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?

yep - this. Seen it before with disastrous consequences

I honestly think this is different to the way we are talking about how a lot of people accumulate debt. This must be hard and scary but it WILL pass - hang in there. You are not being stupid with money - you bought a home which is an asset which grows (normally) and the high interest rates and childcare fees won't be forever - hang in there. You are clearly working hard and building a future for your kids xx

Doesn't surprise me, I'm a debt counsellor. Whilst most of my clients are fairly low income, increasingly I've got clients who are on moderate to above average salaries (think £60-80k household) struggling because they owe the same as annual salaries in debts. Most have been sucked into paying monthly for pcp's, home improvements, furniture and white goods etc then borrowed for fancy holidays too. Unfortunately from conversations it seems that a big part is wanting new things all the time so replacing sofa after 5 years, car after 3, constantly renovating house etc. Most do sort themselves out but they need to accept that for 5 years they will be taking a caravan holiday, no new cars for 10 years + and live with the furniture etc you have only replacing things that break

But the OP- who is just working for a lender seeing loan applications- has assumed all this unsecured debt is frivolous. Whereas it’s highly likely to be taken out in the way grapefruitfrog has, or the way I have described adding unsecured debt to secured debt.
the posters on this thread are coming across as very sneery. Being terrified of debt is not to be applauded, it’s actually quite dysfunctional and probably has sad / traumatic origins.

I have no debts or assets.
I think I must be pretty unusual judging by this thread!

We live really frugally - more dh's choice than mine tbh! But I totally get how people feel pressure to update their kitchens and cars etc. I have a fairly old car with crap heating and no air con etc. I barely use it which is why it's OK. If I had a bigger commute as I used to, I'd really miss the air con tbh! Our kitchen has seen better days too and I do want to replace it.

It's hard not to feel pressured about things like this. I don't want to feel a bit awkward when people come over and see my old kitchen etc. But, tbf, we don't have any debts and will be mortgage free soon-ish. Definitely will be before we're 45, which was the goal. But there's still a voice in the back of my head making me feel a bit shit when I see other people's houses and cars etc. But I've learnt to tune it out. If dh was more spendy, we'd probably be way worse off in the longterm

I don’t get this magic goal of being mortgage free in a tip of a house. We don’t have a mortgage now and lived within our means but I always had a decent kitchen! It’s a balance between having a mortgage and living in a house you like. Life does need to be lived and not every penny counted for a mortgage free existence. We, like many people took out a mortgage in our 20z and paid it off after 25 years. In that time we earned a lot more and improved houses as we went along. We have always paid off credit cards and never had other loans but DH’s business bought cars. We were never frugal and didn’t need to be and I’ve enjoyed myself!

My kitchen is about 14 years old, so it isn't awful and my house is not "a tip" thanks . It just isn't fancy.

I'm only trying to empathise with people who overspend and not sound too smug. I'd rather be mortgage free now than have a new kitchen every few years or whatever. But thanks for your unnecessarily snarky and personal comment. You are delightful

You're completely free!

Freedom is both scary and wonderful.

And @tizerorfizz I'm guessing since you enjoyed yourself, had a right larf with your shiny new kitchens etc and are mortgage free that it's been a long time since you experienced the insecurity of having to rent in an increasingly hostile market. So frankly, you can do one with you bitchy, outdated, ignorant views 👋

I think a lot of the constantly replacing things is that people don’t look after things. A carpet or sofa could easily last 20 years and still look good as new but only if looked after, I.e. regularly vacuumed and cleaned, spills cleaned straight away, no jumping on sofas, shoes off household, but a mixture of being busy and general can’t be bothered itis means they look fit for the tip after 5 years. Same with cars, no reason why they cant last the average 13 years but some people drive badly and don’t have them serviced properly so their cars need scrapping after 5! If people looked after things they’d last longer.

Agree with everything you say but nobody is saying this. I think wires are getting crossed about what debt is and what it's spent on and the ability to pay it back

@TizerorFizz I think that's correct but one problem is that I guess you've had a pretty stable set up- I think debt easily occurs when you suddenly find yourself with a champagne lifestyle/beer money wages partner and trying to appease/keep up ( doesn't always start like this) or relationship break up, job losses and a few months between jobs, business failures , ill health, necessary house moves if renting ( deposits needed each time, move costs) etc- it's not always about new sofas, cars, kitchens, holidays

@Crikeyalmighty Yes. That is true and it’s true for most of our friends too. We have had stable lives although we had a financial shock in 08/09 like many others and business for DH was incredibly tough. We lived off savings and did have high outgoings. Luckily we are savers . However I totally acknowledge setbacks in life can change finances. I was really talking about being very very careful and not replacing a kitchen you are ashamed of to be mortgage free. That’s what I don’t get.

@JalfreziAndNaan I have not had multiple new kitchens. We installed a very good one 15 years ago and it’s not aged and looks great. I don’t have issues with guests seeing it. I also do not need the latest kitchens! We now have a boiling tap but we reused fridges, freezer, dishwasher and ovens from previous kitchen. One oven has bitten the dust and the dishwasher and one fridge. All got to 18-20 years old. However we would have borrowed to increase the value of our property.

