Tuesday, March 18, 2008

Who's to blame for the personal debt crises?

I listened, somewhat bemused, to part of the Radio 5 phone-in on personal debt this morning. (I know I shouldn't but R4 was crap and I had forgotten my iPod).

It was amazing how many people wanted to blame irresponsible lending and exonerate those who had got themselves in to massive debt they couldn't afford to pay back. What was worrying was that seemed to be the line of the presenter and the guests in the studios.

Well I have little sympathy for those who ran up massive credit card debt and wanted to scream at them all; so what if the credit card companies want to give you a credit card that has a limit of your annual salary, it isn't compulsory to use it. So the bank wants to lend you the money to buy a house, if you filled in the forms correctly and looked at the amounts you must have been satisfied you could pay the monthly sum, otherwise you wouldn't have taken out the mortgage, would you?

Yes I know some people were duped in to taking out mortgages by unscrupulous brokers; to which the response has to be - if it sounds too good.... and your gripe is with them not the industry, per se.

Lets consider what these people were asking for when they said they wanted a return to sensible lending. I took out my first mortgage in 1976. Before I could have the mortgage I had to have a 6 month savings record with the building society, then I had 2 grilling interviews with the manager. He quizzed me on my lifestyle, especially drinking, holidaying and cars (I didn't have the latter). He wouldn't take in to account the fact that I was fast tracked in the Army or that I had overseas allowances. In the end they would only lend me 2.5x my salary on an 80% mortgage, and that was a good deal. (To be fair it was the best lesson I ever had and I've never borrowed more than that since)

We should also consider the bad example set my our current PM and erstwhile Chancellor. We all know that during good times sensible people save for a rainy day and we were constantly being told that we had the sound economy and that all was well. I agreed and during the past 10 years or so I paid off my mortgage, despite working for a tech company that went bust during that period. So what did our Government do? They spent like drunken sailors who never been in ashore before and thought they only had a day left to live. Not a penny saved for a rainy day and now we are borrwing ever increasing amounts just to keep the ship of state afloat (to complete the horrible metaphors).

So now the "belt tightening" starts and does anyone expect our lords and masters to set a good example and start trimming govenement spending? No, I didn't think so.


markc said...

There's a massive amount of bullshit being talked by meejah types like John Humphries (I wish that man would retire - he's way past his best) and by gob-on-a-stick politicians. On mortgages, it isn't necessarily the case that lending 100% or even 125% is "irresponsible"; it's only irresponsible if there's reason to believe at the outset that the borrower may not be able to pay it back. 125% loans have put thousands and thousands of first time buyers quite handily onto the property ladder - especially in Scotland where the so-called "wonderful" Scottish purchasing system is based on "offers over" and so, in a buoyant market, a buyer might be bidding tens of thousands above the real value of a property in order to secure it. The lender will lend on the value, or purchase price, whichever is the lower; first time buyers with no equity to roll over are effectively barred from the market in the absence of 100%+ loans. And that will inevitably drag prices down until until the dimmest ranter can see that they're suffering as a result.

On credit cards, yes, I too have little sympathy; I've yet to see a card issuer employ large gentlemen whose job it is to force people to use the card. On the other hand, I've seen some examples of outrageous credit-limit granting and the industry hasn't covered itself in glory by reducing minimum repayments from 5% of the balance to, in some cases, 2% - which barely covers the interest and so the capital is effectively never repaid. Great for the lender, bad for the borrower. The practice of constantly upping credit limits as borrowers increase their balances is dodgy, too, in my book - but I don't think the government should be writing the rule book on how much we can borrow.

A major issue on debt control, to my mind, is the business of banks targeting their staff to sell products; if someone approaches their bank for "advice" because their finances are getting overburdened, the bank clerk's first thought is getting a tick in a box for a credit limit increase, or a loan - not sorting out a problem for someone (not that they're in any way qualified in terms of common sense or intelligence or life experience to be able to advice anyone on anything, for the most part). If they get the tick in the box, they don't get a phone call from some jerk in an office somewhere, demanding to know why they haven't sold 3 of this and 4 of that this week.

As for the good old days of "prudent" lending - yes, I remember having to tremble before some High Panjandrum to get a mortgage. I remember being told it'd be 3 months before I could have one, and not being able to buy the house I wanted as a result. And people want to return to that? Jeez. They probably want to return to holidays in Blackpool, too, and dying at 65. For my money, they can all piss off!

Sorry it's a long drivel - but it's a range of subjects I have a detailed knowledge of. And no, I don't work for the National Bank of Crock.......

Mark Wadsworth said...

Totally agreed. Your sailor metaphor is spot on! As somebody posted elsewhere "We are up shit creek without a paddle or a lifejacket. Or even a boat". Just to round off the metaphors properly.

The Great Simpleton said...


You raise some good points, 100% or even 125% mortgages are OK, as long as people understand they are gamboling on hoise prices rising and the same with their salaries.

One issue I didn't raise was those who remortgaged and used equity release to spend money on cars, holidays or other frivoulous expenditure when times were good. I have spent some time looking round to find out how many or the value. Anyway, this is another group i have no sympathy for if they are starting to experience problems now.