Author Mark Fairlie
New research has revealed that the average person in the UK owes as much as £8,000 in addition to their mortgage debts.
The TUC has also stated that 1.6million households are already in “extreme debt”. The statistics do not come as a surprise, as lending continues to grow at its fastest rate since the financial crash.
Three-quarters of British adults owe money outside of their mortgage, according to research by Money Supermarket.
Consumer debt major concern
It has also been revealed that an unusually 70% of adults in the UK have average credit card debts of over £6,000, with a fifth of young people owing more than £10,000 each.
Consumer borrowing has been rapidly growing over the past few years.
Credit cards, personal loans, car finance and second mortgages increased by 10.8% last year, according to figures from the Bank of England. As the cost of living and inflation rise, this growing consumer debt is causing major concern for both the public and the government.
Recent hints toward rising interest rates have brought these figures into the spotlight, as Britain is set to enter a period of extreme economic difficulty.
Many will continue to struggle to repay debt
Credit ratings agency, Moody’s, warned that as the economy weakens and inflation continues to eat into borrowers’ salaries, many will continue struggling to repay their debt. Increased interest on top of their loans will only add to the British people’s list of what they owe.
Many have argued the hike will help to resolve consumer debt issue by “encouraging savers and discouraging borrowers,” such as Dame Kate Barker of Taylor Wimpey and Man Group.
But, as Dr Sushil Wadhwani states, at this stage the “horse has already bolted,” with consumer debt at its highest since the financial crisis, an interest rise will only make it more difficult for people to either service their indebtedness or become debt-free.
The Money Advice Service has found that more than three million families were using at least a quarter of household income on repaying credit and interest on loans, often resulting in them requiring additional quick loans to make ends meet or to cover sudden expenses.
“Previous experience shows how such increases in the levels of borrowing can leave households over-indebted and vulnerable to sudden changes in circumstances and drops in income that can pitch them into hardship,” says debt charity StepChange’s head of policy, Peter Tutton.
FCA Director of UK Debt Advice, Sheila Wheeler, has said that the agency is
“concerned at the high level of household debt across the country, particularly the number of people borrowing money to cover living expenses.”
With the number of people falling into debt a second time more than tripling in the last year, according to research by PayPlan, it is obvious that this cycle of borrowing is becoming a major problem.
“Families can’t continue relying on credit cards and loans to get by. But with the average wage still worth £40 [a week] less than before the 2008 crash, lots of families have little choice,” says Frances O’Grady, the TUC General Secretary.
She believes a focus on higher wages could help these households support themselves without the help of loans. She continues to say that “we need a return to proper year-on-year pay rises and a higher national minimum wage” to make sure households can keep up with inflation and eventually climb out of their debt.