Recession hits the previously affluent

March 22nd, 2009

The Consumer Credit Counselling Service (CCCS) has announced that greater numbers of affluent people are seeking help for debt problems as the recession bites. It would seem that they mean previously affluent people but it is an interesting point.

According to the charity, unemployment and a housing market slump has caused a “fundamental shift” in the nature of UK debt.

That shift has been entirely upwards, consumers in the UK have total debts approaching £1.5 trillion.

But it is not just a simple upward trend. The CCCS, which is the UK’s biggest debt management charity, has said that debt problems are becoming more complex, harder to resolve and affect a wider cross-section of society than in recent years.

Although people seeking help for debt are, on average, actually better off and owe less money than previously, they are finding it more difficult to pay off debts.

“When unemployment triggers a debt problem, the fall in income can leave the borrower struggling to service both mortgage and unsecured debts, while the fall in house prices, and growth in negative equity, takes away the option of selling to clear the mortgage,” said the chairman of the CCCS.

“As over-indebtedness becomes a problem for the more affluent, people who come to us are more likely to have mortgages and to lead complex financial lives. As a result, our task in providing best advice is bound to be more difficult and time consuming.”

Homeowners owe 83% more on average than people who rented their homes. Almost half of those seeking help from the CCCS are homeowners.

As the recession deepens, the CCCS expects the complexity of clients’ debts to intensify. These trends seem likely to continue for the foreseeable future; the perfect storm may have arrived but we have yet to reach its epicentre.

Only 35% of people are able to commit to a debt management plan, under which a set amount is repaid each month, which is down from 42% in 2007 and 46% in 2006.

The charity said 90% of its clients owe money on credit cards and personal loans, having run up an average debt of £14,000 on these products.

A regional breakdown shows that the highest levels of debt are generally in the south of England, at an average of £29,000, but the over 60s in Wales had one of the highest debt levels in the UK at £25,947.

Scots seeking help from the CCCS had the highest levels of debt in the UK relative to their income. Those in Northern Ireland were least able to repay debts.

An interesting aspect of this report is that the trend of more affluent earners getting into trouble was not seen during previous recessions. There is little doubt that it is the result of a society where people do borrow freely.
Homeowners, in particular, have had a very optimistic outlook about their house values and find it easy and cheap to remortgage. They are encouraged to borrow more and these previously affluent people are the casualties of that.

Many cannot now remortgage to deal with their debts. Many of these people will have to swallow their pride and engage in some basic budgeting. It is also worth noting that free and impartial debt advice could ease many people’s problems.

This entry was posted on Sunday, March 22nd, 2009 at 12:35 pm and is filed under Personal Loans. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

Recession hits the previously affluent

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