Tag Archives: back to the black

UK PROPERTY STILL OVERPRICED

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House prices up?

I read recently that domestic property prices in the UK increased by an average of 1.8% over the last month. That seemed surprising, given the economic situation but, according to a friend who is “in the know”, it isn’t a meaningful trend because the volume of sales is still small.

… or down?

 

However this rise followed “a big drop” the previous month, according to the Halifax. (I think it was 0.7%) Such a wide variation from month to month would seem to support the fact that these are not really meaningful trends. The less volatile three-month index showed a drop of 1.2% in the quarter.

 

http://www.bbc.co.uk/news/business-11692255

 

First-time buyers still priced out

 

When last month’s drop was announced, a newsreader on BBC Radio 4 actually added: “however, first-time buyers are not taking advantage of the drop in prices”. Well, is that so surprising? Even if that month’s price drop had been a meaningful statistic, which it wasn’t, 0.7% is not much of a drop.

 

More importantly, UK property is still greatly overpriced. Who says so? The “Economist” magazine’s survey of international house price comparisons, taken in turn from official stats on price/rent ratios. According to the table the magazine published in late October, average UK property prices increased by 3% year-on-year; more importantly, property here is 32% overpriced.

 

To compare countries’ housing data over time, including price-to-rent ratios, see www.economist.com/houseprices

To view my guide to personal debt, “Back to the Black: how to become debt-free and stay that way”, go to www.back-to-the-black.com

 

 

UK PERSONAL DEBT TRENDS

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My thanks to the charity Credit Action for their latest credit data.

Previously, on my blog …

The last time I blogged about this, I reported that the “write-off rate” on consumer lending by UK monetary financial institutions to individuals increased further in the second quarter 2010 to 7.4%. In that quarter, UK banks and building societies wrote off £3.47bn, most of which was credit card debt.
Secondly, Credit Action reported that average household debt in the UK was £8,590 (excluding mortgages). They went on to say that “this figure increases to £17,896 if the average is based on the number of households who actually have some form of unsecured loan.”

That second statement puzzles me; I don’t agree with the idea of giving a second average that includes only those who have debts. An average is an average, including the highs and the lows and everything in between. If we exclude those with the very lowest debts (i.e. zero), then we should also exclude all those with the very highest debts, i.e. all of the “outliers”.

By the way, if one included mortgage debt, then average household debt in the UK was then about £56,690.

The report concluded that total UK personal debt at the end of August 2010 stood at £1,428bn, a slight increase.

Now for the update

The latest Credit Action report, which I received last week, still gives the second-quarter figure for the write-off rate on consumer lending, i.e. 7.4%; presumably the third-quarter figure is not yet available.

Total lending in September 2010 rose by £0.4bn; secured lending increased by £0.1bn in the month; consumer credit lending increased but only by £0.3bn. (a step-change from pre-recession days: total lending in Jan 2008 grew by £8.4bn)

Total consumer credit lending to individuals at the end of September 2010 was £216bn. The annual growth rate of consumer credit increased 0.3% to 0.6%.

Average household debt in the UK is ~ £8,562 (excluding mortgages). Again, they add, “this figure increases to £17,838 if the average is based on the number of households who actually have some form of unsecured loan.” Again, I find that second figure rather artificial.

Total average household debt in the UK (including mortgages) is approx £57,737; that’s an increase but only a very small one.

Your debt or the country’s debt?

If you thought that figure was highish, the report goes on to say that “if you add to this the March 2010 budget report figure for public sector net debt (PSND) expected in 2015-16 (excluding financial interventions) then this figure rises to £109,960 per household.” Sorry, but that is rather a jump of logic; the PSND is not my personal responsibility, although I would indeed be worried if I thought Mr Osborne would send the bailiffs round to ensure I cough up my share of the UK debt. Thus I feel this excellent report is slightly compromised by making the raw data appear worse through this addition.

And another thing … that last calculation is based not on current government borrowing but the projection for 2015-16; a lot can happen before then. “Things can only get better”, as the song says; at least I hope they will. Let’s hope, in particular, that the PSND in five years is lower than that prediction.

