All doom and gloom?
Every day a new report on how, ‘debt is crippling Britons’ graces the headlines of our much respected financial newspapers, agreed it is very worrying to hear stories of graduates entering the employment market with £20,000 of loans and huge credit card bills looming over them, and this is them just getting by!
This is, however, only one side of the story, like any good accountant would tell you, we have to check the other side of the balance sheet to get a true picture. Indeed the average UK person is now in more debt than they were last year, but also they have much greater assets, so you can’t look at one side without the other.
The strength of the sterling pound since the UK opted out of Europe’s exchange rate mechanism has meant the average standard of living for a Briton is much improved. Most of the extra wealth is due to the growth in property values and the considerable investment that Britons continue to make in property at home and abroad.
It is against the growth of those assets, that much of the growth of the debt must be seen. As long as property values continue to rise, we can expect people to access cash by using their property as the security, and so debt shall grow.
There is nothing wrong in this as long as people understand fully the consequences of not repaying their debts and are prepared at the last resort to sell their property if they need to find the funds to meet their commitments. The real problem is when property prices begin to fall. It is then that people can find that their property assets no longer support their level of borrowing and they are caught in a trap, which, if they can’t adjust their lifestyle and their payments, can force them into bankruptcy.
Last months resurgence in property value has suggested that this may not be in the very near future, so as long as the pound sterling continues its good form, the debt problems certainly aren’t all doom and gloom.
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