An accountant might be able to understand this

“Rent-to-own” retailers such as BrightHouse will be banned from charging vulnerable customers over the odds for household goods under new rules proposed by financial regulators on Thursday.

Rent to own involves customers obtaining products such as washing machines or electronics under hire-purchase agreements before taking ownership when they have completed all the payments.

Under the proposed rules, which will come into force in April, firms will be banned from charging more than 100 per cent interest on items.

The implication is obvious: would appear that 100% interest rates are considered fair. This is what it is like to live in the UK in 2018.

No, the ruling is that total charges over the lifetime of the agreement not exceed 100% of the cost of the item.

20% interest rates per year over 5 years would meet this. 10% over 10 years. 3% over 30 years.

Wonder what the interest rate was when Spudda bought his first flat back in the 80s? Did he, over the years, pay more interest than principal? And would he describe that as a 100% interest rate?

Now, change the subject of the question. Would an accountant so describe?

27 thoughts on “An accountant might be able to understand this”

  1. I bought my house in 1984 with a £44k mortgage over 25 years. The repayments fluctuated a bit over the period but were usually between £350 & £400 per month. Choosing £380 as an average that gives me an effective interest rate of about 9.4% and a total interest payment of just over £70k.

  2. It’s rather ill-advised as a crackdown isn’t it? I wonder how the companies will get around it and how it will truly benefit the customers

  3. Murphy’s solution will be to tax “conspicuous consumption” on fripperies such as household goods and handbags to the point where they are unaffordable, and we will have arrived in the Great Green Utopia.

  4. I believe BrightHouse include delivery & installation in their prices, so the obvious answer is that they’ll separate them out.

  5. Now, change the subject of the question. Would an accountant so describe?

    As you are quoting Richard Murphy, we never will know, will we?

  6. Can’t help notice that his post below this one starts:

    “I admit to being a little baffled as to what to say on the blog this morning. This rarely happens, as regular readers will know.”

    One could prefer to think regular readers might regard this as unique & welcome. But unfortunately he manages to continue wittering on at considerable length. Much of which seems to be couched in the terms of “Gi’us a job”

  7. But unfortunately he manages to continue wittering on at considerable length. Much of which seems to be couched in the terms of “Gi’us a job”

    Not realizing (of course) that the more he witters, the less likely there will be a job offered.

  8. These places slightly mystify me – it’s an expensive way to borrow and I think the vast majority of customers must know that. Okay, I can see it might be tricky to get credit elsewhere. But it’s the combination of the interest rates and prices that gets me because it doesn’t seem they focus on selling the very cheapest stuff. Would most of their customers be better buying second-hand for example?

  9. he’s feeling lonely after alienating eveyone he has ever met – i suspect he’s smashed every mirror in the house after doing his best travis bickle impression.So he writes a blog post and his arselickers reply telling him how great he is and how they are hanging onto his every word. i suspect that the samaritans have blocked his number too.

  10. @Muffsniffer2, November 22, 2018 at 2:41 pm

    Brighthouse has a few options, off the top of my head

    Stricter “lending” rules and/or upfront “deposit”, fewer obtain what they want
    PCP finance like cars
    Maybe:
    Lease purchase like businesses
    Customer’s risk profile Credit insurance

    Like most virtue signalling policies, it hits the poorest hardest.

  11. @MyBurningEars, November 22, 2018 at 7:23 pm

    Better buying second-hand?

    Yes. However, many value bling status higher than financial probity.

  12. with a lot of the EU rules and regulations second hand isn’t always an easy option, there was a guy refurbishing fridges and selling them to 3rd world had to close down due to changing regulations a few years back so now the fridges are scrapped most probably.

  13. According to the BBC, two-thirds of the “Buy-to-Own” customers are unemployed and the APR is 70% – so the honest customers are paying through the nose to subsidise the defaulters.
    Murphy probably meant “interest charges” not “interest rates” – I *suppose* that an accountant knows the difference

  14. Hmmm
    These companies have their place
    Some people can afford instalments but not the purchase price
    They understand it is more expensive
    At least they are using an authorised lender with known interest rates, not a doorstop lender that breaks your legs

    And the reason they exist is because the banks that have had billions of taxpayers money thrown at them, and some still state owned, refuse to lend to them

  15. Well, can you blame them (the banks). The ground fell out from under them due to lending to people who couldn’t afford to pay back, and then people complain about them *not* lending to people who can’t afford to pay back.