Back to the present

Finally, and if we deal solely in current and personal realities, total UK personal debt at the end of September 2010 stood at £1,455bn; as you can see, that’s a further slight increase. Based on their latest report, the people at Credit Action can still make the same statement that I quoted in my book “Back to the Black”. In their words: “Individuals owe more than what the whole country produces in a year.”
It is sincerely to be hoped that this worrying statement will be short-lived, and that GDP will continue to rise and personal indebtedness will start to fall.
——

To find out more about my new book “Back to the Black: how to become debt-free and stay that way”, go to www.back-to-the-black.com

CONSUMER CONFIDENCE INDEX

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Nowadays, consumer confidence is taken as an even more important barometer of the economic health of the UK than is any index of industrial output. That’s why it was rather depressing to read this morning that confidence is at its lowest level for more than a year, according to a monthly confidence index published by the Nationwide Building Society. This drop is, of course, in anticipation of the spending cuts to be revealed in the Comprehensive Spending Review next week.

Experts at the British Retail Consortium predicted that the figure would be “volatile” until after the impact of the cuts was known, which seems to me “a PhD in the bleedin’ obvious”. However when we actually look at the numbers, I wonder how meaningful is this “index” and the media coverage it’s had. The September index was reported by the BBC to have dropped by 9 to 53 in September. Thus a drop of 15%. In a month. By contrast, it rose 10% in August. Can both figures really be true? Of course I realise that recent announcements of planned cuts could have prompted a drop this large; however I have looked at the Nationwide website and it’s clear that this index fluctuates greatly almost every month. It was only 45 a year ago; moreover it was 100 only a couple of years before that, at a time when the credit crunch was already well underway. Surely a more meaningful measure of confidence is actual retail sales?

This is clearly a case for study by BBC Radio 4’s excellent programme “More or Less”, which looks more deeply at numbers in the news, especially when they might have been misrepresented (Can that really happen? Shock, horror!). Naturally, most of us know only what the media tells us about the impact of the cuts. For example, I thought I read at the start of the process that the spending reductions would be spread over 4 years or so; however, we never hear that fact nowadays. Whenever the media talk about, say, 25% cutbacks in departments that are not being ring-fenced, the stories give the clear impression that the cuts and the resulting job losses will be more or less immediate.

A related example: one of our allegedly serious papers carried an interview last week with a single mother who would be seriously affected by the recent decision to restrict total benefits payments to UK average income. The article clearly stated that Ms X would have to consider a move out of London, away from family and friends, “within the next couple of months”. However the benefit limit decision will not be effective till 2013; a fact that was not mentioned in the story. Why not? Could this omission be because bad news sells papers? Am I being too cynical?

Here’s my point: the tendency of many media outlets sometimes to oversimplify and usually to paint the worst possible picture of any new development adds further to the stress on people who are already in debt or who think they might be in the future. It’s important to put things in perspective and that’s something that’s hard to do after reading some of our doom-and-gloom media coverage. As that old French philosopher said (at least I think he was a French philosopher, but my information comes from the media), “my life is full of great disasters, most of which never happened”.

If you have concerns about your own debts, read my book “Back to the Black” about the necessity of putting your financial situation in perspective before deciding your response to any demands from your creditors; or any piece of bad news you read in the press.

PAYMENT PROTECTION INSURANCE – RECENT MEDIA COVERAGE

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In my last post I announced a new website dedicated to my eBook, “Back to the Black: how to become debt-free and stay that way”. You’ll find the site at http://www.back-to-the-black.com/

In the book I refer more than once to Payment Protection Insurance (PPI), about which I had a healthy scepticism based on personal experience. Ten years ago, my IFA persuaded me to take out PPI; after several hefty premiums, I discovered that, being self-employed, I would not have been able to claim from the policy. I complained of mis-selling, the policy was cancelled, I was promised a refund of premiums paid. I can’t recall ever getting that refund.

That was then. More recently, following lots of adverse media coverage, the whole PPI area was said to have been tightened up. Therefore, and in the interests of balance, I asked a practitioner who knows the subject to give me a current overview of the product. This he did and I included his comments in full within my book. Here’s what he said:

My view of PPI is: Very good product, where appropriate. Especially in these tough times.

BUT

1. Ensure product is specific to your circumstances – self employed / agency work / contract work etc.

2. What is non-pay period – some policies don’t payout for first 3 months!

3. ONLY go for monthly based policy, not single premium – unless it is at wholesale cost, with no commission attached.

4. Check what you have to provide to claim – sign on/ monthly certificates / doctors notes etc etc

5. Check how long payment lasts.

It is a valuable product on credit cards, as the charge is only based on the amount outstanding, so during good times and if you clear your card, it costs nothing. Valuable on a mortgage, but again do research, don’t just take the mortgage provider’s contract. Search around.

