Debt in the UK – an Update - Carrington Dean stars-five-icons

Call Scotland's debt specialists free on        0141 326 0394

06.02.2018

Debt in the UK – an Update

Now that 2018 is well underway, personal debt statistics are beginning to appear. The picture that emerges has brought some key difficulties to light, including the fact that borrowing is growing faster than wages, and that poorer households are disproportionately affected by problem debt.

Despite this, it’s not all bad news – although credit use is on the rise, most people who are borrowing do not seem to be those with poor credit histories, and thousands of people who are struggling with debt are getting the help they need, evidenced by the increased use of Trust Deeds.

How much Debt is there?

According to the Money Charity, at the end of November 2017, personal debt in the UK stood at a total of £1.566 trillion. Based on this total, the average UK adult held £30,253 of debt (including mortgages). This is an extra £1,040.96 compared to the same time in 2016, and is also 113.8% of average annual earnings.

Credit cards accounted for £70 billion of this debt – in other words, each household had an average of £2,574 of credit card debt. Paying off this average by only making minimum payments would take a staggering 26 years and three months! Paying off credit card debt, clearly, can take consumers a very long time. In fact, the Financial Conduct Authority (FCA) revealed last month that 90% of total outstanding debt in 2016 was held by people who were also in debt two years ago. The FCA has suggested that this may be due to many people shifting their debt from card to card, over a number of years.

Borrowing on the Rise

One of the most striking statistics to emerge is the fact that personal borrowing is far outstripping wage growth. The FCA also found that unsecured borrowing, especially through credit cards, loans, and car finance, is rising five times faster than UK wages. Wages, in fact, fell by 0.4% in real value this January alone, according to statistics from the Money Charity.

The UK’s current level of personal debt is the highest it has been since just before the 2008 financial crisis, raising concerns that the debt bubble could burst. With the price of imported goods rising following 2016’s Brexit vote, some households may begin to rely on credit in order to maintain their current standard of living. The Bank of England has stated that one in ten households have unsecured debts of more than £10,000.

Dealing with Debt

According to Citizens Advice, 27% of all the problems people approached the service with concerned debt. Debt-related queries were exceeded only by questions about benefits and tax credits.

The way in which people deal with their debts also seems to be changing. According to the Accountant in Bankruptcy (AiB), the body in Scotland responsible for managing insolvencies, the number of sequestrations administered in the final quarter of 2017 was down by 4.9% compared to 2016. Despite this, the overall number of insolvencies increased in this period, due to the increased use of Trust Deeds, which rose by 6.9% in the same period. In the UK as a whole, one person is declared insolvent every five minutes and twelve seconds.

Should Consumers be worried?

An ONS survey suggests that consumers may not be as worried about personal debt as financial professionals. Two thirds of respondents said that they were able to keep up with debt repayments ‘without any difficulties’, whilst a further 24% reported struggling with their obligations only ‘from time to time’.

This confidence may be unwarranted, however. The Institute for Fiscal Studies (IFS) recently found that 25% of the poorest percentile of households are struggling with debt repayments. A third of these homes are also in net debt, meaning that their financial assets (savings, investments etc.) are worth less than the value of their debt. Of those struggling with debt on a low income, the poorest fifth were found to be paying up to 45% of their total income just servicing these debts. In contrast, just 5% of the highest income households are experiencing problems with debt. According to Helen Barnard, head of analysis at the Joseph Rowntree Foundation, an anti-poverty think tank, “Low income households are facing a difficult 2018, with rising prices, frozen benefits and a wage squeeze all putting further pressure on household incomes”.

Debt is not an issue for all households, though – and the household averages published by the Money Charity do not account for the fact that many households who use credit have a high enough income to manage the repayments. According to the IFS, over 60% of unsecured debt is held by households with above average incomes.

If you are worried about personal debt, one of Carrington Dean’s friendly advisors can help you get the help you need. To talk confidentially about your options, call 0141 326 0413.