Global financial crisis hits UK families

According to research by PricewaterhouseCoopers (PWC), the credit crisis has wiped £1.9 trillion off the average level of UK wealth since 2007. Whilst the amounts vary considerably, PWC believes that this equates to a reduction of £40,000 for every UK adult over 18. This figure doesn't even take into account the millions of retired people, not to mention those residing abroad, who no longer receive the income they once did due to falling interest rates.

Even the most prudent and cautious UK citizens have been affected by the global financial collapse, primarily due to falls in property prices. The March 2009 Halifax House Price Index showed that the average UK property now stands at £157,326. House prices are officially 17.5 per cent lower than they were just 12 months earlier and have returned to the level that they stood at in May 2004.

The Financial Services Authority (FSA) recently stated that if property prices fell by 30 per cent from their 2007 high, over 2 million people would fall into negative equity. They also believe that half a million buy-to-let mortgage holders would face negative equity. According to the latest housing market report by Capital Economics, it is believed that property prices will fall by a further 20 per cent during 2009. If this pessimistic scenario was to become a reality, the FSA's worst-case scenario will easily have been exceeded.

Recently nationalised Lloyds Banking Group produced figures on 31 December 2008, showing that 1 in every 6 borrowers were in negative equity. Also, 15 per cent of its customers had a loan-to-value over 100 per cent. A further 13 per cent of borrowers had loan-to-values between 90 and 100 per cent. This means that they are also likely to enter negative equity over the course of 2009, which would further validate the FSA's grim prognosis.

Given the above figures, the results of a recent consumer poll by Which are hardly a surprise. As many as six million families fear that they will have their home repossessed, according to the report. In addition, 43 per cent of joint income households worry that they won't be able to keep-up with mortgage repayments. It is this climate of fear that is holding back economic recovery.

The deteriorating economic and employment situation means that banks have become increasingly reluctant to lend money to consumers. According to CreditAction.org, 33,600 credit applications for loans, mortgages and credit card applications are rejected every day. This is because financial institutions fear that changing personal circumstances are likely to result in borrowers defaulting on their credit agreements. It is simply no longer possible to keep on borrowing money to help with short term financial problems.

After a decade of growth, the global financial crisis has been a real eye-opener for many UK families. It has meant that many consumers have had to re-evaluate things that would have typically been taken for granted. The excesses of recent years have now been cut and families are increasingly turning to debt solutions, such as Individual Voluntary Arrangements (IVA), in order to overcome their growing financial woes.

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