Household Debt ‘At Tipping Point’

New figures released by financial research company Verum have revealed that the level of household debt is now so high that any increase in the Bank of England base rate – still at its record low of 0.5% – could push the fragile UK economy straight back into recession. Verum’s report shows a massive 314% rise in the total amount of household debt across the nation since 1990, with £1,437 billion owed in 2013 compared to £347 billion 13 years ago.

Notably, the statistics show a financial sea change amongst people in their 30s and 40s over the last decade or so. Traditionally the age group that drives the most economic growth, people aged 35 to 44 are now finding themselves saddled with the most debt, due to a toxic combination of soaring living costs and static salary levels.

And Verum is warning that even a small increase in the Bank of England base rate could have catastrophic effect for the economy. Their Director of Research, Robert McNab, predicted that: ‘If interest rates were to hit 3 per cent, historically an abnormally low level, it could trigger a prolonged and socially damaging recession with collapsing house prices, rising property repossessions and a further dramatic increase in insolvencies.’

Verum’s research was based on a combination of information drawn from the Office of National Statistics and the Bank of England. The firm also looked at data on mortgage arrears and repossessions, personal insolvency, and debt figures released by UK banks and building societies.

More key figures from their report include:

  • Mortgage debts now make up 89% of the average household’s debt, 4% more than in 1990.
  • People are currently using 5.6% of their disposable income to pay off debts. If this percentage rises to 12%, this could be the ‘tipping point’ back into recession.
  • In 2013, three times as many people were made insolvent as in 1990, when the last interest rate-driven recession took place. This is despite the fact that interest rates stood at 14.6% in the early 1990s, compared to 0.5% from 2009 onwards.
  • For every 0.5% rise in the base rate, UK households will reduce their spending by £4.8 billion, as families make immediate cut-backs on non-essential purchases.

Meanwhile, recently-released Government figures show that the amount of the average weekly pay packet decreased for the first time since 2009 in quarter 2 of 2014 – a statistic that, fortunately, makes it unlikely that the Bank of England will increase the base rate this year.

Quarter 2 of 2014 was a miserable three months for the British economy,’ says Andy Gorton, debt management expert and Managing Director of bankruptcy consultancy service, Bankruptcy Clinic. ‘As well as the drop in average weekly wage levels, there was also a spike in personal insolvencies during the same period. With inflation currently running at 1.9% and salary levels unable to keep pace, this is a trend that could easily continue.’

About Bankruptcy Clinic

Bankruptcy Clinic offers help, advice and support to people who find themselves unable to repay their debts. As the name suggests, the firm specialises in bankruptcy advice, but also offers a range of other debt management solutions. ‘It’s all about finding the best option for each individual client,’ says Andy. ‘That could be bankruptcy, another form of personal insolvency or even an informal Debt Management Plan. The important thing is to get help as soon as possible if you’re struggling with your debts, as the situation will only get worse otherwise.’

Could bankruptcy be right for you?

The information on the Bankruptcy Clinic website will help you decide if bankruptcy might be the right option, and gives you an overview of the bankruptcy process if you decide to go ahead. You’ll also find information about the other debt solutions on offer, so you can make comparisons and see whether a different option might suit you.

Your next step is to contact Bankruptcy Clinic for specialist advice. You’ll speak to a friendly, fully-qualified adviser at partner firm, MoneySolve Ltd, one of the UK’s leading debt management companies. They’ll take the time to listen to your story and fully understand your financial circumstances before explaining which debt solution(s) might be right for you.

And once you’ve made your decision, they’ll be there to help and support you every step of the way.

Contact Bankruptcy Clinic today

Take your first step to managing your debts and getting back on your feet today. Call Bankruptcy Clinic on 0808 168 7390 (or 01625 462 770 from a mobile), or fill in their simple online form to request a call back. Their trained advisers are ready and waiting to help you.

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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