Households Should Accept Some Blame for Banking Crisis

by Mark Johnston

Consumer debt soared during the ‘boom’ years and it has now become apparent that rising economic growth was fuelled by unsustainable borrowing on a grand scale.

Experts believe that during the ‘boom years’ people started to live lifestyles that they could not afford, households were spending more than they earned, borrowing to top it up and this is why household debt rose.

It is no wonder that prior to the credit crunch many families racked up lots of consumer debt, what with the ‘toxic’ combination of slick advertising, marketing and endless easy credit.

Britain’s consumer borrowing is now ranked as the worst amongst the worlds largest economies.

According to recent data from the National Institute of Economic and Social Research (NIESR) household wealth was £6.8 trillion at the end of 2011, however this is £787 billion lower than at the end of 2007 before the banking crash and recession struck.

Experts have suggested that the financial crisis has cost British families around £30,000 per household and has therefore created ‘zombie’ households.

A slow housing market has been exacerbated by so called ‘zombie’ households, saddled with large debt, many of whom are not able to meet their mortgage repayments.

Angus Armstrong, director of the National Institute of Economic and Social Research (NIESR) suggests that “At some point interest rates will have to rise and almost 1 million households could find themselves unable to sustain their debts, fuelling arrears and repossessions”.

In recent times many of the major high street lenders have increase their mortgage rates and families are also currently facing a squeeze on their disposable income as a result of sharp increases in fuel, food and energy bills and also a freeze in wages. This all amounts the fact that consumers are significantly worse off than 4 years ago.

Research by Which?, the consumer group, an increase of £100 a month to mortgage repayments would see approximately 20% of mortgage holders not having enough money left for daily essentials such as food.

A senior cabinet minister has recently suggested that people who borrowed too much during the economic boom must now ‘accept responsibility’ for their part in the financial crisis as banks are not solely to blame.

Defence secretary, Philip Hammond added that “those who ran up credit card debts and took out loans and large mortgages were consenting adults and therefore to some extent brought it upon themselves”.

It seems that people feel in a sense that someone else is to blame for the decisions they made, ‘if banks had not offered credit then people would not have taken it’ but there were two consenting adults in all these transactions, a borrower and a lender and they both have made the wrong call.

However some households have realised this and are now dealing with their own personal debt by tightening their belts to reduce their debts.

Although a leading think tank has predicted that wealth amongst Britain’s home owners will not return to pre-recession levels until at least 2019.



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