If we count mortgage, credit card and consumer loan debts, it turns out that the average British adult owes a total of 33,000 pounds, whereas in 2000 his debts amounted to only 17,000 pounds. As more and more borrowers fail to repay debts, and banks and building societies try to compensate for losses, the standard annual fee on credit cards could reach 30 pounds. Despite the projected increase in annual costs and rising interest rates, many citizens intend to use their credit cards more often, hoping to cover growing mortgage payments.
The publication of the report came at the height of family preparations for Christmas, a period when the average British adult borrows more money than ever.
The situation is expected to worsen next year. More than 1 million people will find that the period of reduced mortgage interest rates has expired, and their monthly payments will rise by an average of 140 pounds. Since the creditworthiness of many families has already fallen to a critical level, the number of insolvent borrowers will increase sharply. All this will have a strong impact on credit card holders: they will lose about 4 billion pounds because others do not repay their debts on time. This alarming information comes amid public concerns about the state of the British economy, which recently experienced a serious credit crisis at Northern Rock bank and a general downturn in the housing market.
PricewaterhouseCoopers partner Richard Thompson said: 'Consumers and credit companies face difficult times. Banks continue to take measures in response to rising debt levels by tightening credit policies. Many consumers will find that getting credit ahead of Christmas has become much more difficult. After many years of rapid growth, the consumer credit market is experiencing stagnation. We believe that the level of consumer lending has reached its ceiling.'
Other organizations predict that in the future, rising living costs will force British families to tighten their belts. Since August last year, interest rates have been steadily rising, and this has already hit homeowners. It should also be noted that food prices have now reached their highest level in ten years.
According to a statement from the Confederation of British Industry, due to global climate change, every British family will have to pay 100 pounds more per year for energy over the next 20 years. Meanwhile, according to some forecasts, the annual tax payments of every British family will increase by 250 pounds, linked to an increase in borrowing by the Treasury. These forecasts are provided by the audit firm Grant Thornton.
Roger Bootle, managing director of consulting firm Capital Economics and economic adviser to Deloitte, said: 'This will affect the area of the economy such as consumer spending most of all. Things are going quite well in this area today, but according to some signs, everything will soon change for the worse. Debt-to-income ratios are putting too much pressure on the economy, and the share of personal savings is very small. Real incomes are still growing, as is the Forex market, the labor market is actively developing, but this situation is unstable. Without the significant growth in public and private sector borrowing over the past few years, the economy would already be showing signs of a downturn. If lending rules become stricter, would that not mean that the unrestrained generosity in lending only delayed the day of reckoning? I think the answer will depend on related issues such as the future of the housing market and the unemployment situation.'
Figures released earlier this month show that the number of bankrupt Britons has increased by 2% (15,000 people) over the past three months. It was three months ago that clear symptoms of the global credit crisis appeared. The Council of Mortgage Lenders recently expressed concern that the number of homes repossessed by 2008 is rapidly approaching the level last seen during the price crisis of the 1990s.
During a recent visit to Uganda to attend the Commonwealth Heads of Government Summit, British Prime Minister Gordon Brown linked economic instability to the crisis in the US subprime mortgage market. 'I think everyone knows what happened in America. We see the consequences in the housing market. The question is how this crisis will affect the rest of the world,' the prime minister said.
House prices have been falling for the second consecutive month, while interest rates are rising, and the consequences of the US credit crisis are reflected in the UK property market. According to analytics firm Hometrack, the average home in England and Wales is now worth about 175,000 pounds, with property prices down 0.2%. Hometrack became the third company to record a monthly price decline. Earlier, the website Rightmove, which monitors the property market, reported that in the four weeks to November 10, the average home price fell by 0.7%. The first was Halifax bank, which calculated that in October the same indicator dropped by 0.5%. The fall in home prices this month means that the annual rate of house price growth is at its lowest since July this year, at 3.6%, compared to 4.4% in the previous month.
According to Hometrack, the sharp decline in house prices has affected a fifth of all localities in the UK, with half of all sharply discounted homes located in southern England, where demand has fallen the most.