Mainstream credit shortage predicted to last until 2015

Even though the net debt to income ratio has fallen slightly in the last two years from its peak in 2009 of 2:1, the Consumer Credit Counselling Service have recently reported that it will be the end of 2014 before the UK sees that figure drop to anything like a manageable level of 1.5:1. There are currently no predictions tabled yet as to when we will see a return to the 2000 levels of 1.2:1.

The fall over the last two years has been attributed to less secured lending, which pans out with the difficulty first time buyers have had in getting mortgages from High Street lenders; the new figure reflects how much less of a person’s income contributes to a sizeable portion of their debt than two years ago.  So why are we no better off?  In fact, it seems we’re getting worse with more people turning to short term loans than ever.

Under normal circumstances, that would be good news, but with the UK still relying heavily on short term loans, there is a large amount of that ratio going on lending that is purely smoothing over cracks and is muddying the waters for the figures.

Debt to income ratio is a means that lenders assess an individual’s capability to pay back a loan and comes in two types. The first DTI assesses the must-pay debt accrued by householders, such as rent/mortgage, critical insurances such as life and buildings and contents. The second includes for such things as credit card debt, unsecured short term loans as well as those in DTI 1.

According to Wikipedia, the DTI for a US citizen to qualify for large secured lending such as a mortgage would equate to a figure in these terms of approximately 0.8/1. On this evidence, it is possible to see why individuals have struggled to get their feet on the property ladder. As things get closer to the 1:1 ratio, many lending authorities adopt the 1:NA theory, which means that the lender will consider the applicants case on merit and other means of ability to pay.

However, credit rating is not necessarily the UK consumer’s concern right now, according to the CCCS report. The very real issue is putting food on the table, with a significant rise in middle-aged people struggling to make ends met with inflation-busting rises on commodities and using short term loans to do it.

In 2005, the figure for those aged 45+ needing financial assistance stood at 28%; by December 2014, the report suggests that figure will rise to 47.6%.

It is no longer the young, low-income families turning to online short term loans, but middle-income, middle-aged families, who have perhaps been used to having some spare money in the past, now struggling to make ends meet with credit only available through short term loans and no forecast for mainstream credit availing itself any sooner, at least until 2015.

With predictions like this, it is no wonder pawnbrokers are increasing their High Street presence and payday lenders are becoming able to pick and choose their customers, to reduce the risk of bad debt.

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