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?

This makes a lot of sense to me. DH and I earn well but most of our income goes on the mortgage, bills and food. We have an old car and go on holiday within the UK every other year if we can afford it... however we don't have any debt at all other than our mortgage. But we see our kids' friends families with new cars and two holidays a year to exotic locations and wonder how they manage to afford it all. Maybe they're putting it all on credit cards and taking out loans and remortgaging?

Or inherited money, or won it or have other sources of income...

DH and I both earn £100k plus. We have just put a holiday on cc for £4k with 0% interest. We have the savings but in premium bonds and ISAs.

We each have around 3 credit cards with nothing on (bar the £4k).

My latest CC that I signed up for for the holiday has given me a £22k limit with 20 months 0%. We have credit cards with at least £60k limits should we need to.

I think it is dangerous.

Some people are just irresponsible and bad with money.

I had a friend tell me recently they’d paid for a three-week holiday on a credit card, and now had £18,000 of debt to repay for it.

Their justification was ‘the opportunity came up to go’.

Hard to fathom that kind of decision making really.

A few months out of work and someone could build up quite a bit too.

I earn 36k a year, get some universal credit and am eligible for a loan that would take me an exceptionally long time to pay back. It's wild it's even available to me. I only know about it because I got a credit card to pay for a holiday. The amounts available to people on high wages must be staggering.

Ex school friend of mine.. always had latest new car.. Best holidays to the Maldives and going on Safari.. skiing every years.. sons in private school.
Huge 6 bedroom house.
All in latest designer gear. She was a SAHM. Husband a GP.
I thought he must be earning loads.
Found out.. re mortgaged house a few times and had tens of thousands worth of debt.

This is really interesting and shocking to me. I grew up in a culture where you save then buy things you can afford. My parents never had credit cards they only spend within their means and always had savings.

I have bought a few cars in the past never once on finance, all are used cars. We have 6 figure salary but drive a 10 year old family car. We dont get take aways ( mostly because dont think they taste better) and eat out once a month usually in a family restaurant. We dont need credit cards but have one to boost our credit scores.

At my kids school I have seen other parents of kids who get free school lunch and on benefits drive brand new rangeover and jaguar etc. I did wonder how they could afford it.

I can understand people might have to split cost of appliances like fridge or washing machine on credit cards but I think its insane to get into debt to buy luxery items that you dont have to have. I remember when I was looking to buy myself a bottle of perfume that costs £200, I saw the options of paying it off monthly. I really thought it was wrong. I would never buy a beauty item if I cant afford to pay for it straight.

At my kids school I have seen other parents of kids who get free school lunch and on benefits drive brand new rangeover and jaguar etc. I did wonder how they could afford it.

you did not 😂 no family qualifying for free school meals gets loaned £100k for a brand new range rover by anyone.

the only possibility for all these parents you saw is that they’re criminals, but very stupid ones

I don't think it's hard at all .

£10 overspend per day -let's say lunch/ coffee X 7 ( averaging over 7 days to include a supermarket treat/ takeaway etc)

=£310 a month
= 3720 a year

A couple doing that is £7440 a year-it's on a CC
They make minimum payment.

Interest is added and month by month accumulates and soon they are paying interest on the interest
I'm sure someone cleverer than me can work out the interest but it's like a rock rolling down a hill -unstoppable.
That's £10 each overspend per day

Add shopping sprees,car loans etc

This doesn't surprise me in the slightest. Drive through the large council estate near me and every frontage features 2 expensive german luxury cars.
Many of these houses have been privately purchased over the years so these probably aren't all social housing tenants but these are low priced, very modestly sized homes - something does not add up with the £30-40k cars crowding the drives and curbsides.

I also think the credit card companies are pretty irresponsible in trying to lure people to take out more cards/loans etc. I have great credit and a decent income and I get several offers a week from cards and, even worse, my mortgage company trying to get me to take out a 300K equity loan against my house! I'm very risk-averse and hope that I will never have to do something like that, but I can completely see how it might be a temptation.

Maybe they didn’t have a big enough deposit or borrowing power for the mortgage for a more expensive house? Mortgage lending is so tough now

Of course I know that to qualify free school meals you have to have a really low income, this is why its a mystery to me. One of the mums claims to be single mum with 3 young kids and lives in a new built concil house. Apparently she does have a long term partner ( father of the 3 kids), so who knows, maybe its the partner who bought those fancy cars. The same mum went to the French Alps for a ski holiday last year.

@AquaPeer you get free school meals for up to six years, even if your circumstances change. So someone could lose their job; their kids become entitled to free school meals; then they get another job and start earning again. You would have to be pretty cheeky to keep claiming free school meals while driving a new Jaguar though.

If it’s high earners with higher debt then I think it’s proportional really, and high debt doesn’t feel like it matters so much when you are high earners. 100k debt when you’re on 25k a year is a much bigger problem than 100k debt when you’re on 120k a year.

