British disposable wealth falls…
More information was published recently about the massive debt mountain the British have built up…
So far this year people have taken more money OUT of their houses through remortgaging than the houses have increased in value… which means people have LESS “disposable wealth” overall compared to this time last year.
“While house prices rose by 5pc from mid 2005 to mid 2006, this was dwarfed by a 15pc rise in mortgage advances as people increasingly used their homes as a cash machine, often to pay for holidays and cars. The effect has been to squeeze the real value of household wealth.”
So, sooner or later, this money has to be repaid. It won’t be eroded by high inflation because we are in a very low inflation environment, and with central banks being “hawkish” about inflation, that environment seems set to continue.
“Low interest rates have so far cushioned the effect of high debt loads. Even so, mortgage payments make up 24pc of pre-tax salaries, compared with 16.5pc a decade ago, according to Moneyfacts.”
So, if interest rates rise, people paying 24% of their current pre-tax salaries on their mortgage payment are in big trouble!
“Bank of England data shows that UK personal debt reached a record £1,250bn in September.”
Hmmm.
October 18th, 2006 at 5:54 pm
Hi Neil
Just read your article. I hate to think of what people are in for through their debt growth. Have loads of experience of the last major recession and hence have just written an eBook about it.
What’s really sad is that debt can be very destructive as it affects so many areas of peoples lives but on a positive note, there is always a way of dealing with it and also enjoying life - even in debt!
Kind regards
Aine Callan
Debts-challenge