Rise In Personal Debt Levels

February 8, 2013

Household debt is on the rise in the UK, with households having taken on an extra £9bn in non-mortgage debt from 2008 to 2010, with the figure thought to have risen since then.

A survey by the Office for National Statistics (ONS) showed that households where the oldest member is between 25 and 34 had the biggest increase in personal debt, with the average amount of debt rising from £4,000 to £4,300, with nearly 73.9% having some form of non-mortgage financial liability. There was also a significant leap in households where the oldest member was under 25, with the level of debt rising from £1,900 to £2,900.

On the other side of the spectrum, only 20% of pensioners had any financial liabilities at all. Those who did had an average amount of £1,100 in personal debt.

According to figures from the ONS, the average indebted family increased their borrowings from £2,800 to £3,200.

Figures from the ONS show that not all households bore the burden, with 49% having no non-mortgage debt at all. Figures also show that the nation’s poorest 20% had more personal debt, credit cards, store cards and overdrafts than they had in savings, with the poorest 10% owing four times as much as they held in savings.

In total, the average family’s financial liabilities rose from £85.9bn to £94.7bn, a rise of 10.3%, in only two years.

A UK economist at IHS Global Insight, Howard Archer, said: “It seems reasonable to suspect that household debt has risen further. While employment has been resilient, people’s purchasing power has been squeezed by extended weak income growth and elevated inflation.

“Increased debt levels highlight, along with extended squeezed purchasing power, why consumer spending remains so limited compared to pre-crisis levels.  The extended need for consumers to deleverage is likely to limit the upside for consumer spending for some time to come, and hence constrain overall growth prospects,” said Mr Archer.

Mr Archer also stated that conditions are actually worsening for most households and that figures since the period surveyed will have risen. He said, “Another recent survey from the ONS shows that the economic position of households hit a five-year low in the first quarter of 2012 … [and that] in the third quarter of 2012 real income per head was still 2.4pc below the peak level seen in mid-2009.”

The ONS survey also revealed that over 11 million families have mortgage debt around £1.2 trillion, and that most financial debt is outweighed by many family’s financial assets, such as savings, personal pension plans, ISAs and stock market investments.