From Cliff on the FOOL about borrowing in the UK
I get palpitations when I think how much money UK consumers are borrowing! Here's the gist of what I said in a twenty-minute interview on BBC Radio on National Debt Day (30 January):
* We are spending tomorrow's money today, which carries a high price. The FSA estimates that at least £1 in every £10 we spend is borrowed money.
* Personal debt in the UK has rocketed in the last ten years, particularly since Labour came to power. Last year, the Great British Public increased its debt by £106 billion, with total consumer debt hitting £934bn, made up of £764bn in mortgages and £169bn in non-mortgage debt. In comparison, Gordon Brown borrowed £27bn.
* Our total debt has increased every month without fail since April 1993 - 128 months in a row. Our credit card debt has gone from £10bn to £53bn in less than eleven years.
* By the autumn of this year, our total debt will have doubled to £1,000bn, from £500bn in May 1997, when Tony Blair became PM. So, it took all of banking history to get to £500bn and it should take roughly 87 months to double it!
* Our debt costs us around £5bn a month in interest alone. What's more, a 1% increase in interest rates could mean up to £9bn extra on our annual interest bill.
* The average existing mortgage is now roughly £67k. The average unsecured debt per household is around £7,800 - but millions of problem borrowers owe far more.
* Being able to meet the interest payments is one thing, but we have to pay off the capital at some point! This is made more difficult by low inflation and investment returns.
This spending splurge cannot continue indefinitely and, when the credit cruch comes, it will be painful. Look at what is happening in South Korea: news.bbc.co.uk and news.bbc.co.uk
There's no doubt that the impending financial diet we will be forced to undertake will hit banks, retailers and house prices hard. Those of us with no debts stand to benefit from the financial mistakes that other consumers have made. Sad, but true.
Forget BTL; I'm thinking STR!
All the best,
Cliff |
