Bad Credit Misery To Worsen In The Uk?


by Roy Thomsitt - Date: 2007-02-09 - Word Count: 571 Share This!

2006 saw another batch of consumer finance statistics that make grim reading. Bankruptcies rose, and with an estimated 1.4 million adults wallowing in £10k or more of unsecured debt they feel unable to repay, no doubt 2007 will be another bad year for personal bankruptcies. By the 3rd quarter of 2006, mortgage repossessions were up 15% on the previous year, and house prices rising inexorably throughout the year meant average house prices ended the year up more than 10%.

It is almost as if a bad credit record is heading towards becoming the norm rather than the rare exception. It is far from rare. All this means that consumer credit and mortgage borrowing is reaching dangerous levels, and there is no immediate sign of any change of trend.

However, perhaps the most worrying of all is the house price boom. With house prices estimated by some to be six times annual salaries, they will become beyond the reach of first time buyers and even separation victims looking for a separate home from their former spouses.

That means one thing; house prices will either slow to allow salaries to catch up or, if triggered by an economic event that raises fears in the mortgage market, drop suddenly and dramatically.

The housing market is no different to any other market. Stock market crashes are caused by a quick working virus of fear, which strips the market of confidence in a matter of days, sometimes only hours. Often, though, the signs of the fall are clear well in advance. However, with buyers caught up in the intoxicating air of never ending share price rises, they just get brushed aside; why stop the party? Prices will always go up... won't they?

No, they will not, and property can be very much like stock markets. A good investor takes their profits before, rather than at, the peak. But how many people in the UK will have the courage and pull out of the housing market before prices peak, watch the prices collapse after they have sold, and then buy in again close to the bottom of the cycle.

A professional property investor may sell up at the right time, but the average consumer will not. There is a stigma attached to renting in the UK that pervades the house ownership crazy population. Also, though, moving house not just once, but twice, is a pain. But for anyone with a plan to move or retire abroad, now could be a good time to go.

What will happen to the rest who do not sell? Those who have come into the market, or moved upmarket, recently will be caught out. As prices fall, they get dragged into negative equity, owing more than the value of the property. Their main asset becomes a liability. Then, mixed with rising interest rates to curb consumer borrowing, a new generation of homeowners become bad credit statistics, either through failing to pay their mortgage, or paying other debts due to the squeeze caused by their mortgage repayments going up.

I saw it all happen in the 1990 collapse, which saw the market for houses and mortgages dry up for 5 years or so. No doubt millions of homeowners are thinking it cannot happen to them. But if they check the address on their titles, they will find the address is in Cloud Cuckoo Land. Ask someone who got wiped out financially in the early 1990's due to the housing market decline.


Related Tags: debt, credit, credit counselling, personal debt, mortgage payments, overdue debts, mortgage repossession

This bad credit article was written by Roy Thomsitt, owner author of the Eliminate Credit Card Debt Now website. You will also find helpful information on consumer credit counselling in the UK.

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