The sale of PPI has changed significantly over the past year or so, as many past products are now being claimed against as mis-sold, so providers are more cautious in ‘stitching up’ the client. As always, look at the small print and take notes, and send written confirmation of your understanding to the provider of any conversation you have had.

But is the matter resolved? This month’s edition of the magazine “Moneywise” has an article entitled: “The 10 financial products to ditch now”. (the front cover and the web version were even more forthright: “10 rip-off financial products.”)

Here is the piece:

PPI, which promises to cover the repayment on a debt if you lose your job or are unable to work due to illness or accident, appears to be a prudent way to protect yourself from huge debts. But, unfortunately, the banks’ hard sell of PPI meant that thousands of people ended up with a totally worthless product. “They were selling PPI to the self-employed,” says Peter Staddon (*see below), “although they would never have been able to claim for unemployment.”

However, don’t let this put you off all plans. “Some policies are good. Look for those sold through brokers as they can arrange cover that suits your needs,” he adds.

Alternatively, consider income protection insurance, which can pay until you retire, and is often more comprehensive.

SAVING: The figures vary but, according to which? PPI could add an additional £2,000 to £3,000 to a £7,500 five-year loan

USELESSNESS RATING: There are better protection products available

* Peter Staddon, by the way, is the head of technical services at the British Insurance Brokers’ Association. His view should therefore be taken seriously.

PPI can provide valuable protection but beware, especially if you are self-employed.

Finally: the same issue of Moneywise confirmed that new customers with Lloyds Banking Group will not be “ripped off by the sale of PPI (their wording, not mine) alongside loans, mortgages and credit cards after the bank announced it would stop pushing the product. Lloyds is the first of the banks to take this step”.

A most welcome step.

“BACK TO THE BLACK” NOW AVAILABLE

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My book, “Back to the Black: how to become debt-free and stay that way”, is now available as an eBook on the “Smashwords” site.

Ten years ago I ran up heavy debts when my business collapsed. I had started a training business seven years before, after a long career in the chemical industry. When my enterprise ran into difficulties, credit was easy, so I could fund it with loans and credit cards. In the short term this plugged the gap; I thought things would improve. They didn’t.

So I closed the business down, looked for a job, and tried to work out how to solve my debt problem. My first intention was to pay off everything I owed but I knew it would take time. I didn’t think I could get the debts down to a manageable level in less than five to ten years; my creditors would not give me that kind of time.

My financial adviser recommended bankruptcy. I had by then sunk all my assets into the business, so he said that there could never be a better time for me to go bankrupt. For many reasons I didn’t want to do that although after a fairly short period, I would have been debt-free. The advantages and disadvantages of bankruptcy – and its modern alternative, the IVA (Individual Voluntary Arrangement) – are set out in detail in the book; recent developments have taken away some of the former stigma and the practical disadvantages of these solutions.

However, I decided instead that I would negotiate a deal with my creditors myself. This approach I call “Plan C – negotiate a deal” – and you’ll find it in Chapter 10 of the book. I made an offer to all my creditors for full and final settlement. Eventually all of them, apart from the taxman, agreed to the deal.

At the time, I thought my debt problem was insurmountable. It was a very stressful period. However, I was lucky to have the support of a debt advice agency and other professionals and friends.

I came through the experience; I learned a lot.

I was not, and am not, happy with the fact that I was unable to pay my debts in full. After the event, however, I decided to write up what had happened, partly for my own benefit. I even thought that maybe it would make a couple of newspaper articles. If other people with debt problems could benefit from reading about my mistakes and what I’d learned, then something good would have come out of it all.

Those articles eventually grew into a book – “Back to the Black” – which sets out what I call the three main strategies for dealing with debt. It also contains lots of advice for dealing with debt-related stress and with the demands of creditors.

In summary, my book is based not on a theoretical approach to debt, but on painful experience. I hope that you can benefit from reading about that experience. If you have debts, whether they are consumer debts or business debts or both, the principles for dealing with them are the same. The experiences you are going through, though unique to your situation, will have much in common with mine.

