.

Some 100,000 families remortgaged their homes in January and the amount borrowed in this way has increased by over £10bn each month since last summer.

Mr Buckley said it was likely that many families were also "overmortgaging" when buying houses, borrowing extra under the guise of renovating their new homes. Instead, many are using this money to pay off more expensive debt.

The monetary policy committee will be encouraged by the slowdown in consumer credit, which has been a serious worry in recent years. However, it will be concerned that families are still borrowing so much against the value of their homes.

Although the housing market has not crashed, some experts fear that families are relying too much on their homes as stores of wealth and that some may struggle if interest rates unexpectedly rise.

Ross Walker, UK economist at Royal Bank of Scotland, said: "This is the last thing the MPC wanted, as evidence builds of a new sort of 'liquidity trap' where lower interest rates apparently do little to stimulate the real economy, merely encouraging ever greater borrowing to further inflate existing asset prices.

"These borrowing numbers further undermine the chances of a cut in base rates and although an imminent rise looks highly unlikely, it is possible the MPC will have to revert to sounding verbal warnings to borrowers."

The likelihood that rates will stay on hold was underlined by a survey from the Chartered Institute of Purchasing and Supply showing that the manufacturing sector expanded, albeit weakly, in January, and that cost pressures worsened.

The CIPS survey showed that manufacturers were again forced to cut jobs to make ends meet.

The news will add to Bank worries that manufacturing and exporters will not keep the economy afloat if the consumer slowdown continues.

But if house prices are too high, as you say, isnt this a good thing?

But you seem to be in favour of restrictions on lending ..which will prevent the very crash you yearn for wont it?

Yes, I thought this was one of your little traps TW ;-)

Tumbleweed wrote:

See my earlier post : "not necessarily", closing the stable door etc.

I think much of the lending in recent years has been irresponsible eg self-cert, 7x income, IO mortgages etc leaving £1.2 trillion of debt but I'm not sure I would agree with Govt interference.

Nothing will now prevent a crash in house prices ....... asset bubbles burst eventually, you can't buck the market as Thatch once said. You can quote me on that in a year or so's time ;-)

In message , Crowley writes

But you are not telling us about repossessions in any great volume, you keep telling us about credit cards.

If you have say, £30k on credit cards, and no assets, it could seem very attractive to go bankrupt based on todays deal. If you own a house, and other assets, it is very much less attractive, and you will fight to prevent it happening.

On the whole, ISTM that people dont have to sell their houses in a hurry, and arent getting them repossessed in any volume, so no crash.

Again, I dont disagree that there could be a reduction in prices until wages get ahead again. Although, when Brown is forced to come clean... watch this space!

ISTR you said that about a year ago.

So did I. House prices here have long since been unaffordable to local people because they don't earn enough to justify a big enough mortgage by far, so why are the prices holding up (even increasing still) unless lenders are still making it up as they go along about who they lend to and how much? Usually when something becomes unaffordable, the demand falls and the price drops. What is going on here?

You are confusing affordability by a specific group "local people" with affordability by anyyone who might wish to live there but isnt yet 'local'. So at the moment there are enough non-local people who want to buy houses wherever it is you are that the price doesnt fall. Those people are then "local" so eventually there are local people who can afford the houses.

But at the moment prices arent unaffordable, only by some people, but thats true of nearly everything.

It seems that people are remortgaging in order to meet credit card debts, that doesn't sound too healthy to me.

We've discussed this before I think. Repos were very low back in 89 the start of the last house price crash but rocketed over the next couple of years, I suspect the same thing is happening again.

Browns smoke and mirrors policies are starting to unravel.

Give it time, Rome wasn't built in a day.

The housing market has deteriorated significantly from a year ago, prices then were around +20 YOY now they're down to around + 2 or less. If there has been no significant price correction in a years time please feel free to tar and feather me.

I understand that, and I might accept it if our local rag was not weighing in like a telephone directory on house night. The sort of people who can technically afford to buy the houses which are for sale here are not the sort of people who would want to live in those houses. The lower priced houses (which are still unaffordable at a minimum of £100k) *are* selling to local people, even though they are relatively low paid.

First time buyers are down to a record low of 7% of the market (from almost 50%) four years ago. That is not sustainable.

In message , Crowley writes

Instead of being UP by 20% YOY, they are UP by 2% YOY. There is no DOWN in house prices based on what you are saying

Obviously there is a DOWN in the rate of growth, and it is obviously possible that it may become negative, but so what? For most people, the value of their home/property is not really relevant in the short term. It only truly matters if you have a desperate need to sell.

How much of a correction does there need to be before we can tar and feather? Anything up to 10% would be fairly insignificant AFAIC.

It seems to be at the moment. As was shown a few months back, there are many other sources of buyers at the low end, they dont have to be the traditional 'first time buyer' and they havent been for some years, even while house prices continued to rise.

"Maria" wrote

Hmmm -- the people *selling* those high-priced houses .... are *they* "local"?