Repossession the Ticking Time Bomb that Could Potentially Catch Millions of Bad Credit Families
It is thought that up to three million bad credit households in the UK are close to serious bad credit problems and only a small rise in interest rates will lead to another huge surge in repossessions.
Danny Gabay, director of Fathom Consulting and leading economist, has warned that a full scale economic recovery is unlikely to occur until the banks confront the issue of bad credit families who have borrowed beyond their means.
The former Bank of England expert warned of ‘zombie households’ which are in real danger of crashing into a financial void should interest rates rise.
A series of financial experts have echoed these fears, suggesting that many people have bought properties which they can not afford.
“Many bad credit families are only being kept out of trouble by the 300-year low Bank of England interest rate which still stands at 0.5%”, said a spokesperson for Bad Credit Loans 4 You, a UK specialist at sourcing bad credit loans/bad-credit-loan-refinance.html
Recent figures from the Council of Mortgage Lenders highlighted almost 3 million bad credit borrowers who could plummet into serious financial hardship when interest rates rise by an expected 2%.
Even at the current all-time-low rates, almost 1.3 million UK families are battling with bad credit problems because of mortgage payments which are consuming more than 35 per cent of their after-tax income, the level at which the Financial Services Authority (FSA) classes loans as “unaffordable”.
The latest debt statistics provided by money education charity Credit Action show that a property is repossessed every 14 minutes and 195 mortgage possession claims will be issued and 147 mortgage possession orders will be made today alone.
“It is an extraordinary position to be in. Fixing government finances is important but is only part of the problem.”
“The other, larger part, is fixing household finances, where in fact the crisis began”, said Mr Gabay.
“It is very politically convenient to believe that the crisis was caused by greedy bankers but nobody made people take out mortgages of five times their income.”
“Lots and lots of people borrowed too much.”
Most economists do not expect the Bank of England to begin raising interest rates for at least a year, but all agree that the current level cannot be sustained.
Mr Gabay argued in a recently published paper that the current low rates are allowing banks to avoid facing up to potential bad credit loans on their books.
He was quoted as urging the Government to create a ‘bad bank’ to buy up bad credit quality mortgages to cleanse the system.
“The solution we are suggesting will be very painful in the short term but if we face up to our debts we can move on,” he told a conference of experts.
“We are in a situation that I am very worried about. Too much money has been lent against assets which have fallen in value but those losses have not yet been fully recognised.”
“We are being kept alive on a near-zero interest rate drip and we can’t move forward.”
Fathom Consulting stated that banks are aware of their vulnerability to big write-offs in the future, which is making them reluctant to lend bad credit loans.
David 'Danny' Blanchflower, a former member of the monetary policy committee, said that he “absolutely agreed” with Mr Gabay’s examination of the current circumstances of potential number of households heading towards repossession.
Mr Blanchflower added; “Anyone who thinks that rates should be raised now or in the next year or two is living on another planet.”
Registered charity the Citizens Advice Bureau (CAB) is currently struggling to cope with helping 9000 new debt problems each day in England and Wales.
Ray Bolger, representative of mortgage brokers John Charcol, said many homeowners will need to take a ‘reality check’ once the base rate returns to normal levels.
“There are a lot of people who are being bailed out by the low rates.”
“The longer rates stay low the more difficult they’ll find it to cut back as people will start to think of the non-essential spending as essential.”
Sukdhev Johal, reader in business policy at Royal Holloway, University of London, joined other experts by saying; “There are many people living in a fool’s paradise because of low interest rates.”
“Everything is against people who have over-borrowed, including the threat of negative equity and rising unemployment.”
“The only lifeline is low interest rates and if you take that away you could have properties coming on to the market in a fire sale.”
The surge in repossessions could hit UK families even before a rise in interest rates as millions are soon to be hit with huge increases in utility costs on top of hikes in other essential bills such as petrol.
Further blows are set to follow when VAT rises in January 2011 from the current 17.5% to 20%.
The continuation in bad credit repossession forecasts is also partly to blame for a slow-down in the housing market.
Halifax reported an average house price drop of £200 per day in September of this year, leading to fears that a growing number of UK families will be plunged into negative equity.
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Bad Credit Loans 4 You was formed in April 2010, bringing together a team of specialists that together offers over 50 years of expertise to help applicants gain the unsecured loans they need.
From its UK head office in Monks Brook, Loans 4 You operates across Britain, sourcing loans for people with bad credit.
Bad Credit Loans 4 You holds a Consumer Credit Licence issued by the Office of Fair Trading. The company is also covered by the Financial Ombudsman.
Bad Credit Loans 4 You is also registered with the Information Commissioner’s Office for Data Protection.
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