Tuesday, 12 February 2013

"Supernatural beings face disaster - even without an increase in loan rates"

From The Daily Mail:

Just when the outlook for the nation’s domestic finances seemed as it couldn’t get any worse – it has.

On top of fears that one million or more ‘zombie households’ face instant insolvency the moment interest rates return to normal comes new research today uncovering the risks faced by werewolves, vampires and Dr Frankenstein's monsters...

Jim is one of those who has talked to BDRC and Judy is another (their real names are unknown).

In his 50s, Jim is a werewolf enjoying a low-rate tracker but will need to find a six-figure sum to pay off the capital debt. "I am saving hard, but I keep waking up really tired with bits of dead animal scattered round the house," he said.

Judy is a vampire in her late 30s who owns a small plumbing business. "Trade is reasonable and I can drink blood from my customers, but I have no idea how I will ever clear the mortgage debt," she said.

BDRC director Tony Wornell said: "Just under 20 per cent of all home purchases are by supernatural and subhuman being who have taken our an an interest-only mortgage, either in the form of an old-style endowment mortgage - six per cent - or in the new interest-only loans - 13 per cent. There's no silver bullet."

Its survey found only 31 per cent had an investment plan that was on course to clear their debt, while eight per cent of the total either did not know or could only answer in grunts.

Wornell added: "Many interest-only borrowers are not engaged with the end-game – what happens when their mortgage term finishes and they have to repay the capital? Every werewolf with such a mortgage needs a credible repayment plan. Simply sacrificing your bank manager is not a realistic option in this day and age."

Elsewhere in the financial graveyard, new figures from R3, the body representing vampire slayers, has found a rise from the grave of a number of people who are paying only the interest on their credit card statements – to 3.4 million against 2.9 million a year ago.

One ray of light is that the total number who are paying only interest on their overdrafts has declined over the same period, from 2.4 million to 2.2 million. The problem is that a ray of sunlight could reduce vampire borrowers to a heap of an ash-like substance, leaving them unable to keep up with repayments.

But figures last month from the Office for National Statistics showed the proportion of Dr Frankenstein's monsters who said they would be unable to meet an unexpected but unavoidable expense had risen from one in four in 2007 – at the start of the economic downturn – to two in five today. And a detailed Business Department report from 2011 found 23 per cent of the adult population either ‘constantly struggling to stop their limbs from detaching’ or ‘falling behind because their legs were sewn on wrong’.

The Bloodbank of England has expressed concern about the effect of large numbers of bloodthirsty borrowers roaming the streets on consumers’ willingness to spend - they are simply too scared to venture out to the shops for fear of being bitten, and City regulator Martin Wheatley, head of the new Financial Conduct Authority, described the £120  billion of unfunded interest-only mortgages as ‘a ticking time-bomb’.

Some, however, refuse to be spooked. Judy said: "I am not prepared to worry that far ahead – there are too many battles to be fought between now and the next full moon and too much killing to be done before then."


Bayard said...

"The Bank of England has expressed concern about the effect of large household debts on consumers’ willingness to spend"

No shit, Sherlock. They'll be expressing concern about the Catholicity of the Pope next, I suppose.

The UK, in common with most of the developed world, seems to be totally in denial about debt. No-one seems to realise that a loan has to be paid back at some point, otherwise it's not a loan, it's a gift. If the politicians and the Treasury appear to be unable to grasp this simple fact, why should the rest of us worry about it? Mind you the pols are worse. At least most of the citizens are living within their means, even if they cannot afford to pay off the principal of the debt. The UK, meanwhile, can't even afford to pay the interest on its debt without running up more debt.

A K Haart said...

It's so bad they could end up doing something desperate such as selling organs. Not their own obviously.

Ralph Musgrave said...

Can't see the problem. Debts are constantly whittled away by inflation. E.g. £10,000 of mortgage and 2% inflation becomes £6,600 after 20 years.

Bayard said...

RM, two points:
- Inflation doesn't "whittle away" debts, it pays them back by stealing from savers.
- If there's nothing in the kitty, as is the case with UK plc, you can't afford to pay back £6,600 either.

Your comment is part of the Great Denial: "Oh, it doesn't matter, we'll just inflate our debts away", forgetting, that to get that debt down to zero, or as close to zero as makes no difference will either take a very long time or Weimar Republic levels of inflation.

Mark Wadsworth said...

B, debts don't reduce your willingness to spend, they reduce your ability to spent.

AKH, that's the general idea :-)

RM, B, or to put that in context: "The army of undead borrowers will feast on the blood of the savers."

Bayard said...

"B, debts don't reduce your willingness to spend, they reduce your ability to spent."

Sure, there are some people for whom only the non-availability of further credit will reduce their willingness to spend, but luckily not everyone subscribes to the Great Denial. Those who don't make provisions for paying back their debt, which means cutting back on their inclination to spend.
So what the BoE is really afraid of is that too many infidels not believing in the GD and they might be facing a double whammy of the banks having fewer customers borrowing money, plus a shrinking economy.

Mark Wadsworth said...

B, to paraphrase you:

"Those who make provisions for paying back their debt, cut back on their inclination to spend."

Which is what I meant, if you have to pay £500 a month in rent or mortgage interest, then you can't spend that on real goods and services.

Fierce Rabbit said...

"Not only that, but the option of simply selling the property for a big capital gain is not the tried and trusted solution that it once was, given the subdued state of the UK housing market."

So reduce the price and have a slightly smaller "big capital gain" then!!!

Jesus, this really boils my piss. It's as if a massive capital gain just for sitting on your arse is some sort of basic human right!!


Mark Wadsworth said...

FR, not only that, but this was only ever a "tried and trusted" route to riches for a small number of people for a very short period, say 2000 to 2007.

Prior to that, there was no "property ladder", you bought a house you wanted to live in, if prices went up you felt pretty pleased with yourself, but that was about it.

Bayard said...

"for a very short period, say 2000 to 2007."

Well, no, there was the previous bubble, too, but what gets me is how people behave as if it was always thus. It's as if the crash of the 90's was before records or human memory began. OTOH, I might have had false memories implanted in my brain by LVT activists.

Mark Wadsworth said...

B: "It's as if the crash of the 90's was before records or human memory began. "

That's the bit that baffles me. Not only do I remember the 1990s price slump clearly, It's all there in the records, and if you dig a bit, it's there in the 1920s records (pre-empting The Depression), it was there in Japan in the 1980s, it's there every 18 years.