west*wales*news*review

West Wales News Review — analysis with a sustainability slant

Borrowings Look Unrepayable — More Closures Coming?

Shops closing, pubs shutting their doors, banks moving away: all too common in West Wales. For most people who are not the retired with final-salary pensions, disposable incomes are squeezed — and the extent of borrowing is at least partly to blame.

Consumer credit in the UK rose 12% in the two years to October 2015, to £177.078 billion.[i] If student loans are included, this colossal amount owed rises to over £250 billion – nearly £9,350 for each of the 26.8 million or so households.

This is not mortgages, or loans secured on property, but unsecured credit.

The total amount of loans outstanding to individuals, including mortgages and student loans, reached about £1.530 trillion, equivalent to over £57,000 for every household – very unequally distributed, of course.

Even if interest rates remain ultra-low, how much of this debt could be paid back? And should interest rates rise, how damaging would be the impact on households’ spending? Whether we like it or not, consumer spending is the pivot around which the whole economy spins.

PDR

[i] Bank of England Bankstats, table A5.2, November 30th 2015

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6 thoughts on “Borrowings Look Unrepayable — More Closures Coming?

  1. Sorry, the “canons of lending” were a list of considerations that had to be taken into account prior to making a lending decision – they went by the acronym CAMPARI – Character, Amount, Margin, Purpose, Ability, Repayment and Insurance.

    • This government seems dedicated to helping the already wealthy to accelerate away from the population at large — restricting access to mortgages, for example, then offering free ‘help to buy’ cash to those with incomes high enough to qualify, not to mention the discriminatory benefits cuts. Hard for me to understand why people voted for this!

      • “Hard for me to understand why people voted for this!”

        Most didn’t! But seriously, the paternalistic old fashioned bank / building society managers and their strict lending rules probably kept MORE people out of property wealth. The big changes came with the relaxation of mortgage multipliers and the move to buy-to-let as an investment strategy. I’d suggest that this had more to do with the inflation in house prices than anything else.

      • I remember when it was almost impossible for women to get mortgages, not the case now of course, as long as their incomes are high enough. But as well, new construction has failed to keep pace, or anything like, with the rate of household formation.

  2. In the “Bad Old Good Old Days” when banks still lent according to the “canons of lending” and didn’t sell credit based on some spurious credit score; when we called customers in to discuss their finances if they seemed to be having problems and before sales staff got paid bonuses for selling credit this wouldn’t have been allowed to happen. Payday lenders were illegal and their outrageous interest rates would have been identified as “usury”.

    On the other hand though, “debt” was embarrassing and people seemed to have a much greater grasp of it’s implications. We have ended up with a consumer driven economy driven by advertising and greed on all sides – both the consumers, the providers and the lenders – the facilitators.

  3. Sian Caiach on said:

    Well said, Pat. Quite true that the private level debt is frightening. Neither the public or private debts are likely to reduce soon . The political restriction on any real rise in interest rates this private debt causes, combined with low inflation leaves very little wriggle room for economic management by our state and bumping along the bottom seems the only path available. With no realistic prospect of economic recovery at least one of the economic bubbles has to burst in style. It seems to me that the least disruptive bubble to go in West Wales would be the housing one but it would certainly not be painless. Looks more like the commodities market collapse is more likely to wipe out the last vestiges of our heavy industry in the short term.
    If 2016 has any economic promise its well hidden!

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