Shocked at levels of unsecured debt

[talks2much]

Hi,

Off work for a few days and pondering the recent budget and the state of the economy. I recently started working in a new job where I get to see mortgage applications and data relating to affordability assessments. I have been STAGGERED by the levels of unsecured debt that I have seen and this has made me think that it needs to be much better regulated.

About 50% of the applications that we receive are from people looking to remortgage to raise funds to pay off debts etc. Some of the amounts I have seen are just unbelievable. I have seen applications from couples on high incomes, asking to borrow more to pay off eye watering levels of unsecured debts - debt's higher than my first mortgage was! Many Many examples of people in 6 figures of unsecured debt. How did this happen and why were these people allowed to keep borrowing? Couples of 100K a year plus, owing the same on credit cards and loans. The system must be broken

A further worry if that the recent employer NI rises means that there will almost certainly be job losses/hours cut - what's going to happen when all of these people can't pay these debts as their income has gone/reduced? What happens then?

Surely we need to massively reduce the amount that people can borrow on non-mortgage debt?

If you’re on 100k you shouldn’t have debt or money issues. You should have savings. What the hell are they in debt on?!

It’ll be rife. Having a high income means that you have higher levels of credit available. I expect that there are millions of high earners up to their eyes in debts

Hire Purchase or credit cards for holidays usually. Too many idiots at DS’ private school use up every spare penny on luxury cars and holidays to keep up the lifestyle.

We have a weird relationship with debt in this country - it's very normalised. A friend of mine from another country who move here recently was shocked by the amount of new cars compared to home, where people tend not to get cars on finance, by Klarna, by the entire culture around borrowing. It's something I'd never really thought about but she's right.

(This post makes me feel better about the mere £700 I owe for a fridge, though, so thanks! I spent a long time in a fair amount of debt through my twenties and I can't ever imagine going back. Even the fridge felt like a big ask, but ours died suddenly)

Half are probably waiting for their parents to die to pay off their debts. Some are likely in professions that have seen real terms pay cuts for the last 15-20 years and assumed they'd have paid off their debts by now. It's a crazy system.

everything is based on monthly payments now. New cars, kitchens, windows, clothes, credit cards etc. it’s not hard to see why people can rack up 100k in debt.

I suppose it’s all relative though

I agree OP, it's crazy to me how many people live on borrowed money.

Years ago I worked in the car finance department of a bank, and I got to see the credit reports of people applying for finance - it shocked me how many people who were on salaries of €100 - €120k had about the same amount of disposable income at the end of the month than I did on €23k after they paid for their huge mortgage, multiple credit cards, cars on finance, store cards, personal loans etc. Keeping up with the Jones I guess.

It made me realise so much of their life was borrowed. And this was before the 2007/2008 financial crisis, so many of these people may have lost everything.

Now I don't even own a credit card.

It's mad to me, I wouldn't be able to sleep at night!

It's also a bit of a worry for the future, there are already lots of people who will never own their homes and will be renting for their entire lives (and will inevitably need govt assistance when they retire to be able to live), but you assume those people who do own will be okay because they can downsize/sell to pay for care if needed when they are elderly - but actually they might get to retirement age and, if they've remortgaged essentially have no assets either.

I had 5k credit card debt. I also had 8k in savings. That was few years ago. 0% interest on debt, but savings were making pounds. So it made perfect sense.
Could some of the debt you are seeing be similar? Not all though of course because many people are not great with money (and need remortgage to cover it) ... To say it nicely.

This is interesting (and shocking!) to read. I've always been comfortable with bits of debt like car lease, DFS sofas, credit cards but then I work in finance and earn quite well so I have a good understanding of affordability and know my limits. I'm always a bit surprised by the fancy cars and lifestyles around us and it does make me wonder how much of this is debt. There seems to be a real culture of getting the shiny new thing all the time in this country. I feel boring putting money into pensions and driving a 'normal' car but this puts it into perspective

I agree - we purposely have a far smaller mortgage than we could have borrowed, a car loan (personal loan from the bank to buy a second hand car) and no credit card debt. And even then I worry about an unexpected expense coming in like the roof or the boiler as even with savings we'd have to borrow to cover that in one lump sum.

I just don't understand how people manage to borrow the colossal amounts I see on here sometimes.

