What is the true situation about UK household debt?

The issue of debt and what to do about it was of course one of the causes of the credit crunch and has been debated constantly during it. Today as it is often misrepresented I wish to look at household debt in the UK. But before I turn to it the national debt of the United States passed another threshold on Monday so let us doff our caps to the US $19 trillion threshold and move on. Oh and in case you were wondering about the debt ceiling it has been suspended until March next year which if you consider the chaos it created for no particular sustained gain that is probably the for the best.

UK Household debt

There has been some rather chilling research on this subject released this morning so let’s get straight to it. From City-AM.

The average Brit will not pay off unsecured debt, like credit cards and certain loans, until they are 64, a survey by the Centre for Economics & Business Research (Cebr) for peer-to-peer lender Zopa found.

That rises to 69 once mortgages are included.

Well at least they are being sensible and paying off the most expensive debt first! Actually if you read it again that is not what it is saying. So it is not only the younger generation who are facing a lifetime of debt singing along to LunchMoney Lewis.

I got Bills I gotta pay
So I’m gonn’ work, work, work every day
I got mouths I gotta feed
So I’m gonn’ make sure everybody eats
I got Bills

Perhaps the prospect of all this is behind this reported by the Office for National Statistics yesterday.

Ratings of life satisfaction and happiness were at their lowest, on average, for those aged 45 to 59.

On current trends they may well have to raise the ages named here.

those aged 65 to 79 tended to report the highest average levels of personal well-being

Actually for Londoners like me there may well be quite a different set of age bands.

Londoners may have to wait until they reach 77 to live debt-free, according to new research…….Londoners are saddled the longest as they typically take on more unsecured debt and secure mortgages later, despite their higher wages.

Those of you who live in the North-East can have a laugh at our expenses as you pass the threshold at 57. In fact you are the only group of people who have expectations that approach reality.

The survey also found a big gap in expectations: Britons expect to start a debt-free life when they hit 57 – 12 years earlier than they are likely to.

I am not sure if it is a good thing or a bad think that the younger generation are the most out with their view of their future.

Those aged 16 to 24 are the most optimistic – they expect to be rid of unsecured debt at just 38.

That also makes them wildly wrong: if they buy a home with a mortgage they’ll be waiting until age 74.

There are obvious caveats in such research but it does highlight existing trends.

A space oddity

There is an institutional problem in having debts at ever later ages in the UK and it has been given the oxygen of publicity this week too. From BT.com.

Peter Day wanted to extend his mortgage in order to pay for his daughter’s wedding. At the time he was 59 and close to paying off his mortgage, but asked to extend his term by five years.

However, despite having three final salary pensions ready to cover him in retirement, he was turned down for the mortgage extension by Co-operative Bank.

For foreign readers UK mortgage providers have long had rules that say that you have to have a provable income to repay it which poses problems at retirement so the state retirement age of 65 was a potential issue as was 60 for those who were lucky enough to have a pension from then. It would seem that much of the financial sector has not kept up with the times. Who da thunk it? As Turkish pointed out in the film Snatch.

That by the way is the same financial sector who requires very highly paid staff because they have such valuable skills and abilities.

Number crunching

The research quotes these numbers.

The average British debt per household was £53,904 in December including mortgages, according to the Money Charity.

That works out at £28,891 per adult, which is 112 per cent of average earnings.

Based on December’s figures, Brits each spend an average of £1,037 on interest repayments every year –four per cent of a typical salary.

The debt figure quoted is in fact including mortgages and if you want a total it comes to this.


Apologies for the capitals and the estimated cost of this is shown below.


 The official denial

We know how to treat these and at Davos Mark Carney gave us one and the Financial Times joined it as it prepared for the first question at the next Bank of England press conference.

But household consumption has grown slower than the economy since the recovery started and the appetite for debt has fallen sharply. Households have increased their outstanding debts £5.1bn on average every quarter since 2009, nearly four times less than the £22bn rate between 1997 and 2009.

These numbers are no doubt true but miss some important points. If you argue that the amount of debt was an issue pre credit crunch then the fact it has risen since poses a question. Also yes household consumption and debt have slowed over the time period quoted but more recently they have picked up. For example retail sales were very strong in 2015 and the December lending data told us this.

The three-month annualised and twelve-month growth rates were 4.0% and 3.3% respectively.

So the economy is growing at around 2% per annum but we have no inflation so debt has risen relatively here. Also there is an important sectoral shift which matters as some groups are piling up debt as others repay creating quite different groups. This is highlighted by the mortgage data.

Gross lending secured on dwellings was £19.5 billion and repayments were £16.0 billion.

Also unsecured credit is on something of a tear.

Consumer credit increased by £1.2 billion in December, compared to the average monthly increase of £1.3 billion over the previous six months. The three-month annualised and twelve-month growth rates were 9.1% and 8.6% respectively.

The acceleration which began in late summer 2014 continues.


The Financial Times also made the point that if you look at debt you need to look at assets and here is its view.

Official figures show that after deducting debt, net household assets stood at 7.67 times income in 2014, a stronger financial position than at any point in almost 100 years.

