Who knows where to turn? The private sector stands, like a man kicked in the face, unwilling to risk much when it comes to recruitment. On the other side of the room, the public sector lies, bloody and wounded. Or rather it lies, pre-empting the bloody, wounded mess it’s set to become. Its only solace the fact that predicted job losses is down from 490,000 to around 400,000.
Probably not the best time to switch jobs then? Not too many opening s at the moment and those that are there are massively oversubscribed. It wasn’t long ago that the jobs section of the Thursday Telegraph was a full pull out section on its own, full of hundreds of jobs. Now it’s a single page at most tucked away in behind the TV schedules. Unfortunately though a career change is possibly the only way many people can increase their income as pay freezes hit widely across the UK. Is it less than three or four years ago when we suckled on the large breasts of credit until we slept, comfortable and happy that all would be well. Would we have suckled less knowing the indigestion we suffer from now? Having built our life on credit now it is no longer there, we have a problem. We find it difficult to buy things, even such things as houses!
So onto the scene comes Jonathan Davis, a top wealth management advisor and a man whose expertise is regularly featured across the UK media. This man is going to know a thing or two about what is going to happen with money markets and specifically lending trends over the next 3 or 4 years. It started to become abundantly clear that serious damage like this will take long time to clear up. Deep wounds don’t heal overnight, we have just been through major surgery and the surgeon is still looking for his watch. Jonathan, as incisive as ever, explains that this problem has been building up for a significantly long time, “the big picture is that for 30 years, we’ve had a growing debt problem”. Of course it’s not just us this affects all the major markets in the West. Debt in the West I suppose! It all bubbled in 2006-2007, and now we’re experiencing the hangover of the debt party. I refer you to the 1930s, and the depression based upon de-leveraging effects following, by then, the biggest debt bubble in history during the 1920s.” Jonathans next comment made me think, and shiver, ” This time it’s from the biggest debt bubble of all time.”
So how do the banks figure in this mess? “The banks are, technically, insolvent themselves. You’d be hard pushed to find a bank or building society in the UK that is solvent, when real assets are taken into account.” Jonathan goes onto explain how the bank’s assets may not help, “It’s all well and good to have property, but if that lies vacant, and there’s a loan outstanding, then it’s a loss.” We are invited to consider the towns we live in r travel through. Try taking a look around, everywhere you see ‘To Let’ boards everywhere. At least 10% of shops are lying empty. Then you have to think of the supporting structures and building such as offices, factories and warehouses. “You have an enormous swathe of bad debt coming down the line. That’s one of the reasons banks are reducing lending, because they know they will be cutting red ink right across the balance sheet in due course. On top of that they also have the wider G20 issue, of what’s called Basel 3, which is a change in the regulations of international banking,” This looks bad, actually this looks worse than that.
As we call for tighter banking regulations, it still seems as though the average British Citizen is the one bearing the brunt of the current state of affairs. Amidst the bailout controversies lays the Basel 3 agreement, which emerged from the G20, which calls for banks to have a higher level of constant cash reserves. As a result, the banks are limiting what they lend, a level that is unlikely to return to its pre-recession levels for quite some time. Davis reiterates this, “Basel 3 is to prevent a future bubble emerging, followed by a crash. We’re still in one crash right now, and it will continue for years”.
So the chances of finding a loan with good rates are going to be slim to none for the next few years and little change in the currently tough loan criteria. So is the UK at risk of dangerous high interest loans? Are some sections of society going to be forced to turn to the loan sharks and the borderline payday loan companies? We turned to Davis for the answer on this one, “People are already massively in debt. The amount of debt in society is more than there ever has been. I read surveys from big financial institutions that say if the cost of living goes up 100 per month, people couldn’t afford to live- that’s how bad it is.”
He continues, “So, I don’t believe, in fact, I cannot see that people will be getting even more into debt, simply because society is already maxed out.” Indeed, banks are now off-putting consumers from obtaining more debt but Davis emphasises that, “it’s all they can do, it’s not because they want to.”
His prediction is that “people will not be taking on more plastic credit, they will not be increasing consumer spending, they will not be taking on mortgages, because they simply can’t.” Returning to our original point, the issue is that the banks just don’t have the money any more. According to recent statistics the number of mortgages obtained is at its lowest level for 10 years.
However, “If you’re talking about over-priced, bad loans, they will always be advertised on TV, and they will pick up market share.” Unfortunately these companies do exist and anybody considering dealing with this type of organisation first really need to take professional advice, as Jonathan say “really once you start dealing with those types of businesses, you’re on a hiding to nothing- they’ll just take your house off you for the sake of a few thousand pounds.” So be careful and take advice, probably debt advice.
It will be an imperfect and imprecise art trying to predict the future, but the reasoning behind Davis’ predictions is grounded in common sense, the gravy train was going to come off the rails at some point with hindsight. It’s a culture shock, one we have no choice but to get use to, but the long term benefits on people’s attitudes to spending and budgeting can only be a good thing. Is there credit to be had after the crunch then? No, well yes, there is, but the way to success and better finances is by reducing debt and overspending then plugging the gap with credit lines to keep level. If you’re stuck, just man up, admit you have a problem and get much needed help.
James writes for Just Remortgages one of the UK’s top sites for the latest remortgage rates and best remortgage deals
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