The debt trap we’re all in

The Money Charity’s #MoneyStats are out today, and latest figures reveal levels of personal debt most of us can deal with today, but may give us trouble tomorrow.

People in the UK owed £1.452 trillion at the end of September 2015 – that’s £28,742 for every adult or 13% more than we earn on average each year!

This is not troubling us too much at the moment. Because interest rates are so low, the average person is only paying £1,052 in interest every year on their mortgage, credit card, overdraft and all other forms of debt. It’s a lot of money, but it is manageable.

In November 2000, 15 years ago, average mortgage interest was 7.07% – today it is 2.57%. With warnings from the Bank of England that the base rate is likely to rise in the medium term, we need to understand what difference a change back to a figure like this will make in our lives.

Our calculations show that if rates return to this level tomorrow (unless you are on a fixed rate), interest payments per person will double to £2,070, placing many people and families in financial difficulty.

Michelle Highman, Chief Executive of The Money Charity, said:

“There is nothing necessarily wrong with borrowing. It is a good way of paying for things you can’t afford up-front like university or your house. But debt becomes a huge problem if we can’t afford the interest and repayments.”

“Assuming that interest rates we pay today will always be there sets you up for financial troubles. If rates change, particularly if you have variable interest debt, you will face considerably higher repayments that you may not be able to meet.”

“So it’s especially important to stay in control of your borrowing, and 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 charities like StepChange.”

Other figures in November’s Money Statistics include:

  • In Q2 2015, households saved an average of 4.7% of their post-tax income, including benefits – the lowest since Q3 2008.
  • In Q2 2015, households in the UK spent £89.11m a day on water, electricity and gas – or £3.34 per household per day.
  • Figures from DCLG show that in 2013/14, private renters spent an average of £762.67 a month on rental payments, while owner-occupiers paid £663 in mortgage payments.

Get the full picture in The Money Statistics or download this press release as a PDF