‘Debt is so cheap, peo­ple have been able to keep the party go­ing’

The Daily Telegraph - Your Money - - FRONT PAGE -

at banks but Mr Glad­stone said con­sumers were just as guilty.

“We are due an­other re­ces­sion,” he said. “This has been the long­est re­cov­ery since the Sec­ond World War and this is what hap­pens when you are over­due a re­ces­sion. Peo­ple for­get what it was like when half their friends lost their jobs.

“Many have for­got­ten they need a buf­fer of money. There are lots of risks in life and even though the chances of any in­di­vid­ual one hap­pen­ing are small, it’s likely that some­thing won’t go to plan.”

Mr Brodie said he shared some of Mr Car­ney’s past con­cerns but sug­gested that his warn­ing might have been geared more to­wards cool­ing down the in­dus­try – and that it has had the re­quired ef­fect.

“A grow­ing econ­omy needs some fuel and of­ten that fuel is credit,” he said. “The Bank doesn’t want to cut that off al­to­gether, oth­er­wise that hurts the econ­omy, but they don’t want it to be­come overblown.”

De­spite the con­cerns, in this cli­mate of record low rates bor­row­ing could make a good deal of sense for some – par­tic­u­larly trust­wor­thy bor­row­ers with high credit scores.

Scott Gal­lacher, an ad­viser at wealth man­ager Row­ley Tur­ton, said some of his clients had been able to take ad­van­tage of low rates on debt. “If you have a mortgage that you could pay off but you’re only pay­ing 2pc, you might think ‘If I in­vest that money, will I make 2pc?’. You prob­a­bly will. It’s not with­out its dan­gers but it could make sense for you,” he said.

He also said low rates had helped one of his clients cut an­nual in­ter­est pay­ments on a £1m mortgage from al­most £50,000 to £5,000, al­low­ing them to keep pay­ing school fees, for ex­am­ple. “Debt is so cheap that peo­ple have been able to keep the party go­ing,” Mr Gal­lacher said.

By far the most pop­u­lar rea­sons for tak­ing out loans with Free­dom Finance were to fund home im­prove­ments or to buy a car.

Mr Brodie said there were good rea­sons you might want to take out finance, say­ing “it all de­pends on in­di­vid­ual cir­cum­stances, but for many it will be the right an­swer”.

He said uncer­tainty around Brexit had made peo­ple more re­luc­tant to move home, choos­ing to stay put and re­fur­bish in­stead. “A new car too is quite a big pur­chase. Peo­ple in the mid­dle classes will still need to raise funds for that and they will be able to bor­row rel­a­tively cheaply.”

But Mr Glad­stone had con­cerns. “There are def­i­nitely times when low-cost debt can work if you use it for an­other sen­si­ble in­vest­ment,” he said. “But there’s good debt and bad debt. If it’s low cost and you have a good plan to pay it back, it can work, but there are al­ways risks that we can’t pre­dict.

“All it would take is for a re­ces­sion to come along and sud­denly that £20,000 you took out against your house doesn’t look like such a good idea.”

Newspapers in English

Newspapers from UK

© PressReader. All rights reserved.