ROOF Blog

The Policy Exchange warns the next government that it must be prepared to make ‘radical and immediate cuts’ to spending, or face a debt crisis. It said that the next government must cancel the increases in spending, because it was ‘much easier not to raise spending than it is to cut it later’. The Policy Exchange report estimated that only a third of the recent increase in government spending is allocated to measures intended to combat the recession, with the rest going on increased budgets for government departments.

Chief executive for the National Debtline warns that millions of households struggling with debt could be unlikely to access independent advice because charities are so overwhelmed they can only answer half the calls received. Joanna Elson speaking at the Building Societies Association conference was trying to drum up support from building societies to help homeowners in difficulty as soon as possible, and estimated that around four million people will need debt advice this year.

The number of homeowners taking out individual voluntary arrangements (IVAs) has risen from 34 per cent at the beginning of 2008 to 51 per cent today, TDX Group has found. The number of people taking up the option of a debt relief order, which were introduced for individuals with relatively low levels of debt, but little or no prospect of ever repaying, is also expected to increase dramatically, although estimates vary from 14,000 to 150,000.

Lloyds Banking Group has warned that its bad debts for the year will increase by 50 per cent compared with last year. Lloyds chief executive Eric Daniels said the falling value of commercial property, the recession, falling house prices and rising unemployment meant it had seen a significant rise is defaults on loan payments, particularly among HBOS customers. Lloyds, which is 44 per cent owned by the public, took over HBOS last year.

Barclays also revealed a steep rise in bad debts during the first quarter of the year. Its impairment charges increased by 79 per cent to £2.3 billion, although it said strong growth from its investment bank would offset a 45 per cent fall in income. However, Barclays chief executive said it would revise the proportion of loans written down for the year from 1.3 per cent to 1.5 per cent.

Meanwhile, consumers are saving less and paying off debts faster, according to research from Nationwide. Less than half of consumers save money regularly, with 25 per cent saving nothing at all, a figure getting worse since the Bank of England dropped its base rate from 2 to 0.5 per cent in December. More than half of those questioned believe it is a bad time to save, and that the government is actively discouraging savings.

Mortgage approvals increased by 19 per cent during February, according to Bank of England figures. There were 38,000 approvals in the month, up from 32,000 in January, which surprised pundits, giving them hope that low interest rates and falling house prices may be encouraging buyers back to the market. Consumers are growing uneasy about the outlook for the economy, however, as last month saw also the biggest repayment of consumer debt since records began in April 1993, with consumers repaying £245 million more than they borrowed.

Meanwhile, Dunfermline building society, Scotland’s largest, is to be broken up and sold off. After incurring losses of £26 million last week, the Treasury announced that good loans and deposits are being bought by Nationwide and the Treasury will take in £1 billion of commercial property lending and mortgage debt. Alistair Darling had said the Dunfermline would have needed between £60 million and £100 million to keep it going because of its exposure to risky assets, and full nationalisation would not have provided ‘value for money’, but its chairman blamed the Treasury of having ‘deliberately scuppered’ any chance of the society remaining independent.

A banking report from Cap Gemini has warned the scale of mortgage lending in the UK is unmanageable and ‘exceeding reasonable limits’. The report says debt is running at 86 per cent of gross domestic product – around £1,200 billion – but 60 per cent is the recommended sustainable upper limit. The report said the main reason for the rise was the uncontrolled increase in housing prices, and mortgages remain a loss leader for banks as margins have shrunk.

An increasing number of wealthier homeowners are seeking debt help as the rise in unemployment and falling property prices puts pressure on household budgets, the Consumer Credit Counselling Service said. Its research shows 12 per cent of clients had a net household income of more than £30,000 last year and nearly half of those seeking help were homeowners (47.5 per cent). This compares with 2007 when just 8.7 per cent of clients earned £30,000 and 42.6 per cent were homeowners. The charity says that homeowners owe on average 83 per cent more than those in rented accommodation.

Citizens Advice (CAB) has said they are seeing a big increase in the number of white collar workers seeking advice from them. Its latest figures show a 17 per cent increase in the number of inquiries overall, between April 2008 and the end of January 2009. However, redundancy related queries were up 153 per cent, mortgage and loan inquiries up 49 per cent and debt inquiries were up by 24 per cent, and the CAB chief executive David Harker said the profile of people coming into the offices was changing as there were ‘more richer people coming in than ever before’.