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?

So you're saying that £4k per month, of tax free income, on top of free rent and whatever else you get in UC isn't enough to afford £1k a month in car payments?

If somebody is claiming all that in PIP/DLA/CA they'd probably have a household income of £7500+ p/m tax free, which is equivalent to earning £100k on PAYE.

Well I earn more than that and I can’t comfortably afford it, no.

edited to add- we’re also suggesting that a finance company will lend to someone whose only source of income is benefits, which certainly isn’t always the case

Yes, but you have to play the system. Martin Lewis has given lots of advice about it, as have other personal finance journalists.

Our son has had no problems with obtaining bank accounts, credit cards, contracts, loans, nor even motor insurance, because we've been planning for years for him. He's had his own current account throughout his teenage school years, and his own ISA as soon as he turned 18. We got him his own ultra cheap mobile phone dongle contract the moment he turned 18 - the phone companies aren't as "fussy" for the cheapest/simplest contracts without the finance for the phone itself. He got a credit card from the same bank as his ISA and current account as soon as he started his first job - based on his history with the bank. We got him to take out a couple of store cards for very small purchases with which he got a correspondingly small credit limit - whatever he buys (rarely) with them, he pays off in full to build the credit worthiness.

With the car insurance, we deliberately kept an older car when we'd usually have Part exchanged it, just for him to learn to drive and then keep for himself - insurance whilst learning was modest extra cost - when he passed his test, we put him on as a full licence driver and had to take a bigger hit, but it was still only £200/£300 because it was a family car on a multi car household policy, with full no claims history - he now has his own five years of claim free, accident free, conviction free driving which, along with full no claims bonus, means the car he drives only costs around £300 per year fully comp in total for all three of us family drivers! Also helps with the credit worthiness rating/history.

Made sure he registered with the local council to be put on the voters register as soon he he became eligible to vote. Every little helps!

When he rented his flat last year, no problem at all with his credit history checking. He got the lease, OK, got utility supplies, broadband, home insurance, etc all with no problem, no restrictions. Now got a suite of direct debits going out every month, no problem at all getting new bank accounts, new credit card accounts, etc. Very high credit score via Experian.

It's all about leaving a trail of "breadcrumbs" behind on your credit score showing that you've done nothing wrong and that lots of other institutions "trust" you which gives confidence to new institutions checking you out. We did it for ourselves and we've done it for our son. Worst thing you can do is not have a "trail" behind you of previous finance/contractual agreements because then the financial institution worries about just what you've been doing, why you've not needed any form of credit or finance agreement, etc.

But was a £100k Range Rover one of the options? It looks like a Kuga costs £30-35k, so the lease costs are probably covered by the motability payment.

I don’t know a huge amount about motability so happy to accept I’m wrong, but it seems unlikely they’d let you get a car costing £1400pcm. Otherwise surely everyone would just get a Ferrari or Rolls Royce.

Our son has had no problems with obtaining bank accounts, credit cards, contracts, loans, nor even motor insurance, because we've been planning for years for him. He's had his own current account throughout his teenage school years, and his own ISA as soon as he turned 18. We got him his own ultra cheap mobile phone dongle contract the moment he turned 18 - the phone companies aren't as "fussy" for the cheapest/simplest contracts without the finance

He's done all that had a current and savings account with Barclays since he was 16. Had a current account with Santander since he was 18 for university. Has his own car, pays all the insurance. Had his own flat for three years, is on the electoral roll.

It's baffling.

I highly doubt anyone on free school meals is getting approved for credit cards. You have to be on an incredibly low income.

I recently stopped working for a high street bank. For the most part, the people with the flash clothes, cars, bags etc were always in the most debt. Terribly so.

I initially found it really strange, but after being there for years I realised it's so common.

@Saschka to be fair I don't know what the limit is as I'd never have the upfront payment available - but there are definitely bigger & more luxurious ones than mine available! I'll go and look

@Saschka this is the highest advance payment but I don't know much about cars so no idea if it's good or not 😁

Debt isn’t always bad, or at least doesn’t always show the bigger picture. I think on a Harry and Meghan thread someone asked why they had a mortgage on their property when they could probably afford it outright and another poster explained the interest rates on the mortgage were probably less than what they were making on their other investments so it wouldn’t make financial sense to buy the property outright. For those of us with more normal incomes, debt can also serve a purpose. For example, if we borrowed £100k to renovate our property and the property increased in value by £300k then the debt is worth having as technically you would have made £200k profit.

