An average UK household will be £ 10,000 in debt by the end of 2016 | Loans and debts

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The average UK household will owe close to £ 10,000 in debt such as personal loans, credit cards and overdrafts by the end of 2016, which is a new record in terms of cash, according to a report.

Total outstanding non-mortgage debt grew by nearly £ 20bn or 9% in 2014 to £ 239bn, marking the fastest growth rate in a decade, according to the PwC report Precious Plastic: How Britons Fell Back in Love With Borrowing.

He warned that people’s complacency about managing their debt can lead to a resurgence of bad debt.

The total amount of non-mortgage debt equaled nearly £ 9,000 per household last year, surpassing its pre-financial crisis peak in cash terms, according to the report.

Unsecured loans from PwC projects will grow between 4% and 6% per year over the next two years. This increase would leave the average UK household with non-home loans of close to £ 10,000 by the end of 2016, taking consumers into uncharted territory in terms of debt levels, according to the report.

Historically low interest rates are helping to keep the cost of borrowing relatively affordable, but PwC warned that a 2% increase in interest rates on total household debt, including mortgages, would leave households with the need to find an additional £ 1,000 a year just to cover the cost. extra cost of interest.

A PwC survey of some 2,000 Britons found that there is a danger of complacency as people’s confidence in their ability to keep up with their debts increases.

Fewer than one in five (18%) said they are concerned about how they will make future repayments, compared to 26% in 2013.

While just over a quarter (26%) of people expect their salary to freeze or decline in the next 12 months, this compares to nearly half (48%) of people who thought this in 2010, after of the financial crisis.

But against the growing sense of optimism, PwC uncovered “warning signs.” For example, people between the ages of 35 and 44 increasingly rely on credit to pay for essential items, and about one in five people in this age group say they borrow simply to make ends meet.

Of the £ 19.7 billion increase in non-home loans in 2014, nearly half, amounting to £ 9.1 billion, came from student loans. PwC estimates that graduates who started college after 2012 could leave with an average debt of £ 40,000 to £ 50,000.

About £ 4.2 billion of last year’s increase came from credit cards, while £ 6.4 billion came from personal loans and overdrafts and other sources, such as payday loans and peer-to-peer loans, according to the report.

The average credit card balance stood at £ 1,021 at the end of 2014, just £ 39 in cash terms from its all-time high in early 2010.

PwC said that people’s ability to maintain control of their debt will be challenged in the coming years as the Bank of England’s base rate finally begins to move from its all-time low of 0.5%. The ratio of total household debt to income, including mortgage debt, is projected to reach around 172% by 2020, surpassing its previous peak in the run-up to the financial crisis.

Low levels of financial literacy, with many people routinely misinterpreting the true cost of debt, could put some people at particular risk, the report warned.

When presented with various options, only 21% of the people surveyed correctly understood the cost of a mortgage.

Simon Westcott, director of PwC’s financial services practice, said: “Old favorites, like credit cards, are seeing something of a resurgence, while new forms of borrowing, like peer-to-peer lending, are starting to take off. gain ground.

“Although our survey revealed a relatively high degree of confidence among consumers about their ability to keep up with their debts, [the] The affordability of UK household debt may come under pressure for years to come.

“As the index of total household income and debt approaches 172%, surpassing its previous high in the run-up to the financial crisis, and interest rates rise, consumers could begin to feel pressured once plus.

“This could undermine the growth of lenders and cause a resurgence of bad debts.”

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