Where is the 'ostrich generation' going to find theextra money just to get by?
Saturday 04 June 2011
Hear that? It's the sound of distant but increasingly insistent alarm bells set off by the latest round of money stats. First is the news that despite years of a record low base rate, 300,000 of us have switched to interest-only mortgages since the beginning of the credit crunch. Second is that the Council of Mortgage Lenders (CML) has predicted repossessions will increase from 40,000 this year to 45,000 in 2012. And finally there's the fact that £179m is currently paid every day in personal debt interest according to money education charity Credit Action. You can see where I'm going with this.
We all know the base rate is on its way up and right now interest rate futures are plumping for a March 2012 increase of 0.25 percentage points followed by another later in the year or in early 2013.
It doesn't sound like much, but if, as the British Bankers' Association suggests, the average outstanding mortgage is £145,000, typical homeowners may need to find an extra £362.5 a year just to tread water on their debts for each 0.25 percentage point rise. With the expected 0.50 percentage point rise by the end of next year, that's, calculated crudely, another £725.
This still may not sound like all that much but don't forget that household bills, currently an average of £23,660, are increasing by 4.5 per cent a year or £1064.70, according to the Office for National Statistics. And just to throw one more figure in here to really drive home the point, the average owed by every UK adult is £29,835 – 121 per cent of average annual earnings – with few of us expecting a wage rise any time soon. Yes, my calculations are a wee bit simplistic, but my question is: where will you find an extra £1,789.70 by the end of next year to simply maintain the status quo?
Hopefully I'm just being a little melodramatic, and Joanna Parsley, associate director at Credit Action, says people shouldn't necessarily panic. "The widely predicted rate rise will certainly impact on mortgage holders who have been enjoying low rates of interest for many months now," she says. "But food and energy prices are going up and as people need to find more money to pay mortgages it could mean they pay off other debts at a lower rate. People need to be sure they are managing their money, communicating with their lender as soon as they have any problems."
Speaking of taking responsibility for our money, plenty of TV snippets make my jaw drop, but no episode of Monsters Inside Me has had the same effect as one advert that seemed to suggest engaged couples should take their expensive, short-term loan to pay for the picture perfect wedding.
I sat blustering self-importantly on the sofa over the irresponsible nature of said advert for some time before a besieged other half suggested that most people should be able to see the rate emblazoned in the medium-sized print at the bottom of the screen and have the presence of mind to steer clear.
Ooh, that's dangerous ground. You only have look at the latest action by the Office of Fair Trading to close down dishonest brokers charging upfront fees for a loan they have no intention of delivering to see that there are many sloping playing fields out there as we try to pick our way through the bewildering world of financial services.
Simplification, transparency and above all "treating customers fairly" have been key themes for the financial services industry for years now. These campaigns have made a huge difference to the way we are informed and I'm a big fan.
But does it detract from the constant drive to make us more engaged, informed and pro-active about our money if the default assumption is that we don't have the presence of mind to read the small print?
Somehow, the news that mine has been dubbed the ostrich generation – the group that assumes it'll all be fine and someone else will sort it out – doesn't come as much of a surprise.
Simon Read is away
Mark Dampier: Don't panic. Canny investors sit tight when the stock market falls
Shareholders can hold a company to account
Derek Pain: Dividends ease the suffering in a moribund stock market
Questions of Cash: Payment woes with Barclays overshadow Cornish holiday
Bank-beating exchange rates on your international payments
- 1 Revolutionary lost Caravaggio painting 'Mary Magdalen in Ecstasy' identified
- 2 McKamey Manor: This 'extreme' haunted house is the stuff of nightmares
- 3 Russell Brand says he will 'probably' give up acting to focus on his revolution
- 4 Watch what happened when food critics were unknowingly served McDonald's
- 5 David Beckham's Haig Club whisky is exactly what’s wrong with the Highlands
Of course, teenage girls need role models – but not like beauty vlogger Zoella
Cameron is warned 'no possibility' of UK reducing immigration and that bid to bring in quota on migrant workers would be illegal
Support for EU membership 'at highest level since 1991' with most Brits wanting to stay 'in'
Thousands with degenerative conditions classified as 'fit to work in future' – despite no possibility of improvement
Tony Blair 'says Ed Miliband will lose 2015 general election'
Putin: The US is to blame for almost all the world's major conflicts
iJobs Money & Business
£60000 per annum: Ashdown Group: Compensation and Benefits Manager - Compensat...
£30000 - £35000 Per Annum plus excellent benefits: Clearwater People Solutions...
£24000 - £28000 per annum + bonus & benefits: Ashdown Group: IT Business Syste...
£50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...
Day In a Page
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village