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?

I suppose she has the absolute cheek to want somewhere to bring up her children 🙄

For goodness sake. Talk about twisting what I'm saying. You clearly have a very relaxed attitude to debt. Well done you. But the poster said herself she's sinking into debt. So it's obviously not working out great for her.

OP is seeing people applying for loans to cover their credit card debt, though, so it's unlikely they're gaming the system this way (which I agree a very organised person can do).

I was very in debt until about 10 years ago despite being a high earner. In my case it was to bail out a family member who couldn't borrow for themselves. (Spoiler alert: it was because they were terrible with money!)

I did work it all out over time and am now completely debt-free, including mortgage. Credit card is paid off every month in full. But there are lots of reasons why people get into debt and it can be very complex.

It has left me very debt-averse. I remember a friend last year telling me I was mad not to get a mortgage on my house as interest rates were so low I could just invest what I borrowed and make a profit, but after years of huge financial anxiety and finally becoming mortgage free, that is not a game I want to play with my house.

No I think you just vastly underestimate the impact current interest rates have on younger buyers. They could have put down over a 15% deposit and the repayments would still be 2.5k.
It’s literally maths, what are you struggling to understand? Your own mortgage is irrelevant.

@Completelyjo I understand it perfectly. Thanks. The poster has taken out a huge mortgage. She's now in a position she's getting into unsecured debt. And by the sound of it, it's getting worse. So her mortgage is unaffordable. I didn't realise this was the situation for every first time buyer.

Nope try again.
A 410k mortgage on 5.2% with 25 years remaining is £2445.

@Completelyjo ah only £410k. I stand corrected. That's a tiny mortgage🙄

I can see how you can do it easily. I have 4 credit cards and my total limit over them is £61k. I’m pretty risk averse and don’t use them much at all but if I did I could easily have £61k unsecured debt plus my PayPal credit limit (I like being able to split big items over 4 months for no extra cost!) is about £5k and I have a very account about the same so there’s over £70k available debt at my fingertips right now.

Well it’s nothing like the poster taking a 100% mortgage on the value of her home as you tried to suggest. Saving a deposit of around 75,000 to put down as a deposit is a huge number.

@Completelyjo £410k is a huge mortgage for a first time buyer regardless of the size of the deposit.

Increasingly, people have to choose between quite high rents that pay off someone else's mortgage, or quite high mortgage payments that pay off their own.

We’re on 70k combined income and saving each month. These high income high debtters must be shit with money or in thrall to consumerism.

I owe in total £16,900 plus 4 mortgages.
So sounds terrible but it's for building work to do up the houses plus some very high expenses for one of my sons.

I hate owing that much but it's part of a longer term plan. The plan is for me and my 2 sons to have a house each and I'll sell the 4th one, which is a money pit and I think I will break even when I sell it. Various things have not helped me pay off the debt any faster eg my mortgage payments have gone up hugely.
But the debt is going down by £850 a month. I have a pension worth a lot and I'll have my mortgage paid off by the time I retire.

I drive an old car. I have a lodger to help with money. I have a really well paid job. I'm a single parent to 2 teenagers and I have spent a lot on both of them, which I think of as an investment in their futures but I still hate that I owe this money.

So I can understand how it can happen and it isn't necessarily irresponsible spending. Eg 8 grand of mine is for a drainage issue for my house so was literally unavoidable.

A lot of people just want stuff NOW. A colleague of mine had been borrowing money for the last 20 years for cars kitchens, decorating, top of the range furniture and he smoked 30 a day. This year I heard it all spiralled out of control and he killed himself leaving wife and 2 kids behind.
I don't have any debts at all other than 20K of mortgage left. £500 goes into savings each month and if I need something I save up for it. There is no overspending here.
My ex husband went crazy after he left me too. He just went wild spending and racked up 100k of debt in 4 years. He has no mortgage and rents and just this massive debt. He will have to go bankrupt I think. I can't live like that.

Wow, I'm pretty shocked by this.
I've never borrowed money for anything but my mortgage. I use credit cards but they are paid off every month. I'm a high earner so I'm lucky enough to afford the essentials and additional stuff too so I guess I've always felt I don't need to borrow.
But clearly plenty of people do it anyway.
I get sent offers of credit cards but see them as junk mail.

Almost - we could only put down a 5% deposit. It was about weighing up the evils of £2,500 / month mortgage versus the same in rent… my husband has always been very anxious that we become homeowners.

@GrapefruitFrog what part of the country are you in? Is it a house you'll be in long term? It's a big mortgage debt but childcare costs aren't forever. Hopefully you're claiming your tax free childcare on them to help a bit.

£100,000 income is ok for a £400,000
mortgage. London salaries are this. Parents give a deposit or high income person saves.

I am not comfortable with any debt whatsoever. If I want something, I save & do without until I have the money.

This is shocking.

Also two people can save together and get a joint mortgage for £400,000 plus. It’s not unusual.

@StarDolphins so you don't have a mortgage?

No I don’t. I did have one but I hated it, overpaid every month until I paid it off very early. I’ve stayed in my small but perfectly adequate house!

Thank you for your lovely message and other messages of support. I’m already aware of how dire my situation is, but thanks to others for confirming! 😂 Look, yes we did have kids and buy a house at the same time but it was either buy the house now or risk doing it later when the interest rates might be even worse. You’re right, it won’t last forever and we just need to stay focussed on that. Hey, the upside of potty training is no longer having to buy nappies. Silver linings…

It also takes no account of external factors that are purely random.

Such as people buying property just before a crash.

Or people starting an otherwise viable business just before a pandemic.

The vast majority of “successful” people owe a significant part of that to pure luck.

Often a lot of unsuccessful people would have been fine at a different point in time.

Of course, the successful ones never acknowledge that, they think they’re brilliant and the unsuccessful ones blame themselves and not the external factors.