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The report highlighted changing attitudes to debt and borrowing

Borrowers who believe rising house prices or insolvency will solve their debt problems risk “financial suicide”, a report has warned. The Personal Finance Research Centre found young adults relied increasingly on borrowing for day-to-day spending.

The report said parents also felt pressured to borrow to provide for their children.

But it warned against a mistaken belief that rising house prices or insolvency provided an easy route out of debt.

‘Disconnect’

According to the research, increased expectations about living standards, coupled with the ready availability and relative cheapness of credit, mean many borrowers have little desire to seek an alternative.

Pinning your hopes on housing equity or thinking that insolvency is the easy way out of debt is financial suicide Anne Gunther, chief executive, Standard Life Bank

The report said using credit to meet everyday expenditure was a way of life for many young adults, with the difference between needing something and merely wanting it often “virtually indistinguishable”.

The research also highlighted what it called a “disconnect” between the perceptions and reality of potential debt solutions.

A core minority of young adults see debt consolidation and insolvency as offering easy routes out of problem debt.

And all age groups see property as the ultimate solution to future financial needs.

‘Seismic’ change

The chief executive of Standard Life Bank, which commissioned the research, said consumer attitudes to debt had changed “dramatically” in recent years.

“Credit is not only freely available but considered a way of financing lifestyles rather than reflecting need,” Anne Gunther said.

“A seismic change in mindset is required to begin to unwind the chronic debt issues we face in the UK.

“Pinning your hopes on housing equity or thinking that insolvency is the easy way out of debt is financial suicide,” she added.

Standard Life is calling for current initiatives on financial education and capability to be reinforced and strengthened.

Borrowing is a sensible way for 93% of people to mange their financial lives Malcolm Hurlston, CCCS

The Consumer Credit Counselling Service (CCCS), a debt advice charity, pointed out that although the amount of consumer debt has risen in recent years, only about 7% of borrowers get into financial difficulty.

It also wants a more coordinated approach from government, regulators and individual providers.

“Borrowing is a sensible way for 93% of people to mange their financial lives,” said CCCS chairman Malcolm Hurlston.

However he stressed the importance of seeking professional help as soon as debt problems arise.

And he agreed the assumption that an increase in property prices would act as a “get out of jail card” was worrying.

In fact, he argued that owning a home could leave some borrowers at greater risk of debt.

“It’s time to put an end to the old shibboleth that buying a house is always good for you,” he said.

“A large proportion of the people who turn to us for help are those who have taken out mortgages which they cannot afford, leaving them highly vulnerable to interest rate volatility,” he added.

from the BBC news website 

 Info from the BBC news website.

House prices dip 1.1% in November

Higher interest rates have taken their toll in recent months

UK house prices fell in November as higher interest rates and increased mortgage repayment costs took their toll, the Halifax has reported. According to the lender, house prices fell by 1.1% in November, taking the annual rate of growth down to 6.3%, compared with 8.9% in October.

The Halifax calculates that the average residential property across the UK now costs £194,895.

It added that activity in the housing and mortgage markets was also slowing.

Pressure

The fall is the largest monthly drop since December 2006. It is also the first time since 1995 that the Halifax figures have shown house prices falling for three successive months.

Halifax chief economist Martin Ellis said the increase in interest rates between July 2006 and July 2007 had taken effect.

“Higher mortgage repayments and falling real earnings have put pressure on households’ income, resulting in a slowdown in both house price growth and activity,” he said.

But he said he believed the housing market still had a “very solid foundation”.

“Strong market fundamentals, a structural housing supply shortage and pent-up demand from a large number of potential first-time buyers will support house prices, preventing a sustained and significant fall,” he added.

Halifax argues the market is further underpinned by the fact that employment levels are at a record high.

Consensus

It supports the latest figures from Nationwide, which showed house prices suffering their biggest fall in 12 years during November.

According to its measure, annual house price inflation now stands at 6.9%.

At the same time, the Bank of England has revealed that the number of mortgage approvals has fallen to a near three-year low.

The Halifax data provides significant late support to the case for the Bank of England to cut interest rates Howard Archer, chief economist, Global Insight

The Halifax data is just the latest to reveal a slowdown in the property market.

The Bank’s latest report showed 88,000 new mortgages for home buyers were approved in October, 12% lower than in September and down 31% from October 2006.

Surveyors have also reported a continuing drop in enquiries from would-be buyers.

HAVE YOUR SAY Would it really be such a disaster if the average house price reduced from seven times average income Steve Thornhill Send us your comments

Howard Archer, chief economist at Global Insight, said the Bank of England’s interest rate setting committee should pay close attention to the Halifax data when it meets this week.

The Bank’s Monetary Policy Committee is already under pressure to cut borrowing costs amid growing signs that nervousness about the economy is hitting consumer spending.

“The third successive, and deeper, fall in the Halifax house price index in November raises concern that the housing market is headed for a sharp correction - particularly as it follows very weak Bank of England mortgage approvals data for October,” Mr Archer argued.

“The Halifax data provides significant late support to the case for the Bank of England to cut interest rates by 25 basis points to 5.5% on Thursday.”