The point is valid but of course it is using a marginal price and I would argue an inflated one for house prices which are the biggest asset by far. As Feeling QEzy points out in the comments what could go wrong?

For example UK housing stock annual turnover is circa 4% while 30% of homes have a mortgage, and as we all know it is the marginal seller that drives the price in a weak market.

Whilst I am no fan of the projections of the Office for Budget Responsibility they do pose a question as they project rises in household debt although typically they have changed it in 2021 to 163% of income from 172%. That shows a danger in this sort of analysis.

So where do we stand? Not quite in the quicksand that some argue. But we are seeing rises in unsecured debt again and you do not have to take my word for this just check the absence of the phrase “household debt levels are falling” in recent Bank of England speeches. This poses a problem as for a start how can they raise interest-rates in such an environment? Also if you are wondering what is the big deal here the US National Bureau of Economic Research takes up the story.

In a study summarized in the January edition of The NBER Digest, researchers find that a rise in household debt relative to a nation’s GDP is often associated with a subsequent economic contraction, and that this debt ratio increased in many countries prior to the decline in global GDP growth in 2007-12.

Oh and the area which is supposed to be benefiting from Bank of England policy smaller businesses how is that going?

Net lending to SMEs was £0.0 billion ( in December 2015)


27 thoughts on “What is the true situation about UK household debt?

  1. As you pointed out recently Shaun, there has been a huge increase in the number of individuals acquiring new cars on lease rather than buying for cash or buying secondhand. I would have thought that this alone might account for the increase in unsecured debt. I also wonder if there are any long-term consequences in car manufacturers turning themselves into banks? Or even, if a bias towards acquiring new cars may depress second-hand values which will mean that the resale values assumed in lease contracts will not be achieved leaving an unexpected debt at the end of the contract?

    • Interesting point Peter.In the US of A,there are some arguing that NINJA car loans are the new sub prime NINJA mortgages of the millenium.

      I see parallels with the UK where new car sales-and hence GDP-are being driven by leasing,in an economy underpinned by a 5%+ fiscal deficit.

      On top of Peter’s question Shaun,can you clarify with whom the unsecured debt sits if a car is leased.Does it reside with the manufacturer.Next question:would this figure being included in the average household debt figures?

      • I have read somewhere that VW are carrying 100 billion euros on their balance sheet to cover their car leasing. If true, should not the UK portion of this and other car manufacturers be added to the consumer debt figure for the basis of this discussion?

        • Hi Guys and welcome to Tim

          I have just been checking the Bank of England database and cannot find that sort of detail. The unsecured lending to households total of £178.7 billion reduces to £115.3 billion if we exclude credit cards. The only other hint we get is that other lenders (non-banks) have lent £58.9 billion so it is probably in there but we do not have a breakdown.

          Also let me add a further point all the Bank of England numbers exclude student loans so we should add them in to any aggregate total.

  2. The UK’s appetite for debt and in particular unsecured debt is worrying and is a consequence of the B of E sitting on its hands. The longer this goes on potentially the worse the outcome. Germany has, by contrast, an aversion to debt and the Germans do not use their credit cards like we do. Figures recently quoted in an article I read states that 80% of all transactions in Germany are still in cash (I assume this excludes commercial transactions) and in 2013 only 18% of consumer payments were via a credit card compared to 60% in the UK. I have also read today that Germany is looking at a maximum E5000 per transaction to be in cash. The Germans would be very reluctant to move to a cashless society and the issue of negative savings interest rates would be an explosive issue there!

    • Interesting comments on ‘card’ useage.
      This link is a little dated but shows variations across nations. UK is under a third of Oz for instance.
      Living in France for some of the year made me curious about the stats vis-a vis Germany . The French have similarly low useage yet many many more own ‘cards’. That is because the French love their CBs and use them instead of cash all the time. However very few have them set up as ‘credit cards’. Indeed its very difficult to have a balance on a French card higher than the existing balance in your cashing account. Also they still love cheques. Giros through the post office system is still a popular payment mechanism in central Europe, including Switzerland and Germany. I think this is why ‘bank transfers’ appear high in surveys in these countries, and they probably appear as ‘cash transactions’.

  3. Great article, as always. The problem with the (very interesting) statistics is that they are generalising an issue which needs closer scrutiny. I would say that:
    1. Most mortgage lending is a perfectly sensible way for people to run their lives.
    2. Unsecured debt, measured as an average of earnings etc, may not look scary, but probably is a real problem. I would take a bet that there is a large group of people for whom a, say, 4% hike in interest rates would be catastrophic.
    I am sure that we are perfectly secure in the knowledge that our highly remunerated banking friends have the whole situation under control.

    • ‘I am sure that we are perfectly secure in the knowledge that our highly remunerated banking friends have the whole situation under control.;’

      Like rats and their fleas.

      • and when the public takes it money out and the first sign
        of negative rates

        ” oh ,is so unforseen! ” ” who woulda guessed !! ”

        and be laughing like Nixon…..


