Friday, May 06, 2005

Record Bankruptcies In The UK

A pair of BBC reports tells the tale of debt overwhelming the British economy. "The number of people going bankrupt in England and Wales has hit another record high during the first three months of 2005, official figures show."

Steve Treharne, head of personal insolvency at KPMG said, "It is interesting that these statistics are released just over a week after official government figures reveal there has been a 35% increase in mortgage possession actions on the same period last year."

Kurt Obermaier of the Credit Services Association noted, "I think many people have spent too much on their homes and if something goes wrong in their lives, such as they lose their job, they can find themselves in problems very quickly."

"Worries about debt levels have been growing and accountants KPMG said a 'black cloud of debt' hung over the UK. 'These figures do prompt the question of where this is all going to end,'" said Treharne.


At 1:18 PM, Blogger John Law said...

like you said, Europe is ahead of us by 6-12 months. no wonder Europe stagnating. no wonder they're saving. they're in debt. some savings glut, mr bernake.

At 1:46 PM, Blogger Stefan Avalos said...

I live in SOCAL, so the buying mania has really hit like a virus. Of course, one feels like they're missing out if they're not in right now... The hype can certainly be nerve jangling.

This makes reading about the UK a great thing. It's kinda like being in a time machine and zipping to the future. It's a great way to soothe the nerves.

At 1:50 PM, Anonymous Anonymous said...

What a lot of people don't mention (or maybe don't know) is that in Britain over 90% of mortgages are adjustable rates, so as interest rates rise a lot of home owners start to feel the pinch.

This is going to be exactly what California looks like. ARMs now represent about 80% of all purchases in CA, and while many of them are fixed for the first few years, they will adjust at some point.

In england when you qualify for an ARM, they don't look at the monthly payment but a multiple of your income (since the payment isn't fixed) in the US where ARMS were fairly rare up until a few years ago they use the same qualifying method as a fixed rate mortgage, this is going to make the problem much worse as and when interest rates rise, since people will have taken on more house than they could possibly afford.

Keep an eye on England, I think it's going to be a good example of what's in store for the west coast.

At 2:11 PM, Blogger Ben Jones said...

1:50 Anon,
Very interesting, thanks.

At 2:45 PM, Anonymous Anonymous said...

I think that the market will decline sharply and swiftly even if rates are lowered Shiller related, people may just collectively (finally!) decide they're done, that prices are too high (irrespective of rates and snake-oil financing) and realize RE's maybe not such a great investment and/or bargain anymore.

The delerium wears off at some point and folks are going to just walk away from the craze. Ever see a mob get worked up?? Whether it's an angry mob, excited mob, or whatever, they all eventually get exhausted, come to their senses and walk away.

This thing's pretty Global and creepy. This could be the Japan RE market backslide on a much more widespread scale...I feel better watching from the sidelines with a little gold in my pocket at this point. Many investments on paper may not look too sexy years down the line if it gets real ugly.

At 11:11 PM, Anonymous ukok said...

Gadfly John Gray wrote a scathing indicting of Britain's addiction to debt in The New Statesman. Sounds familiar.

Key passage:

"The denial of awkward facts is pervasive in British life, and is shown in the failure to address rising levels of debt. One of the paradoxes of Labour's embrace of neo-Thatcherite orthodoxy on the virtues of old-fashioned public finance is that it has gone hand in hand with the encouragement of a post-modern culture of reckless private borrowing.

"A considerable part of the general prosperity of the Blair era has been fuelled by credit-card debt and home-equity release, and a "live today, pay tomorrow" mentality has become deeply ingrained. For many people - including students paying their way through university - debt has become a necessity, but for many others it has become the means whereby a standard of living that cannot be justified in terms of earnings is kept going on the never-never.

"This carpe diem philosophy has been reinforced by the collapse of pensions. Old-style final-salary schemes are dying out in the private sector, and - though the government fell silent on its plans to scale them back in the run-up to the election - they are under attack in the public sector as well. In these circumstances, planning for the future is a profitless exercise. Many people have decided simply not to bother about saving; they go on spending money they do not have, in the belief that ever-rising house prices or a resumption of inflation will bail them out of debts they cannot repay.

"For a large part of the population, avoiding thinking about the future is an integral part of their present quality of life. J K Galbraith's vision of private affluence and public squalor is nowhere more fully realised than in Britain today, and a good case can be made that the debt-fuelled private consumption boom of the past eight years is an integral part of the political economy of new Labour. So long as personal spending power is high, the decaying social infrastructure can be forgotten and the squalor of public services shut out from conscious awareness.

Britain's voters have not given up on government and are far from accepting the US model in which the state retreats from social provision. At the same time, they are unwilling to accept European levels of personal taxation. New Labour has found a way out of this conundrum by encouraging personal borrowing.

"Voters do not feel the pain of rising taxes so much when their living standards are buffered by debt, and the decision to adopt an American or a European model can be put off. Despite all the talk about hard choices, this is one - one of many - that has been postponed.

"Not for ever, though. At some point the bills will have to be paid, and it may be sooner rather than later.

"Whatever happens in the coming years, we can be sure Britain will be gloriously unprepared. It is fashionable to bemoan public estrangement from politics, but the election campaign showed that in one respect at least, the people and the political class are at one. Neither is ready to question the status quo and think how to face the future. As a result, crucial issues about Britain's future are likely to be determined by events that voters and politicians prefer not to think about.


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