Family Debt To Get Worse
It looks set to be a bleak New Year for householders trying to get their finances under control. The credit squeeze shows little sign of abating, even with the £11bn cash injection by the Bank of England.
Analysts in the City said that the last three weeks of November were the worst on record for inter-bank credit as banks continued to refuse to lend to each other. The problem for consumers will come in the New Year when banks and other financial institutions pass their problems on in the shape of steep increases in borrowing charges.
It is expected that, despite everything, shoppers will spend a record £11.7bn on their credit cards this festive season and loans are likely to be subject to higher rates of interest as banks strive to keep their profits at recent high levels. Former managing director at Citigroup, Peter Hahn, said: "Banks will be more capital-conscious and wary of risk. If you are a borrower, you will have to pay higher rates."
Fresh concerns came to the fore in early December when the Swiss investment bank UBS has to writedown $10bn, when it was believed that it had already revealed the full extent of its losses.
Tens of thousands of junior bankers in the City will be left without bonuses this Christmas; banks are cutting back on recruitment and some jobs are being cut.
The trust in Labour's management of the economy has fallen by almost a third since September.
A Populus poll showed a 16 point drop to 35%, saying that Labour were best equipped to manage the UK economy in bad times as well as good. Conversely, the Conservative rating for the same question was up by six points to 34%. Since Gordon Brown relinquished the reins of the Treasury to become Prime Minister, Chancellor Alistair Darling has had a number of problems to deal with. Perhaps Brown was the lucky Chancellor, but will he be a lucky Prime Minister?
Any rise in credit card interest rates will bring more pressure on beleaguered households who are already having difficulties keeping up with mortgage repayments that have risen in the past 15 months.
Martin Lewis, of moneysavingexpert.com, the financial website, said: "Will credit card rates rise next year? Yes. People who then try to switch to another card company to avoid paying more face the possibility of being turned down."
An increasing number of banks are denying customer applications for credit cards as they try and reduce their debt exposure. In 2006 about 33% of applications were rejected; the currnet rate is anywhere between 40% and 50%. Problems will arise for borrowers who move their debt from one credit card to another as they chase the interest-free deals. Suddenly they might find themselves with a big debt plus interest to pay.
Mark Dampier, of independent financial adviser Hargreaves Lansdown, said: "For the first time in a long while consumers are going to get a real shock. Thirty years ago you had to queue for a mortgage. But, in the last 15 years, you have been able to snap your fingers and get credit. That is all going to change."
Published on December 28, 2007
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