The only other thing I would say is that business loans these days will also show as unsecured debt against the business owner as they require someone to personally guarantee the loan whereas I’ve been told previously they were happy to loan to the business instead (but probably cottoned on to the fact you could liquidate the company and the debt would no longer exist).

One of the accountants I worked for many years ago said something similar. By the time you have saved for something the price may well have increased, he said it's better to buy on a 0 interest plan and pay it off. My exDH (who worked at the same place) mentioned this quite recently - it's something we took notice of and haven't forgotten.

Of course that only works for people sensible enough to be able to manage the payments and not have too many things on credit at once!

I've always strived to get the max out of a house purchase but it's paid off. I could have probably raised my children in our first house but I wouldn't have as big an asset now. Some risk is healthy. My brother risked all his finances to start his architectural practice but he's rolling in it now. Playing safe financially isn't always a good strategy!

There is a lot to be said for being able to sleep at night. I just can’t do big debts. We have a household income of 117k plus bonus of approx 20k. We could have really pushed our house purchase but have stayed in our 4 bed semi. Our kids are now all teens/early 20 and the ability to support them through uni, buy them cars and still all go on holiday and do memorable things together without borrowing top trumps it all. We pay max into our pensions and overpay our mortgage. We have a company car and one decent car owned outright (5 yr old) which I don’t intend on changing anytime soon. We use a credit card for cashback but pay off in full every month. If the sh@t hits the fan for us work or health wise we will be fine. I can think of nothing worse than getting into debt to show off to others. I worked in financial services for many, many years and I have seen some horrendous situations created through trying to keep up with the Jones’s including repossessions and homelessness. The Instagram generation is under massive pressure to have everything. It’s very sad.

And here's me on the best salary of my life, no unsecured debt, but no deposit so can't get a mortgage.

Some of my neighbours are housing association and have much nicer cars than me. But the spend on a decent car loan will be far far less than saving up stupid money for a mortgage. And a car is achievable. I've paid my mortgage off but I have a crap car.

Company cars? Motability cars? People who live in council or ex council houses are perfectly entitled to both. I’m doubtful every house has two brand new German cars though, unless you live in Milton Keynes and they all work for Mercedes or VW, or Farnborough and they all work for BMW!

Lots of people who like the smell of their own farts on this thread

My husband doesn't earn 100k + yet he can borrow circa £7k on his credit card a month!! He doesn't and it was a bit scary that they had raised him limit that much.

I get it. But you can’t predict illness or redundancy. When I received a cancer diagnosis I was thankful that I hadn’t bought a new car for instance. My bathrooms and kitchen are 20 years old. I’d love to replace them but prefer having a bit of cash in the bank to not.

May be if the burden of the welfare state were not on those tax payers bracket? That is the middle class burden. Overnight they were facing treble mortgages amounts and still being squeeze with taxes like private school taxes to the tune of £6K a year. We were debt free until recently due to cost of living crisis we have used credit. No everyone is irresponsible and going on spending sprees. We have cut down to the minimum and still hard to catch up. Everything is up and people needs a holiday to survive this horrible weather. I do not judge all people in debt. It is a tough period and is impossible to create wealth in this country let alone be debt free. Now who is getting a pay rise after the budget?

Debt is normalised in this country. I have lived abroad and it was totally different over there.

I got myself into a pickle with debt when younger, very stressful but managed to pay it off. Now I don’t trust myself with interest free periods etc. So I buy outright, helps me sleep. It’s very easy for young adults to get into debt, if you have never seen your parents grapple with money.

I totally agree OP. But I think access to cheap 'credit' is now a fundamental part of our economy. I've been observing this since a kid in the 80s. Notice how they changed the language to make it more acceptable, so its credit, as opposed to debt!!
These companies make loads of profit from a consumerist culture that encourages spending at every turn. But that's capitalism.
I find it very hard to relate to, as unsecured debt would make me anxious, but its been normalised.
The figures you relay are shocking but I'm not surprised really.

Or for people who don't lose their jobs, have more kids, get sick, get divorced or develop an addiction of some kind.

On paper seems logical but life has other plans. We don't live in an accounting bubble.

There is a very big class/ cultural basis to this- working class people have always been terrified of debt and unemployment. Middle classes less so- and look at who controls the capital and generational wealth in this country

thats not to say that everyone should get into debt but having an awareness that being terrified to invest or leverage for fear of losing your job or getting a serious illness is very linked to culture and class, and a very good way of keeping that class in their box by those who control the flow of wealth.