It wouldn’t be that common for someone to go from “free school meals” to “income that meets the criteria for £100k car loan” in 6 years though, I’d say.

It astonishes me too - especially the car finance. It's one thing to borrow money to get a car that you need for your job etc. and I know for many people a car loan is the only real option. But no one needs a 60k brand new Mercedes... And yet so many people on modest incomes have similar.

I'm all for spending your money however you want. And I know many, many, people have to borrow money for a variety of perfectly understandable reasons (roof repairs, new washing machine, unexpected vet bills etc.). But I do find the borrowing for luxury items such as holidays or cosmetic surgery or weddings really strange and it gives me second hand anxiety!

Going against the grain here, but I wish we had put stuff on the credit card and maxed out mortgage 8 years plus ago.
Deliberately bought house not maxing out how much we could borrow. Our house is a tiny tiny 2 bed cottage and really want to move, but we can’t afford it as house prices risen too much since then. If we’d spent more then, would have got something where we wouldnt need to move.

ditto getting new bathroom (sticked with horrific one for years to save up) and sorting gardens (I’m embarrassed at how awful fence is and front is).

the cost of doing these things has gone up exponentially and can’t afford them now. If we’d put on 0 interest credit card years ago we would have slowly paid them off.

Yup, See it daily in my business. People see the credit limit on a credit/store card or overdraft as some kind of target rather than a limit. When they get offered another form of credit in store or online or a mailshot, they just take it whether they need it or not. Absolutely insane. When they finish paying off a loan, say, for a car, it doesn't enter their mind to just save the money for a while, they just "have to" rush out and get another loan/lease to "use" the money they'd otherwise save. The saying about "burning a hole in your pocket" is so true for some people.

My brother is a case in point. He got his first job in the late 70s/early 80s just as the rules re credit cards, loans, borrowings etc was being relaxed. He went mad. He'd go out shopping and get store cards or store finance for literally everything he fancied, whether electrical gadgets, clothes, car accessories, the works. Once he got the card/finance and he'd see his first monthly statement, he'd see the credit limit and, no joking, he'd go back to the store and spend it, whether he needed the stuff or not. Like I say, it was a target.

All he thought about was the minimum monthly payment. Nothing else registered in his mind at all. I saw his statements as we both lived at home at the time and he left his paperwork lying around. I saw immediately the interest being charged, barely less than the minimum monthly payment and realised the debt would never be repaid - I was only just a teenager at the time being six years younger - I could work it out, couldn't understand why he didn't care!

It's why I've never had any kind of credit nor debt. Except for a mortgage which we paid off within ten years. Well, tell a lie. There was one month when I couldn't pay off my credit card bill in full, so I had to pay half one month and then the other half the month after - the interest I had to pay on that one month really pained me but I had no choice as it was to finance a load of study materials and exam fees I had to pay (I self studied and self financed accountancy exams).

When I was on 27k, I was offered and would get ( I got cards, loan was juat click away):
10k 1 cc
10k 0% cc
5k 1nd cc
1500 x 3cc
50k personal loan

It is waaaayyy to easy to accumulate debt tbh. And mind me, this was few years back, not 2007.

Edit to add, I did have perfect credit score though

Its all relative, sometimes a bit of a juggle.

I've not got a mortgage but had to sort out a new car recently as changed jobs and lost my company car. So I've borrowed a few K over 2 years as a personal loan to allow me to fund half of a decent size 6 year old car. Can't go for a small old banger as have to get elderly parents into it.

All our savings have been invested into a house rebuild/renovation but that has then added £££££ of equity to a property that already has no mortgage effectively doubling the value of what we spent - on paper.

Now focusing on rebuilding some savings.

@Farmhouse1234 You make a very valid point - myself and DH have been told that we've been too cautious with money in the past by financial advisors and this has been detrimental - it's trying to find that sensible middle ground. But it does feel like we live in a very vapid society now where you have to surround yourself with big shiny things or you're deemed a failure. Another poster raised this already - we need to start teaching fiancial savvy in schools - it's so important!

By contrast, if you'd have borrowed more at the "wrong" time maybe just as interest rates rose (late 80s or early 90s) and got caught in a house price crash, you may have found yourself in negative equity, may have been forced to sell at a loss if you couldn't have kept up the monthly repayments or if your marriage broke down or you lost your job, and you could have found yourself homeless and bankrupt. Lots of people ended up in that position by buying at the wrong time and borrowing too much.

It's well and good looking back with hindsight at the actual circumstances of the timing, pricing and what happened in your personal life, but things could very easily have been very different.

Yes but this isn’t a particularly high income and the levels of debt we’re talking about wouldn’t be available to you anyway.

If they have a bigger house, the likelihood is either that they have higher incomes (to qualify for the bigger mortgage), or have had family help - I am always stunned by the number of colleagues whose parents gave them £250k for a house deposit (we’re in London so that would just be a deposit).

The cars might be leased, but might also be company cars. I googled, and apparently fleet cars make up 60% of all new car registrations. Not many drivers buy new cars outright.