I think it’s quite hard to get that sort of debt tbh. Credit cards- 10-15k is a high limit and I think it’s fairly uncommon to have 10 of them.

unsecured loans- £30,50k? Max level you would be talking about having one to buy a car or a hefty contribution to building works etc. you’d struggle to have more than 1 personal loan along with the credit cards though.

if you have eg taken out loans and credit cards to do an extension of whatever it’s fairly sensible to secure it at a lower interest rate,

it could be very debt Of course- it was much easier to borrow 20 years ago

Most of the cars on the road these days are paid for through insane HP agreements. We do the same as the PP, use interest free credit cards but have savings accounts to get a bit of extra money from interest before paying them off. This would never exceed about £5k though and we are good earners.

Pretty obvious that some people value material things more than others. We have household income similar to SIL. I have 10 Yr old car with zero finance on it, £35 per year duty on it, insurance £40 per month.
She has a new car on PCP every 3 years at cost of around £400 per month + insurance of £100 per month due to type of car. She has just paid for 2nd kitchen in 10 years on finance. We bought new kitchen outright 14 years ago after saving up. We won't replace it for at least another 5 years. She has extensive foreign holidays on the credit card, we usually holiday in this country and pay it outright.

Neither of is are wrong but we just have different priorities in life.

Yet no one who has posted so far on the thread has debt like this?

Some of the high earnings couples will have used unsecured debt to make house renovations before remortgaging to secure that debt, to get a better LVT rate once the increased value of the renovated house is taken into account when compared to borrowing entirely against the house to start with. That's what I'm doing.

I’d feel sick and depressed at the level of what the OP is describing!

@AquaPeer there are 15 comments on this thread though? Not sure what your point is.

Madness.
I put stuff on the credit card but only to earn various loyalty points! It’s then paid off each month

People love to feign horror at how in debt everyone else is. But it’s always “everyone else”- maybe there aren’t quite as many people in £100k unsecured debt as OPs post indicates

It doesn't surprise me.

I am a higher earner and have around 90k available to me on credit cards. I have 10k+ "debt" but it is interest free and I have the money to pay it off earning interest until I decide I don't want the credit card balance in my name. However for me, it makes far more sense to pay the minimum on it monthly for now whilst earning 7% interest on it elsewhere.

All family monthly spend goes on AMEX where possible for points and gets paid off monthly. Therefore if you checked our credit report it would look like we were in up to 18k of debt if that balance showed. Leveraging debt is sometimes very beneficial.

However there are a lot of people out there with a 50k car on finance, plus credit cards and huge mortgages. I would feel stifled!

My DH and I talk about this ALL THE TIME - we call it 'never never' culture. We both work full time in professional roles where we earn a combined income of 80k, we live in a modest Victorian terrace, we both have cars (aka: old bangers) that are 10+ years old - that we own. The only debt we have is our mortgage. The idea of owing any money to anyone fills us with dread. When we go out and about, we marvel at the fact that SO MANY PEOPLE drive fancy big ass cars and live in much bigger houses - how are they affording it? Because they don't flippin' pay for it!

I’m sure very few people get into debt because they want to, there are just a lot of people out there who earn decent incomes and just don’t understand money.
My generation were taught about interest and compound interest but it was all theoretical. It wasnt applied to real world scenarios like credit cards, mortgages, pensions and budgeting.
I hope schools these days are helping kids to understand how all this dreaded maths does apply to them and the impact mistakes can have on their quality of life. Problem is when you are young you think by the time you are 45 you’ll be nearly dead so long term thinking doesn’t come naturally to most people!

Car finance isn’t unsecured- it’s secured to the car. It’s pretty hard to get a personal unsecured loan to the value of a new car. Or it’s a monthly payment followed by a trade in or balloon payment- which may be an expensive way to drive a car, but isn’t unsecured debt either.

also you’d be amazed at the number of people who get company cars or cars under salary sacrifice- available in the NHs, for example, the biggest employer. It’s a very common employer benefit.

A lot of people bury their head in the sand. I've got a friend who owns her own business and she pays her personal house rent by taking the cash from her business. I've told her to speak to her accountant about tax implications but she won't because she knows what the answer will be and she doesn't want to know.

So many people like this, it's scary.