I don’t agree with high borrowing to keep up appearances. I also believe in living a good life and enjoying it if I can and not making too many sacrifices so mortgage free is achieved very early. None of our friends did this. There is a balance to be struck.

I agree that a fear of debt is unwarranted if you're a good earner. I've always been comfortable with debt since my student days. Took out all the student loans, then a postgrad loan, and I've lost count over the years of the loans, car leases, credit cards, 0% deals on kitchens, sofas, furniture etc as I've moved up the property ladder, married, had kids etc. Now we're in our forever home and I would say it's fairly modest but we've released equity to extend, replace the kitchen, build a garden office etc.
I have friends on similar good incomes who are scared of credit which I've always found bizarre. But all I have now is a small credit card balance (on 0%) as everything is always repaid in time.
We've never lived outwith our means and have always used debt to our advantage.
But there will be a lot of people out there who aren't using it to build wealth, rather to keep up with the Jones. And that's an issue.

@Heatherbell1978

I have friends on similar good incomes who are scared of credit which I've always found bizarre.

It's often a mentality issue. Same as people who can't touch a drop of alcohol or smoke a single cigarette if they've previously been addicted. Even binge eating and presumably drug taking. Some people are just genetically "wired" differently and can't control impulses. Having a credit card at all means some people just wouldn't be able to stop themselves spending whereas with a fixed bank account and no overdraft facility their impulses are controlled. Just as an ex-smoker would find it impossible to walk around with a pack of Benson & Hedges in their pocket and not smoke them!

Avoidance is often the best way to deal with any kind of addictive/obsessive behaviour. A bit like keeping sweets out of the sight of a child. People with healthy minds won't be able to understand the lack of impulse control, but it's a very real problem. If it wasn't, we wouldn't have addicts, we wouldn't have obese people, we wouldn't have as many bankrupts etc.

Unless you've worked with "addicts" or have been one yourself, it's hard to understand the lack of impulse control.

I didn't say I was embarrassed for friends to see my kitchen. I said I understood the pressure to have the latest kitchen. You are either willfully obtuse or as thick headed as your first "house a tip" classic out of touch, outdated comment implied

It wouldn’t get you a one bedroom ex council flat around here 🤷‍♀️

@TizerorFizz I agree with you on that- we've got an extremely serviceable and nice 21 year old sofa- was top end John Lewis at the time and had the seating cushions restuffed about 9 years ago- but I really don't get an obsession with being mortgage free but living in a bit of a craphole- we have a very elderly relative who lives in a very cheap rented housing association studio flat in a total craphole of a town and has around a million in the bank- never had holidays, no nice furniture - no kids to leave it to etc - I kid you not. We just don't get the logic at all .

@Crikeyalmighty I think some people have no idea how to enjoy themselves. I have met lots of people who travel, have a modest but lovely home and have friends who enrich their lives. Maybe not £1m in the bank but much more interesting people.

Not quite sure why I’m out if touch. With whom?

I volunteer as a debt counsellor and unfortunately high levels of unsecured debt and the temptation to consolidate and add to mortgages has been normalised in the last 30 years. The key thing lenders look for is affordability but unfortunately sometimes life happens and what is affordable one month may quickly become crippling financially if divorce, death, redundancy or illness strikes or even a new baby or loss of overtime. Budgeting has become a dirty word and high earners in particular tend to be blasé about overspending. I am not sure regulations is the answer though. Financial discipline is the way forward and better attitudes to spending and saving.

Neighbours both retired at the same time. They've taken the lump sum allowed from their pensions. Spent it gutting their home, complete renovation inside, walls down, fabulous new kitchen, incredible new ensuite bathroom, ditto the main bathroom. All new flooring throughout, a beautiful conservatory. The outside every wall had kRend , landscape gardeners in. High walls all around and electronic gates.

The thing is it's was a £300k bungalow on a small plot.

I don't think it's smart to blow that much when you're lucky enough to have an index linked pension. Especially when you're able to retire early.

We never know what life is going to throw up in the future.

But I am a timid mouse.

@TizerorFizz you def aren't out of touch- i think the poster who said that totally misinterpreted your post

We had an uncle that bought a house in the early 60s in a very scenic part of the uk but lived extremely frugally. He never went anywhere, he never spent anything. He was proud of his ability to save. However he wasn't a particularly happy person. He died with excessive savings but I don't think that was a healthy attitude to living. Just like I don't think excessive spending is.

I'm not surprised to hear this. I have a friend in a huge amount of unsecured debt and nothing to show for it, must be a really scary and stressful situation. Social media must be a huge driver of this however when in a relationship how does it get this bad when there's two of you?! Surely one should challenge and have some responsibility.

I wish children were more widely educated on finances.

Imagine how much some of these people would have if they drove an older car, owned outright for say 10 years and instead invested that £500 car payment amount into an index fund.

We have near 100k available In credit cards and overdrafts between us, which could de spent in a blink. Luckily we invest and hold more in cash than any small debts.