Lancashire resident Gordon Sanderson delivered a thoughtful and honest letter to local newspaper the Lancashire Evening Post last week. In his letter he suggested that consumer credit (in particular, mortgages) needs a rethink under current market pressure.
In the letter he states:
I was brought up in the 50s and 60s when people didn't need telling you can't live on credit. Mortgage lending was two and a half times income.
Credit is not just a problem for the borrower and lender; it feeds the whole system with false money, because credit is nothing but a promise of future payment.
Economists might call credit 'leverage', but it is only leverage when it is supporting a sustainable system.
Mr Sanderson's points are reasoned. He believes lending is a different beast to when he was younger. In many ways it is. He does however provide poignant thoughts about credit, handling it and lending it.
Credit is fine when managed properly. Good debts and bad debts are only separated by the way it is managed. Car finance, credit cards and rent can be both good debt and bad debt. Any debt making a positive lifestyle change is good debt. It is manageable and serves a purpose. Debt becomes bad when the debtor is unable to pay the agreed terms in full and on time.
It becomes a balancing act whether debt is 'good' or 'bad'. Mr Sanderson indicates that governing bodies should play a role in the balancing act to encourage regulated, responsible borrowing.
If encouraged to live on credit, a consumer will very quickly find problems, both creditor/ debtor can (and usually do) suffer heavily.
Help from the top?
At the beginning of Mr Sanderson's letter he suggests if politicians thought about it, "The present trend for mortgages beyond 25 years would be banned." While 30 and 35 year mortgages make repayments lower, the higher additional interest could hurt consumers.
There are arguments that the 25 year model is rigid and outdated. The 30-35 year new model could however also be seen as encouraging more credit to be taken when the market is already tight. Is the situation one requiring further regulation from the government? Some (like Mr Sanderson) think yes.
The FCA already deals with consumer credit laws, proposing rule changes and best practice. Outside of government, it earns money from fees and members. Given consumer credit plays a big role in economic growth, when required; the government could be wise to be more actively involved.
Perhaps a debate on 30 and 35 year mortgages could bring the issue to the forefront of politicians' minds when making decisions about our economic future?
Help for lenders
As a debt recovery firm, most of our work is with debtors simply needing a suitable repayment package. Even good debt can be affected by lifestyle changes including jobs. That is where AYOM can assist with the recovery. When it comes to bad debts however, the recovery process can be much more complicated.
It is not impossible to recover bad debt, but it is harder. We encourage lenders to stay in contact with debtors to check their financial status, and debtors to assess themselves regularly. That way even if a debt recovery firm is needed, we can resolve the issue much faster.
If you are a creditor needing advice on debt collection, including alternative options, you can get in touch with AYOM. We can help mediate existing debts, serve documents to debtors and provide legal guidance alongside collections.
If you'd like to speak to an advisor you can call 0800 130 3357 or email firstname.lastname@example.org. Lines are open 9am-5pm Monday to Thursday and 9am-4pm Fridays. Alternatively you can make an enquiry using our simple contact form here.
If you are a creditor needing assistance, AYOM are here for you.