How the UK economy affects borrowers

The Consumer Credit Counselling Service (CCCS) produces a quarterly publication whose findings are based on the provision of data from over 90,000 residents in the UK, and a recent report focussed on the immediate consequences of debt and how the wider economy is being affected during the recession.

While continuing pressure on the UK economy has made sure the Bank of England base rates have stayed at 0.5%, both the Consumer Prices Index (CPI) and the Retail Price Index (RPI) have continued to fall during the second quarter of 2009. The CPI has fallen below 2%, while the RPI is negative 1%.

This should mean that consumers benefit from lower prices, but food prices have remained high and although some homeowners have benefited from low base rates, those who have fixed-rate mortgages have not. It is also clear that not all banks have passed on the full extent of reductions to customers.

Due to Nationwide´s house price estimate, the average house price increased by £6,773 during the second quarter of 2009, and the rate of mortgage approvals rose during the first 6 months of 2009, with 250,000 approvals. This indicates a greater number of first time buyers entering the housing market. The affordability ratio, however, remains at a six-year low of 7.1.

Rising unemployment has undoubtedly had the most damaging effect on the recession, and at the end of June, 2009 there were 2.4 million people out of work, and figures were rising.

The unemployment vacancy ratio was also halved during the past two years to just 18.3%, and a growing number of employees are being forced to choose between unemployment and reduced hours for reduced pay. This has a dramatic effect on levels of personal debt and thousands of families in the UK continue to struggle to pay off their debts each month.

Whilst the Council of Mortgage Lenders (CML) reduced its predictions with regard to the number of house repossessions, it still expects there to be 65,000 during 2009. Although this is 10,000 lower than its original prediction, it is still almost 50% higher than in 2008.

Despite an increase in credit card lending of almost £2 billion, unsecured debt has fallen for the fourth successive quarter. Whilst this may appear positive, it is also indicative that most banks remain reluctant to lend customers money, and this could hold back economic recovery.

The economic downturn has had a traumatic and devastating effect on both homeowners and those who are already struggling to cope with debt. Unemployment, reduced working hours and reduced job opportunities has resulted in many families keeping up their loan repayments, and many more than in previous years are seeking debt help and advice.