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?

One of my colleagues (a few yrs older than me) bought a flat with an interest free mortgage on 95% LTV & used credit cards to pay for fees. She tripled her money when selling.
i know someone with 1m interest free mortgage but they put down 800k, & see it as renting plus their house has increased in value.
Debt isn’t always bad, I will chose 0% finance for things & leave my savings where they are.
Lots of new cars are company cars.

the problem is as a soceity we have lost the link between earnings and possessions. people think that because they see someone else with something that they should have it by right. we have become way too materialistic. I am constantly staggered that on our local gossip girls facebook group huge numbers of posters plead poverty then post about how their just eat order has been delayed. the state always steps in and always saves people so they just keep on spending knowing that this safety net is and always will be there.

Or they simpy earn a lot more than you do. Your joint income would be considered very average in a lot of the UK.

I only commented to a colleague a couple of weeks ago that I'd had three emails that week encouraging me to take out loans, significant amounts - £7.5k upwards. I'd been pre approved apparently.

I thought that the banks had learned lessons, but obviously not.

I've only ever had a traditional bank loan, unsecured, for a car. In the past I would pay ½ or ⅔ and get a loan from my bank for the rest.

A lot of people have huge equity in their house so they don’t mind using it &/or assume the housing market will always be strong.

Plus many people have family wealth so a safety net.

the problem is as a soceity we have lost the link between earnings and possessions

this would be down to stagnant wages & inflated assets tbh. It’s very hard to earn your way to a good life these days.

As a pp pointed out, if you're being very sensible with money it often makes sense to borrow rather than save.

I've paid for our recent holidays on a 0% credit card rather than with savings, as the savings are earning interest. I'll then pay it all off before the interest free period is up, having earned 5% on the savings in the meantime. You also get extra credit card protection which makes it doubly appealing.

This obviously isn't the same thing as getting huge loans for new cars/sofas/whatever, but it does illustrate the point that being in debt doesn't always mean you're bad with money - it can mean quite the opposite.

Eh it’s very easy to judge when you don’t know the circumstances.
At one point DH and I were comfortable but not crazy earners with joint income of about £120k and non mortgage debt of around £100k.
The horror!
How irresponsible.
Why couldn’t they just pay out of their savings when the take home of £100k must be a million pound a month.

In reality we had a 200k mortgage in London, the cost to move up the ladder was about 300k possibly 400k and instead we increased our home by a bigger amount and made it exactly how we wanted with about 150k. Financed a third of it from savings and borrowed the rest. Outgoings still significantly less than if we moved.

To the PPs talking about large cars outside modest houses, could it be tradespeople who take contract work: so you work on a building site for 20 months building new houses, then move onto a new site somewhere else on a new contract. The bank doesn't see you as a good bet for a large mortgage as you're not permanently employed, but you have plenty of cash/ bonuses/ cash in hand work to afford a new audi/ pickup etc?

In the situation you describe, @talks2much, they're looking to replace unsecured finance with secured. They shouldn't do this if they can afford to service their other credit - because the unsecured lenders can't take their homes away, whereas the mortgage lender can.

I'd bet that most, as a PP says, have used the unsecured finance to pay for renovations and improvements. You used to be able to get additional mortgage finance for that but, these days, lenders will only assess the property on its current value. Home 'owners' have to source the funds elsewhere and then apply for the increased mortgage - or do the same by moving to another property that's already been improved.

We are one of them, we earn far more than 100k but I've had to have 3 life changing surgeries back to back for a medical condition that the NHS wouldn't pay for, if left untreated it would seriously have impacted my life and my future , so I had to pay private, we are now the proud owners of 70k ish of debt thanks to my health, we don't overspend or show off, so maybe some of those high earners are like me and had no choice but to use cc/loans for something life changing/medical emergency

I appreciate you said it was a forced purchase due to the previous one dying, but I got a Bosch freezer (1800mm x 600mm) on eBay for £130 (£650 new). It was only a couple of years old and was being sold due to a bereavement/house clearance.

There are so many people that discard nearly new appliances when they get a new kitchen - especially in wealthier areas.

Thinking about it, they're probably the same people with mountains of debt.

I was at secondary school in the late 70's and we never learned anything about loans, debt or interest rates then either. My parents were very keen on only buying things once you'd saved up for them, and they never had any debt at all. They instilled that in me. It would be good if schools could get the message across, but people would probably take little notice anyway.

Interest free mortgage?

The mind boggles. You must mean interest only mortgage.

And yet here we are back to square one.

All those industry reforms haven't stopped the irresponsible lending. We still have excessively high levels of unsecured lending that are if not exceeding, match annual salaries. That is irresponsible on the part of the banks however much paperwork they produce to provide an audit trail of checks.

The FCA is about as effective as the SEC was during the Madoff scandle. Just look at how it failed investors in the Blackmore debacle.

If the new budget creates the chaos expected in businesses, then people will lose jobs and suddenly those bills can't be paid.

I was in debt in my 20s and I lived incredibly frugally to be able to pay it off. It completely changed my relationship with money and led to me educating myself about personal finance in general. I agree with PPs, not all debt is bad. We have credit cards and use them all the time for the extra protection and rewards. They are paid off in full every month. We always make use of 0% finance and spread it over the longest periods possible.

As for other people, well everyone has a different appetite for risk. I know a very wealthy couple who got incredibly rich off the housing market. They borrowed big, sold off some land, borrowed against the house to buy a different property which they then rented out as an Airbnb. If houseprices hadn't have increased like they did in the early 00s they'd have gone bankrupt.

When we moved our mortgage to our bank, she was surprised we didn't have a car loan, and masses of unsecured debt.

I don't have a fancy car, it's 11y old and needs to go till it dies.

I would like to have more savings, but we enjoy doing our hobbies and they are expensive.

Having zero debt is as a symptom of low financial literacy as having high debt. Debt is either good nor bad and often having it and being able to manage it can be positive. Eg I began to invest while I was in debt. I kept my debt payments manageable and invested a huge portion of my salary regularly like a bill against financial advice of the time. I’m so glad I did because I managed to build up a pot £50k in the 3 years it took me to pay off the loan and I’ve never needed another loan since.

I would love an interest free mortgage! Not sure what would be in it for the bank though.

my business went down in revenue during covid so i couldn't get a mortgage

the mortgage i wanted was 100k, the other 400k i was paying cash.

i didn't want to take money out of the 200k in isas that i had

borrowed it off my business instead

this is how stupid things are.

@blueshoes yes, must have autocorrected but you knew what I meant so no harm done.

Well done, I made slightly less than 50k in interest off my savings and increasing investments last year, and I have no debt.

In David Copperfield by Charles Dickens, Mr. Micawber famously advises on financial planning with the line, "Annual income twenty pounds, annual expenditure nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty-pound ought and six, result misery"

I've had a credit card since 1978. Paid off every month on time. Husband name on the bills. No mortgage, a lot in joint savings. I've been turned down for store cards, mobile phone contracts forever. Because I don't have a good credit footprint. Finally was accepted for a mobile phone contract £8 a month from Tesco.

My son is having the same issue at 23. His footprint is bad too. He's never borrowed a penny until last month he applied for a credit card. Supposed to be a soft search but it's hit his credit rating.

It's a weird system.

Having zero debt is as a symptom of low financial literacy as having high debt

This is true but it's something many people struggle to understand. My mum, in her late 70s, thinks it's a badge of honour never to borrow money at all. Even though she understands the maths behind being financially better off if she puts big purchases on credit cards while amassing interest on savings, she won't do it out of pride/ stubbornness/ what she would call her working class values.