Go to www.smashwords.com/books/view/22886 if you’d like to know more.

MR MICAWBER LIVES!

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Yesterday I was spending an evening with friends when one of them said he’d just started to read the free edition of “Back To The Black”. I asked what he thought of it so far and he said what friends do, that he liked it. However, he said, there was one thing missing. Naturally, I wanted to know what was missing.

“The bit where you advise people to work out how much they can afford to spend … and then spend a little less.”

Barry was right; I hadn’t specifically advised people to do that. However, I had instead quoted the dictum of Mr Micawber. In case you’re not a fan of Dickens, Mr Micawber was a character from “David Copperfield”, who famously said, “Annual income twenty pounds, annual expenditure nineteen pounds nineteen shillings and sixpence, result happiness. Annual income twenty pounds, annual expenditure twenty pounds, ought and six, result misery.”


My friend is a very well-read guy but the message was that I should perhaps have been a little more direct with the advice.

BACK TO THE BLACK: RADIO INTERVIEW

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Today I was a guest on the drivetime show at Bristol’s community radio station BCfm, (link here for website), being interviewed live by Station Manager Phil Gibbons about “Back To The Black”. Although I had been a presenter on the station for much of last year, it was a new and pleasant experience being a guest. For a start, I didn’t have to pay for my coffee this time. Seriously though, who doesn’t like being asked questions about a topic in which they are interested?



My interview was interspersed with two others: with Neil Innes and Michael Palin, no less! This was because the station was running a live outside broadcast from Bristol’s Colston Hall, where both were about to perform in the city’s Festival of Slapstick. Phil said I could now dine out on the fact that I’d appeared on a chat show with these two luminaries; and that they “kept cutting across my airtime!”

Phil asked a very good question about one of the tips from my book. I’d mentioned some of the basic stuff about communicating with creditors, making an offer, etc, and he pointed out that those tips could be obtained in other books, websites, etc. “People know that’s the thing to do” he said, “so why don’t they do it?” My answer was that people like to read stories rather than to be told what to do, so the fact that my book’s advice is interspersed with the story of my own debt problem and how I worked my way out of it, will hopefully make people more likely to act on the tips given.

Phil wrapped up the interview by wishing me well with the book: “Hope it makes you rich – no, sorry, that’s not the point. I guess your point is to stop other people becoming poor”. To which I readily agreed.

In fact the Free Edition of “Back To The Black: how to become debt-free and stay that way” is available as a free download, in .pdf format, at www.scribd.com/michael_macmahon

BACK TO THE BLACK: MEDIA RELEASE

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Here’s a copy of a media release I’m circulating today, regarding the launch of “Back to the Black.”

MEDIA RELEASE

Date: 18 January 2010

From: Michael J MacMahon

For immediate release

Subject: New book launched: helping debtors get “Back To The Black.”

AUTHOR INTERVIEWS AND PHOTOS AVAILABLE

___________________________________________________

Summary:

An author who faced bankruptcy shares what he learned and reveals the key questions that can help individuals deal with debt.

___________________________________________________

A new self-help book for people with debt problems has been launched today. “Back To The Black: how to become debt-free and stay that way” is based partly on the author’s practical experience of escaping bankruptcy and partly on the principles of coaching. Chapters 1-3 in their entirety are now available as a free downloadable file, at www.scribd.com/michael_macmahon .

The book’s author, Michael J MacMahon, says: “A few years ago I survived a major financial crisis. While digging myself out of that hole, I became interested in the principles of coaching, especially the idea that most people have the knowledge and resources to solve their own problems, if only they get the right support. One of the best ways of providing that support is to ask the right questions, because questions help to focus thinking, especially at times of stress; and being in debt is certainly one of those times. The book is thus derived from my experience and also demonstrates how those key questions can help anyone get out of debt.”

The book has been favourably reviewed by debt advice experts at the UK’s Citizens Advice organisation. Some of the best advice is simple practical stuff, for example:

  • Start by listing all your debts, bank balances and assets: knowing the truth is better than a vague feeling of threat.
  • Communicate with creditors: the problem gets worse if you ignore it.
  • Make an offer: any offer, no matter how small, is better than none.
  • Never negotiate on the phone: do it in writing; it’s less stressful.
  • You don’t need to be alone: get help from a debt advice organisation.
  • Keep records of all communications: it pays dividends.