  16. @jghij

    ‘The ground fell out from under them due to lending to people who couldn’t afford to pay back,’

    Only partially true

    They loaned these people large sums of money despite their lack of credit worthiness assuming they could bet on the housing bubble

    The ground fell out from under them because they started bundling dodgy loans (based on grossly inflated and unsustainable real estate vale) to hide their dodginess and then traded them between themselves to camouflage them still further

    We are talking about small consumer loans here, not house purchase. Unsecured loans require some common sense risk management – that seems to be largely absent from the large banks

  17. Given the proportion of people on benefits who do this kind of borrowing, I wonder if this is something where the state could defensibly take a role in providing credit. Commercially, these people are pretty clearly not going to have access to credit from safe sources (ie no loan sharks) at what society deems reasonable rates, but the state has the advantage of being able to deduct payments from benefits so wouldn’t face the same financial risks as a commercial provider. A government catalogue that focused on essential durable goods (oven, fridge, freezer, microwave, washing machine etc) with socially accepted “fair” repayment terms might save a lot of people from a degree of hardship.

  18. Dennis

    That post did crack me up:

    ‘I am also working on a new estimate of the EU tax gap: I expect this will be published in the new year at an event in the EU Parliament. This estimate builds on work I have been doing on macroeconomic basis for estimating such tax gaps: academic journal work on this issue is progressing.’

    This surprises me as I assumed based on its likely accuracy the estimate was simply doodled on the back of a fag packet.

    ‘In the background a new Green New Deal paper is in development.’

    A polite way of describing the act of flogging a fossilised horse?

    ‘And discussions on accounting standards are taking an increasing part of my time.’

    I was gutted to learn from such luminaries as Jim, Andrew C and others that there was no way of getting someone removed (Realistically) by the ICAEW but surely they cannot be involving someone who appears to have not even a rudimentary understanding of accounting basics?

    As you say, Dennis – the delusional utterings of someone who in a more polite age would have been detained for his safety as well as that of wider society.

  19. @ MBE
    The government does havre a syastem of emergency loans but buying consumer durables on credit does not classify as an emergency

  20. @john77

    Indeed, that’s what I was thinking about. But it is difficult to live these days without a fridge or cooker so I don’t think it’s a ridiculous extension of the idea.

  21. @ MBE
    Yes, but ..
    My mother’s first fridge was the one my younger sister gave her when she graduated and moved out of the flat she was sharing with four other students. And we were a middle-class family.
    Without as cooker would be a problem but landlords provide those (and they usually provide a fridge as well); anyhow, you can buy a Baby Belling or equivalent for a few quid.

  22. @john

    And people lived quite happily in the 19th century without electric fridge-freezers or microwaves… but I reckon someone today without access to such devices is genuinely disadvantaged, particularly bearing in mind changes in the food culture (what’s available in the shops, how is it stored, how is it cooked). I’m not saying you couldn’t possibly live without them, but Adam Smith would have recognised someone unable to access them in our society as experiencing a form of poverty. And I don’t think they should be reliant on obtaining one through family, friends or charity. Some sort of credit purchase system I could go with, but I’m not keen on Brighthouse’s current model..

  23. @ MBE
    I am not keen on Brighthouse either. But Murphy is lazy – he hasn’t bothered to look at Brighhouse’s latest accounts which show that interest rates were already all below 100% (still too high at 65+% as Bad Debts are only 10% of revenue) and that losses were £23m before exceptionals (£111m loss after exceptionals). They are not just greedy but also incompetent.
    I take your point about relative poverty (I like my linen shirt).
    If Charity Shops were allowed to sell second-hand white goods without spending more than they are worth for a piece of paper saying that they are safe, the poor would have more choice.

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