Ten years on from the credit crunch: it’s about survival not spending
It’s not the kind of anniversary that requires a party but ten years ago, following too much borrowing in the US amid soaring interest rates, the first ripples of the credit crunch crossed the pond and the UK began to suffer.
By September 2007, queues were forming outside Northern Rock as we witnessed the first run on a high street bank since the 1860s.
“Financial crisis” became “Credit crunch”, then “economic downturn” and then “recession” – all delivered by the now familiar drawl of TV journalist Robert Peston.
While there have been significant reforms in the banking sector since then – notably the crack down on easily available high cost credit - the FCA and the Bank of England are again concerned that unsustainable levels of consumer borrowing are driving economic growth.
The level of unsecured debt in the UK is now £200.9 billion – the highest since 2008.
Meanwhile, average weekly earnings are stagnant at best and benefits frozen – a problem for so many families with inflation at 2.6%.
Looking back at the last ten years, we’ve seen big changes here at Christians Against Poverty, not least in our network’s growth to meet the need, thanks churches across the UK.
The nature of clients’ debt has substantially altered too.
In 2006, secondary debt (credit cards, store cards and loans) made up 85 per cent of the whole. On average, people had just £1,411 of priority debt (bills, rent or mortgage) of a total £16,260 debt per household.
Figures from 2016 show the amount of priority debt has tripled in the past decade. Arrears on essential household bills now account for 32p in every £1 of debt owed. Average priority debt per household is now £4,582 from a total debt of £14,298.
On top of that, nine in ten CAP clients report that they took out credit to pay for a household bill or serve another debt.
Our concern is this increase in consumer credit is driven by households using credit they can’t afford as they struggle to keep up with essential household costs.
In short, for the people we’re helping, this isn’t about too much shopping - it’s survival.
The Financial Conduct Authority (FCA) says 2.1 million card holders have persistent high levels of credit card debt which they may be struggling to repay, a further 1.6 million are making minimum payments. We have to ask why? What is happening in their lives that is causing this?
Unless we first address the difficulty many face paying for their basic living needs, we will continue to see unsustainable credit use and problem debt grow.
While the credit crunch began with big banks, the impact was felt among families who saw jobs lost, businesses go under, homes repossessed. It's this human cost that must not be forgotten - people's physical and mental health, the relationships that suffer and the children.
New CAP clients are being chased for ten separate debts, on average. That’s ten companies trying to collect in person, or by phone, letter or email. It's a hugely stressful way to live.
The result is stories like that of Pete, who struggled to pay rent, council tax and other debts; hid himself away and, tragically, was beginning to think suicide was his only option.
Thankfully, he was able to contact CAP and rather than being evicted, he was able to keep his home and, supported by his local debt centre, become debt free through a Debt Relief Order.
Pete has now trained to deliver our CAP Money Courses to help others prevent their own personal credit crunch. Let’s hope others can take his lead.