  4. Hi Shaun

    Although you say that we are not quite in the quicksand you do highlight the fact that there are distinct groups in the average; those who are deleveraging and those who are taking on extra debt. It is clearly those who take on extra debt who are likely to get squeezed and it is they who are likely to unload assets onto the market if they get into difficulties and, as you say, it is the marginal seller that sets the price in a market.

    With this type of bifurcation in an average you could get an average which shows quite substantial deleveraging together with distressed asset markets as the overleveraged debtors are selling.

    One of the ironies is that as debt levels go up jobs are becoming less and less secure so this simply magnifies the potential (latent) problems;the whole structure is less secure.

    As to putting up interest rates in this environment you appear to effectively suggest that this can never be done as lower rates simply mean more and more debt which puts us further away from a rise, no matter what Carney et al may say.

    There has to be somewhere a “peak debt” where some folk are simply maxed out on what they can borrow; I’ve no idea what this would be but it must exist which is the ultimate, if not the practical, reason why this cannot go on ad infinitum.

    • “There has to be somewhere a “peak debt” where some folk are simply maxed out on what they can borrow”

      There is and it appears within a complex formula in the original Consumer Credit Act 1974. Any loans advanced that took the borrower beyond that level could not be legally enforced. Thatcher repealed that part of the Act along with other parts that stopped consumers borrowing as much as they wanted – remember the “people are not lemmings” speech?. That crass action has led directly to the current debt crisis.

      • Will have to look into that. Thanks for referencing it. Don’t suppose you have a particularly useful link for an unbiased examination of the speech/policy/decisions? (All too believable – but would be great for me to be able to hit a couple of her ardent fans with another demonstrable fact that she facilitated the profligacy that helped create the real crisis).

        Oh, and apologies to Shaun if my political bias is creeping in to the forum. 🙂

    • Hi Benfitzg

      Here are the words of Bank of England Governor Mark Carney. From Reuters.

      “Jan 12 Bank of England chief Mark Carney said on Tuesday Britain’s recovery was not reliant on debt accumulation, even though household debt was relatively high.”

      Contradicting himself in a single sentence?

  5. Anyone with a property in London which they’ve had for a few years could sell up now and take what is in some instances an amount similar to a good lottery win then go and live a stress free life without a mortgage in a cheaper area of the country. I would say do it quick while there’s still time before the bubble bursts.

    Judging by the house prices on the outskirts of London in commuter belt places eg Hertfordshire some would appear ro be already doing it. I saw a 3-bed semi advertised for £600K while a similar house where I live (still in southern England) would be less than half this. Herts/Berks etc have risen as the house price increase wave has rippled out of London but it can’t last forever and it would appear that in PCL (prime central London) prices are starting to fall.

    This is not financial advice but is it really worth the hassle of living in London or an expensive and time-consuming commute to the capital when your quality of life could be so much better elsewhere?

    • Hi Jan

      There is plainly good advice in what you are saying. But for an out and out Londoner like me ( I qualify as a Cockney) it is home. Also whilst individually some people could do this and maybe quite a few but there is a limit before house prices in London would be hit hard.

      • True. I feel that it’s got a lot to do with the fact that they are only thinking of 5 years time and getting re-elected, hence all these “Help to Buy” and “Right to Buy” etc. schemes that give short term gain but long term pain. The Governments of the last few decades, New Labour and Tory alike have caused the Housing Crisis and are continuing to make it worse because they appear not to care about the long term consequences of the millions of younger people priced out of a decent stable home

  6. Net lending to SMEs was £0.0 billion ( in December 2015)

    I first read that as “not lending to SME…… ”

    why should they , they have no one to sell to , SME market is broke , paying back mortgages, university lending and car loans to start with

    then over draft fees

    and being sucked into a pensions black hole that they will get -3.0% on as MIRP/BIRP goes into effect

    the Grand Theft goes on ……


    • Hi Forbin

      We return to the subject of the Bank of England Funding for Lending Scheme which started in the summer of 2012. It fired up mortgage lending and has not turbo-charged unsecured credit but its supposed purpose of boosting SME business lending speaks for itself as a big fat zero. But but the counterfactual they reply…..

      Extraordinary moves in the crude oil market today with the WTI benchmark up 9% to US $32.64. At least we now know where the stop-losses were! Let us see what unfolds next.

  7. Those aged 16 to 24 are the most optimistic – they expect to be rid of unsecured debt at just 38.

    thats because as I told my two , move to the USA , Canada or Australia

    because yer screwed here !

    Go West – pet shop boys

    So when my house goes from 300thou to 3 million , like those in Chelsea , I can then move to a cheaper country …..


  8. There is no way out of this situation our debt based monetary system is a ponzi scheme.
    Every paper money system in history has failed.Interest rates need to go up but they can’t put them up or there will be an economic meltdown
    The Conservatives self proclaimed ‘competent on the economy’ despite the fact that the national debt increased by 50% during their period of coalition.
    Rising house prices falling incomes..more money for the Banksters.

    • Hi Private Fraser

      I would say that we are doomed (sorry) but on the current trajectory we will get more and more trouble as the junkie monetary culture comes home to roost. We need to change both tactics and strategy.

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