Kate Hughes: More gloom in the air but reasons to be cheerful, too
After five tough years for personal finance, there could be light at the end of the tunnel at last
Sunday 23 September 2012
Call me crazy but I'd been relatively upbeat about our collective financial situation this week. Mortgage lenders are considering loosening their vice-like grip on borrowing criteria, personal debt is continuing to fall and even second-quarter gross domestic product looks as if it may be revised up again.
Then came the latest round of money news to shoot me down.
First off was a minor body blow from the Office for National Statistics, which this week released its measure of national wellbeing in personal finance terms. By the time the global crunch was making itself felt in 2008-9, some 7.5 per cent of people in the UK were already saying they were finding it difficult to manage financially. By 2010-11, average income was down to £359 a week, from £373 the previous year. In April this year, more than a quarter of the population said they expected their money situation to worsen over the next six months.
And then there was another of those impending doom stories when data firm xit2 reported that £116bn worth of interest-only mortgages due to mature over the coming eight years has no specified repayment plan arranged by the borrowers. Representing just under 10 per cent of the whole mortgage market, this is "a legacy of unsustainably high interest-only lending prior to the financial crisis," said managing director Mark Blackwell.
"If lenders fail to help these borrowers find a repayment vehicle, it will come back and give them a nasty bite around 2020 when the big batch of high-LTV interest-only loans granted in the mid-2000s mature. Eighty per cent of these borrowers have no repayment plan."
"Interest only should be for people with a genuine strategy for repaying the capital at the end of the term," adds Jonathan Harris of mortgage broker Anderson Harris. "Historically, these mortgages were often given away to people who were not in this position, so for lots of borrowers it will be a ticking time bomb. If you have got eight to 10 years until your mortgage term ends, the likelihood is that you bought your property some years ago, so will have enough equity to repay the capital and buy a smaller home to live in. If not, you have time to plan a strategy but you need to take proper advice and crack on with it rather than ignore the problem and hope it goes away. It won't."
But I'm not about to give in so easily. People often don't disclose their plans for repayment when they do have them. Plus, eight years is still time for many to sort it out – provided that lenders show willing of course.
Which is a fair point. Even I have to admit that plenty has happened that has been largely out of our control over the last five years of credit crunch and global meltdown. You certainly don't need me to tell you what you already know – that the employment market has been shot, savings rates are painful, property is temperamental at best, and annuity rates have dived. Among other things.
In hindsight, my good mood may have been something to do with £30 tax rebate that unexpectedly dropped onto the mat earlier in the week. But after five years of precious little good news to report amid the deluge of disaster, I'm determined to hold fast to that optimism.
With renewed hope for the mortgage market, unemployment figures stabilising, repossessions falling and the number of households saving money trebling since 2008 despite truly rubbish rates – according to that same ONS study – not to mention auto-enrolment all set to boost retirement income, we may now have an opportunity to help ourselves. It is one that it seems we are determined to grab with both hands.
And it's not just me who thinks things could be looking up. Some 22 per cent of us expect their personal finances to improve over the next six months.
Even the likes of Martin Taylor, former chief executive of Barclays, a member of the Independent Commission on Banking and chairman of global chemicals company Syntenga among other things, said in the Financial Times this week that he felt there was a renewed buzz in the City this autumn.
"There comes a time when people tire of being miserable, and animal spirit returns," he said. Count me in.
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