Last week, the Bank of England issued a warning over the UKs unsecured debt, which this June grew to more than £200 billion for the first time since 2008. Our Money Stats are out today and we are taking a deeper dive into what this means.
To put it in context, the average household owes £7,413 in unsecured debt, £530 more than a year ago. Debt is growing at the same rate it was back in the mid-2000s, expanding at around 7% for the last three years. That’s enough to make it double in a decade.
Sometimes with big numbers, you forget personal tragedies, but it’s worth remembering that in 2009 134,000 people became insolvent and 305,000 were made redundant in just three months from March to May, compared to 95,000 in the same period this year. So it’s worth thinking about what is currently saving us from that fate and whether it will last.
The one big thing that separates us from 2008 is the 0.25% interest rate set by the Bank of England, and the resulting low payments people make on their borrowing. A decade ago, Britons paid back £86bn and today that is just over £50bn.
Our analysis earlier this year shows that if rates had not changed at all since then, we would be paying 81% more than we pay today – that’s £94bn, £1,810 for every adult in the UK or 7% of average earnings.
Another crunch would have a significant negative impact on the economy and people’s lives, so the government, the financial industry and all of us individually need to be making concrete steps toward slowing the growth in debt.
Source: Bank of England
Source: Bank of England
Steph Hayter, Acting Chief Executive of The Money Charity says:
“Even if low interests rates are allowing us to kick the can down the road, we have allowed a crisis-level of debt to build up. We know that near-zero Bank of England rates are not normal, and soon the bigger debt could well mean bigger repayments too!”
“We call on the Government, Bank of England and Financial Conduct Authority to take steps now to help people pay off their debts and slow the growth of credit.”
“It’s likely things are going to change and it won’t be as easy to make payments on your mortgage or loans. But remember that there’s help available at an early stage if you’re in difficulty. If your debt feels too much to deal with, there’s free, impartial advice available from organisations like StepChange and National Debtline.”
Get the full picture, and many more fascinating facts about money in the UK in our monthly Money Statistics.