Self-restraint has become an alien concept to large numbers of British women. We want things — the “must haves” we see in the magazines and newspapers — and so we just get them on credit.
Here’s a selection of the horror stories I’ve seen in the media in the past week: A woman from Essex has spent £60,000 on her dog in the past two years. The dog has £20,000 worth of clothes and its own four-poster bed; A woman from Wooburn Green, Buckinghamshire, is planning to pay off £15,000 worth of debt by selling her eggs in America. They are now advertised on an egg-broking website; In Britain, the average woman owns 19 pairs of shoes. The November issue of Marie Claire says that the must-have bag of the season is the Marc Jacobs Stam, which costs £1,900; The November issue of Vogue says there are 50 classic pieces of clothing “you shouldn’t be without”. The total cost of these items is £68,700; A married nurse appeared on television to tell her husband publicly that she had managed to run up debts of more than £60,000 in four years without telling him. This was almost entirely the result of unnecessary shopping and included £20,000 spent at Marks & Spencer.
What’s my point? Simply that, egged on in a huge shopathon by the credit-card issuers, celebrities on the make, retailers and magazines, we have become a nation of buy-now-pay-later debt junkies. If we see it and we want it, we get it. Then we refuse to deal with the consequences.
The woman who didn’t tell her husband about the £60,000 debt is far from alone in keeping her money secrets. A survey from First Direct bank appears to show that talking about cash has become the last social taboo. More than half of us discuss our sex lives with our friends, but a mere one in four would consider discussing our cash problems. Fewer than 70% of us feel comfortable discussing money with our spouses or lovers. And the young woman selling her eggs to strangers? She’s not alone in not knowing quite how to deal with her debt.
The average age of a bankrupt has fallen from 43 to 41 in the past four years and the proportion of younger bankrupts aged 18 to 29 has more than doubled.
Men are still more likely to be declared bankrupt than women — but we are catching up fast. In 2004-5, 32% of bankrupts were women. In 2005-6, that number had jumped to 39%.
The fact that we don’t or won’t understand our financial limitations is a particular worry when it comes to the mortgage market. Take the news from Abbey that it is now happy to lend people five times their salary to buy property. That means that someone earning £60,000 is able to borrow £300,000.
That isn’t necessarily a problem in itself. Buyers who take on such huge loans will feel extremely stupid if house prices fall but, assuming they really can afford their payments, it won’t necessarily bankrupt them. The question then is whether borrowing that much as a multiple of your income will ever really be affordable? Abbey thinks so. It said it based the amount it lent on affordability and took into account the borrower’s lifestyle and other debts, too.
But I’m not sure it’s that simple. Just because a mortgage is affordable when you take it out doesn’t mean it is going to stay that way for ever.
When people buy houses, it isn’t just their mortgage payments that cut into their incomes — its all the other things they think they need to pay for to go with the house. It is, for example, now a basic British rule that if you move house, you have to have a new sofa. The more houses change hands, the more sofas are sold in the UK. Then you need a new bathroom, new kitchen counters and laminate flooring for all rooms.
So for many the credit-card spending that goes on before moving house is nothing compared with the amount over the following three months. After that, it takes only a small cut in income or a small rise in interest rates for things to go horribly wrong and for home ownership to become not a joy but a burden.
Even if you can still afford the payments, having huge debts isn’t a nice way to live.
Having a vast mortgage is fine when prices are rising. Your home equity keeps growing and should anything go wrong in your life or should you want to change the way you live your life, you can just sell and move on.
But when prices aren’t going your way, it all becomes a nightmare. In a flat or falling market you can’t sell without making a loss. Even if prices stay steady, you still have to carry the cost of your stamp duty and all the transaction fees. If you are stuck with a house you can’t really afford or can afford only under certain circumstances, all the choices that make life tolerable are gone. You can’t leave a job you hate, can’t scale back your hours and, in a partnership, can’t decide that one of you should stay at home with the children.
In short, you can’t do anything except exactly what you were doing when your mortgage lender decided that your mortgage was “affordable”.
If you try hard enough, you can make the likes of a five-times-salary loan or even a negative-equity loan sound affordable in the short term. But I can’t see how you can possibly justify it as an affordable lifestyle choice.
First published in The Sunday Times 5/11/06