UK families face a black hole of debt

29 November 2007
UK households are facing an increasing challenging financial situation after a study published today revealed that more than one in three people are worried about the uncertainty of Britain's current economy and 15.3 million consumers feel they are in a financially poor situation.

The report by uSwitch.co.uk has shown that the average person in the UK now sees over half (53 per cent) of their monthly take home pay eaten up in debt repayments while 35 per cent goes straight out to cover mortgage payments and 18 per cent get consumed by other debts.

Consumer confidence is crumbling as the reality of the ‘credit crunch’ starts to bite particularly in the wake of the Northern Rock fallout coupled with interest rate uncertainty and a slowing property sector.

Now 15 million people claim to feel financially worse off than ever before which is having a knock-on effect on people's aspirations. More than half of consumers say that now is not the time to make life-changing decisions such as making a career change, getting on the property ladder or starting a family.

According to the study, more than 10 million Brits now acknowledge that they can no longer sustain their current level of borrowing with some 9.5 million consumers admitting to having maxed out on at least one source of credit over the last six months.

One in ten think that they won’t be able to pay all their household bills on time, while six per cent may have to default on credit card repayments and a further three per cent believe their home is at risk of repossession. In fact, according to the Council of Mortgage Lenders, 45,000 repossessions are expected next year and 170,000 homeowners are expected to be three months in arrears.

With the figures for write-offs on unsecured lending going from £3.8bn to £6.6bn, and write-offs on secured lending rocketing by 715 per cent from £20m to £163m between 2004 and 2006, all signs now point to the grim reality that the credit bubble enjoyed by bother lenders and consumers has well and truly burst.

From January to June, total write-offs reached £3.7 billion, which is almost as much as the combined UK retail profits of £4bn made by the major high street lenders, HSBC, Barclays, HBOS, RBS Group and Lloyds TSB in the first six months of 2007.

Now banks have clamped down harder on lending. This has been evidenced by the fact that six per cent of consumers have had their credit limits cut while 38 per cent of the 7.2 million credit card applications were refused in the last three months alone.

Ann Robinson, Director of Consumer Policy at uSwitch.com, explains: “This is crunch time for consumers and it couldn’t come at a worse time of year. In the run-up to Christmas, traditionally one of the biggest periods of consumer spending, people are feeling less well-off and are worried about the future.

"They are concerned about their jobs, their homes and their ongoing ability to manage their debts and bills. The days of easy credit and the ‘buy now pay later’ culture may be numbered, but they will leave a painful reminder for those left struggling with debt."

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