Keeping up with the Joneses is a natural human instinct. The desire to own the same car (or better) as the bloke next door has played a proud role in driving productivity and economic success. But has the price of keeping up become too high? All those gizmos on hire purchase, all those pricey holidays, all those leveraged homes, are miring Britain in debt that, for some, is unlikely to be sustainable.
According to Citizens Advice, 750,000 homeowners have missed one or more mortgage payments in the past 12 months. This is a worrying figure, even if the survey is somewhat imprecise. Citizens Advice officers say they have not seen problems on this scale since the depths of the last recession. Many of those who have failed to pay the bills had taken on other debts before they took out a mortgage. And too many young people seem to be victims of their own excess. Thirteen per cent of 21 to 24-year-olds surveyed said that they had missed one or more mortgage payments in the past 12 months.
Last month Britain’s consumer debt stood at an impressive £1,200 billion. Some of that is destined not to be repaid. Between April and June this year, a record 26,021 borrowers filed for bankruptcy. Debt Free Direct, a debt adviser, has estimated that about two million people are facing serious financial problems. The Financial Services Authority believes that almost three million consumers face a constant struggle to keep up debt repayments. For people who are overstretched, even relatively small interest rate rises can be fatal. The continuing rise in the inflation rate, at 2.5 per cent last month, is adding to pressure on the Bank of England to raise interest rates again.
Yet there is little sign that these problems are changing behaviour. In June new mortgage applications rose to a two-year high. The recent slowdown in the US housing market, where sales have returned to 2004 levels, has caused barely a ripple. Debt is now so ubiquitous that it breeds a certain complacency. If everyone is doing it, goes the thinking, it must be all right. Some people are remortgaging again and again, and taking out new loans to cover the old, sometimes paying punitive rates to unscrupulous loan sharks or being lured into bad deals by zealous salesmen and their own ignorance. Fewer and fewer people seem to understand the consequences of default. About a fifth apparently misunderstand the term “secured loan”, taking it to imply protection for borrowers who fail to pay, not a right for lenders to seize assets.
The Citizens Advice report describes one couple in Gloucestershire who had remortgaged eight times, four times with the same lender, to secure debts of nearly £300,000. No responsible lender should have been party to such delusion; none should encourage endless borrowing by those who have become addicted to credit. But nor can lenders afford to be kind: the UK’s five biggest banks have been hit by soaring bad debts, collectively losing about £3.25 billion from bad loans in the first six months of this year.
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There is no need for most readers to panic. The end is not yet nigh. But when pondering the neighbours’ new roof and their glorious holiday tan, it is clearly wise to do the sums before signing up for yet another unsecured loan. Too many people are living on borrowed time.