Loans Scotland

According to the government 2012 will be a year of plenty with the golden shower of the Olympic Games to sustain us; but not everyone is quite so sanguine with fool.co.uk leading the chorus of doomsayers who believe that life could get very hard for people living in the UK.

Lets not discuss the cost of the Olympics which is bound to grow beyond its already gargantuan 10 billion sterling and lets not quibble over the supposedly huge tourism benefits which I personally doubt. Sure it put Atlanta on the map back in 84 but wasn’t Atlanta alredy putting itself on the map by reinventing itself as a new style Southern town. In the case of London it is already an enormous tourism destination and is unlikely to grown any more. Look at other Olympics cities and you realise that they simply get left with a portfolio of oversized venues that nobody really wants to use.

The Fool have a come up with a list of depressing predictions about what the UK will look like in 2012 as far as personal finance is concerned that is enough to make anybody want to emigrate (by 2012 the imploding Spanish property market will have bottomed out so there might be a place to start)

1. The average house will be worth £13,000 less in 2012 than today
2.  Seven out of ten credit applications will be rejected
3. House Price to Earnings ratio will improve for the first time since 1995
4. Pensioners will be worse off in 2012 than in 1980
5. Households face an £8,000 shortfall in their family budget in 2012

So the good news is that P/E for housebuyers will have improved: the bad news for houseowners is that is because houses will have fallen in value over the next five years. Points 4 and 5 are certainly the most distressing in real terms since we are talking about the potential impact that inflation and the ravening jaws of government taxation will have on our purse!

Is this a worse case scenario? Quite probably not as some commentators are suggesting in hushed tones that the UK will stagnate for ten years as the reality of global shifts become more apparent to our economy. Notably the move from Europe to the East which is only just beginning to consume and where savings ratios are very high. If that trend continues then when recession does come we can expect our economy to sink further and faster than elsewhere.

Bankruptcy statistics always get the interest of the press mainly because they are dramatic. So for example a record number of people petitioned to go bankrupt in 2007! Woooooooooooh! In England and Wales a total of 53,114 people petitioned to bankrupt themselves after being unable to keep up with their debts, as opposed to having their creditors call for them to go bankrupt, according to the Ministry of Justice (aka Staatspolizei). The figure was just under 1 per cent higher than the number of people who asked to go bankrupt in 2006, but it was a 44 per cent jump on the total for 2005 and 2007 figures were nearly double 2004’s level.

But there was a dip in bankruptcy petitions from debtors during the final quarter of the year, with just 11,703 people asking to go bankrupt in the three months, the lowest level since 2005 and 10 per cent down on the same period of 2006. At the same time the number of creditors who petitioned for people to be made bankrupt also fell during the final quarter of 2007 to 4,614, 11 per cent fewer than during the last three months of 2006 and at the level last seen in 2004.

Why did they drop? Here’s a theory. With banks being hammered by “subprime” maybe they decided to reduce the amount of bad debt on their books by calling it good debt! In other words they cut their customers some slack and gave them more time so that their own figures would look a little better. By not pursuing customers to bankruptcy they avoid the stigma of increasing their allowance for bad debt.

If this is the case then maybe we will see the figures rise again precipitately in 2008.

Anyway… is bankruptcy the statistic we should focus on? Nope more helpful is savings ratios which really demonstrate what people are doing with their money. As savings ratios go down we know that people are essentially borrowing from their future!

With the savings ratio at an all time low, and more and more people struggling to balance bills at the end of the month, the government is asking what is to be done to improve people’s management of their finances.

Proposals to integrate financial education into secondary schools sounds far too little - a question of violin playing while Rome burns. Furthermore it will have no impact upon the millions of adults who have this problem now. Free financial advice lines from the government might do a little, but are more likely to be used by people in crisis and not as the basis for fundamental design of people’s financial planning.

Perhaps a more radical solution might be to not allow financial companies to extend credit willy nilly to anybody who approaches them since it is abuse of credit that seems to cause the most problems. Once a consumer is on the credit mill just about everything else disappears out of sight such as pension planning and planning for the future.

At the heart of the problem is the nation’s addiction to satisfaction now whatever the cost and a belief that owning a house will solve any problem. Looking at the US housing market implode this year is a timely reminder that housing is not a financial services product and that a balanced portfolio is still the best solution to long term planning.

The IMF (International Monetary Fund) is predicting that house prices will fall after rising 50% more than they should have done over the past decade. They are overinflated and need a correction. Fortunately we are not alone -it is even worse in Spain and Ireland. As far as the IMF are concerned, the European housing market needs correction to be sustainable in the long term.

Do we think that Britain’s addiction to investing in property is about to come to an end? Not likely. Every drop in price will simply lead to investors “bargain hunting” because we are so damned irrational about the whole thing.  Anyway, none of the analysts think that there will be a full scale crash, more like a 2-3 percent fall over the next couple of years.