Site predicts "divided Britain"

02/07/2009

People will suffer from higher personal debt levels because they find themselves shut out of conventional sources of credit.

According to The Motley Fool, higher unemployment rates in the recession will also lead to debt defaults growing in the UK.

The warning comes as consumer credit remains tight at banks that have been affected by the financial crisis.

Meanwhile, official figures have shown unemployment rising to a 12-year high of 7.2 per cent.

David Kuo, director at the Motley Fool, said: "There are ... groups of people who will not have any access to credit at all. In other words these are the people who will not be allowed to access credit cards, access mortgages.

"What we are seeing at the moment is banks are reluctant to lend money to people ... I think Britain will be a divided nation. Britain will be a nation of savers and people who cannot pay their debts."

Commenting on the new analysis, EuroDebt director Kevin Still said: "A major consideration for the future is how consumer re-build their credit standing after the recession. There is a common sense view that we have probably gone too far with regard to the level of access to both unsecured credit, however, those that have taken a responsible position during the recession and have done their best to deal with circumstances often outside their control should not be penalised in the long-term. Payment defaults on credit files stay on record for six years, so there is quite a long period before there is 'debt forgiveness' in the eyes of most lenders."

He added: "Many of the same lenders have been significantly bailed out because they didn't have the capital reserves to protect them against their lending mistakes. This may be a consideration for the new government Consumer Advocate. It has long been a point of contention of many debt solution providers that someone who has spent in excess of five years on a Debt Management Plan or IVA has shown a considerable amount of responsibility in managing their finances and would potentially be a better risk than those that have continued to incur debts and try and walk away from them. Historically, it has been easier to get credit with a couple of defaults or CCJs on your record than someone who has successfully completed a formal repayment arrangement.

"That cannot be right."

Tags; Debt Management and Banking, Credit Card Lifestyle, Recent Graduate Debt, Young Family Finances,

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