Mortgages rarely make it onto the front pages of national newspapers except when the rate of borrowing goes up. However, a recent revelation by one lender was so startling that it made it as the lead item not only in the newspapers but on TV news programmes too.
Apparently, you can borrow up to seven times your income to buy a house. Personally speaking, I can’t see the point of having a bigger house when the thought of the debt hanging over it would prevent me from sleeping soundly under its roof.
That’s not to say that I don’t use debt. Like many people in this country I have a mortgage, a personal loan and a number of credit cards.
Last week I had a call from one of my credit card providers - probably because I’m not maxed out on that card. The friendly chap on the other end of the phone was all for sending fifteen grand to my current account at a special introductory low rate of interest. The money could be there to spend tomorrow if I wanted…cue dreams of sun-kissed beaches and a new car to replace my battered old Saab.
It seems that debt is quite easy to get, unless you have a credit file like one IFAonline hack (see Matt West’s debt blogs if you want all the gorey details). Just snap your fingers and instant gratification is on its way. And I don’t think I’m alone here. Most people I speak to, including those of modest means, receive these tempting offers regularly.
When it was last counted in 2002, the retirement savings gap was £27bn. That was the amount by which we were under-saving for retirement each year. I bet it’s a lot bigger now.
Now, let’s say we want the nation to save rather than spend. How easy is that?
First, you have to persuade people that it’s important. A holiday in 20 or 30 years’ time doesn’t have the same appeal as one next month or next year. This is a bit of a tall order, but the financial advisers of this country do a sterling job getting many people to think about their financial futures.
But the process doesn’t stop there. After you recognise the benefit of saving, you need to get advice.
An adviser will ask you factual questions about you and your family for an hour or so. Then they will ask you about more aspirational things like what sort of lifestyle you want when you get old, whether you want to pass any of the wealth to your kids and so on.
You then go away and come back a week or two later. In the meantime, the adviser has done an exhaustive analysis of all the data he or she collected and produced a comprehensive report. This report is explained in great detail. The report might (but not always) recommend that you do something. For example, save some money in a pension.
If you accept that recommendation, you then fill in the paperwork to take out a pension policy. By this time, you have probably spent about four hours on the quest and the adviser a couple of hours more than you.
Now, I’m not saying that what has happened is bad practice – in fact, it looks rather professional. Much more so than a process that pours money into your bank account in an instant, on the sole understanding that you survive an ASU insurance sales pitch that would put a timeshare tout to shame.
But what if all I had wanted to do was put money in a pension in the first place? Could I not have signed the forms at the first meeting? Why did I have to spend four or five hours of my time and pay for eight hours of an adviser’s time when all I needed was a bit of help filling in forms and choosing a fund?
And more pertinently, borrowing beyond my means sounds a tad more risky to my financial future than sticking £100 a month into a pension, whether it is invested in shares or not. Why is it that no-one tries to protect the customer from doing the wrong thing when they borrow money? Why does no-one from the bank or credit card company ask lots of factual questions and probe for soft facts? (Actually some lenders do act responsibly but they are in a minority)
It might be argued that people understand debt but not savings products. If that is so, why did a huge number of people end up with negative equity in their homes in the early 1990s. Why are personal bankruptcies now at record levels? And although these issues are publicised, the cause is rarely blamed on a loan mis-selling scandal.
If we are ever to have any hope of making a dent in that £27bn mountain, someone somewhere in government needs to make it easier to save and more difficult to borrow.
John Lawson is head of pensions policy at Standard Life.
The views expressed are those of the individual and not those of the company he represents.IFAonline
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