Government Predicts Rise In Household Debt

New figures published by the Office for Budget Responsibility (OBR) predict that levels of household debt in the UK are set to soar above pre-recession levels. Released alongside the Chancellor’s Autumn Statement, the OBR’s report estimates that over the next five years, the ratio of household debts will increase to 184% of incomes – 15% more than the 169% high that was seen in 2008, just before the global economic slump.

The rise in household debt levels is linked to the recovering economy, as consumers are regaining confidence and starting to borrow again, rather than focusing on repaying mortgages and other debts. At the moment, the household debt to income ratio stands at 146% – the lowest it’s been since 2004. But if the OBR’s predictions come to pass, we could soon see a sharp increase in both secured and unsecured debt levels.

Andy Gorton, Managing Director of debt advice firm, Bankruptcy Clinic, comments: ‘There are signs that the economy is picking up and, as a result, people could start obtaining more credit. The other side of the coin, however, is that incomes are rising very slowly and in many cases, aren’t keeping pace with inflation. So whilst people might feel that they can afford a more expensive home with a large mortgage, or take out credit for a new car, the reality is that larger debts may not be sustainable in the longer term.’

The OBR’s report is likely to be sounding alarm bells in the City, where economists have long pointed to links between high levels of household debt and wider economic instability, which can ultimately lead to financial crisis and severe recession.

Commenting on the figures, Lord Turner, former head of the Financial Services Authority, said that: ‘They show the problem of the past debt overhang – not only in the UK but across the world. We know how to shift the debt around. But now the only way we can get growth is to go back to the level of private leverage that produced the crisis in the first place.’

A closer look at household debts

To put things into perspective, here are some figures from the latest Debt Statistics report from the Money Charity, published in November 2014:

  • At the end of September 2014, UK households owed £1.459 trillion – an increase of £0.29 trillion on the previous year.
  • Average household debt levels, including mortgages, stood at £55,223 whilst unsecured debts totalled £6,251 per household. Both figures have increased from the previous month.
  • Total credit card lending came to £58.5 billion in September whilst total mortgage lending was calculated at £1.294 trillion.
  • Almost 1,900 County Court Judgements (CCJs) are made every day against people who can’t or won’t repay their debts, with the average value being £2,278.
  • 270 people are declared bankrupt or insolvent every day – that’s equivalent to one person every five minutes and 20 seconds.

Comments Andy: ‘With figures like these, it’s hardly surprising that City experts will be concerned by the OBR’s projections for rising household debt levels. Until recently, the number of personal insolvencies has been in decline, but it’s now started rising again. Unless people take a sensible attitude towards borrowing, we could see this trend continuing over the next few years.

Debts spiralling out of control?

If you’re finding it hard to meet your monthly debt repayments, it’s time to seek professional debt advice. Ignoring the problem won’t make it go away. By acting sooner rather than later, you may find that you have a wider range of debt management options open to you – which is far better than having your hand forced by creditors!

Bankruptcy Clinic can help

Our friendly, qualified advisers will help you find the debt solution that’s right for your personal circumstances and needs. We don’t just offer advice on declaring bankruptcy, we can also give you access to other forms of personal insolvency. These include Individual Voluntary Arrangements (IVAs), Protected Trust Deeds (PTDs) and Debt Relief Orders (DROs).

Depending on the type and amount of your debts, an informal solution called a Debt Management Plan (DMP) may also be open to you. This isn’t legally-binding, so offers more flexibility than some other options.

Contact us today

It’s free to contact us and ask our advice, so why not get the ball rolling today? Call us free from a landline on 0808 168 7389 or 01625 462 770 from a mobile. Or if you prefer, you can fill in our quick online form and we’ll call you back to discuss your debts in more detail.

Andy Gorton is the author and editor of the Bankruptcy Clinic

Andy Gorton – who has written posts on Bankruptcy Clinic Blog.

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