Zombies are definitely out there and will be slowly circling us for some time to come…in all their forms!

Financial Services Team Blog

Adrian Wooldridge

Company zombies, old zombies, the middle aged overstretched zombies for ever supporting young zombies! The UK is turning into a land full of low spending zombies staggering around burdened with debt – oh what a life!

The UK Media is talking increasingly about zombie companies, which due to a high level of debt and continued reduced sales/income, allows them to service the interest on their company debt but only just. They are unable to pay down debt quickly, invest, grow or save for the future…they just exist and stagnate.

Well in my view the same is happening to a swathe of indebted personal borrowers who are only just managing to service their debt, pay their bills but can afford to do little else.

As well as reducing outstanding debt, the UK wants and needs increased sustained spending and investment by both companies and individuals so it can grow, otherwise it looks increasingly likely that we could follow Japan with a lost decade or more of stagnation and no growth.

It is a fine balancing act, governments, companies and individuals need to gain confidence in the economy and stimulate controlled growth that will push the present downturn way behind us.

Over time people can and will deleverage maybe with the help of inflation, however presently this indebtedness can and does affect zombies of all age groups from indebted students through to the 60 year old plus person trying to retire.

Apart from the student/young person zombie other classifications include:

Asset rich zombies who are unable to release the hard earned cash easily.

In the Sunday Times Home section (11 November2012) Alexandra Goss outed another type of zombie, this time focusing on house owners in their 50s who are unable to remortgage or move house due to the fact that they have an interest only mortgage. Presently UK lenders no longer offer interest only mortgages and most lenders insist on the mortgage being repaid by age 75.

The downsizing, retiree zombies.

On top of this over the next few years it is expected that over a quarter of million baby boomers will downsize their residential homes according to research released in 2012 by the Equity Release Council.

All of the above will reduce free spending and could change the structure of the UK housing market as demand for smaller dwellings increase both from retirees and young first time buyers vying for the same size of properties.

Playing the family banker zombie for 40+ years

In the Mail on Sunday You magazine Anna Moore reported “Is the bank of M&D about to crash?” an excellent article* illustrating the fact that working parents (even those on decent incomes) are not able to save enough for their own future whilst their kids are growing up. Then when the kids have finished university, most cannot afford to rent, never mind buy a property as they are saddled with student debt. Renting or living with parents means in most cases the bank of Mum & Dad is called on again and again funding their kids for up to forty years diminishing the parent’s propensity to save, forcing later retirement and in most cases meaning that future inheritance is being spent now – frightening in all aspects!

Can this continue?

With different types of zombie being prevalent throughout the life stages of the UK consumer, all this is pointing to a grim future of reduced spending, longer working lives and lower individual wealth. Couple this with increased longevity of people the future this is going to be challenging to say the least.

However, back to the present day.

If the balance of today’s low interest rates, fragile job markets and spending is altered in a negative way, the UK will see a massive rise in personal bad debt and insolvencies. This will also be mirrored in the commercial markets and potentially lead to another steeper and more serious depression.

Everybody is aware of the fine line we are treading – albeit slowly. We are painfully re-adjusting to life, having to in some cases live hand to mouth for another month and not being able to save something for our future.

It is now recognised that there are increasing numbers of zombies out there, personal as well as commercial, in all walks of life and at different life stages. The present day impact of this invasion is reducing spending which feeds the ongoing financial slowdown.

Having said that, almost all zombie films end with a ray of hope for the future, even if the future is a very different world that people were used to – the key question now as with all things involving zombies is…… what will this future look like?