Or have we learned our lessons?
December can be a time of gross overspending, often followed by regret in January when the credit card bill arrives. The past decade or so has seen much belt-tightening for consumers, partly from the lack of available credit, but also unemployment and pay freezes have been prevalent in UK households. As the tables are turning, are we about to make the same mistakes again?
Making up for lost time
Credit has been somewhat difficult for many to get their hands on in recent years, with lenders battening down the hatches on what credit they can offer.
However, as the tide started to turn last year, it seems Brits wanted to make up for lost time, exercising their consumerism habits again, that had been starved for a while.
In November 2014, unsecured credit for the month equalled £1.25million. This was the highest increase in over seven years, and added to the household average of £9,000 total unsecured debt.
*unsecured debt includes unsecured loans, credit cards and bank overdrafts
Confidence rising
As the confidence amongst consumers rises, with unemployment figures now on the decline, zero inflation and more disposable income from low mortgage interest rates, people are once again seeking credit to splash out on the things they have perhaps been “missing out on” during the recession.
The taste of delayed gratification is perhaps even more sweet for some.
Lenders confidence is also rising, and credit card companies are widening their approach by increasing credit card limits as well as consolidating borrower’s debts to win their business.
PWC predict that the average household debt will be £10,000+ by December 2016, and there will be a 170%+ income : debt ratio by 2020.
With the credit crunch just around the corner, both consumers and lenders seem to be breathing a sigh of relief, however, with a light at the end of the tunnel, it is fundamental that there isn’t a relapse, or worse.
Take action for your own finances
Individuals can ensure their own financial position is looked after. Here are a few tips:
- Be patient – if the new kitchen, or the new car have been on the back burner for all these years, don’t just make a knee-jerk decision because credit is now available. Take your time to shop around for the best deal and decide if the cost is necessary, especially if credit is required.
- Economise – find expenses that can be cut back on to save money for other luxuries. Adopt a saving habit, rather than a credit habit.
- Remortgage – ensure your mortgage is at the best rate so as to not be footing-out on mortgage interest unnecessarily.
- Take care when taking credit – only borrow money when it will be for the greater future financial good of you and your family. If you have debts then work quickly to pay them off, rather than adding to them.
- Be aware of your options – research the various types of loans before committing.
Is a credit bubble likely?
These spending and lending patterns certainly bear resemblances to the activity pre-recession. But is that enough to assume a new credit bubble will arise?
Whilst it is too early to pass judgement, one would hope the severity of the last one would leave a bitter taste in everyone’s mouth.
Economic stability is taking shape, however, the bottom line is that it is easy for people to make the same mistakes again, given half a chance.
Dental & Medical Financial Services are specialist advisers to doctors and dentists. We keep up to date with investment and economic trends so we can keep you best informed.
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