The International Monetary Fund (IMF) has recently stated that it believes Britain’s economic recovery of the last few years has been put in jeopardy by corresponding rise in household debt.

It stated in its twice yearly financial stability report, published this month, that high levels of debt in Europe, coupled with increasing financial vulnerability in developing countries has made the prospect of a financial shock more possible. The IMF talks about the increased possibility of a credit crunch similar to the one in 2008 which started the banking crash.

The IMF concerns arise following publication of figures showing household debt levels in Britain were much higher than in comparable countries. For example, Britain has reduced household debt from 2008 relative to national income from 96% to 87%. This is still far behind France and Germany on 56% and 54%.

The IMF believe that continuing high debt calls for added response to address the problems so that we decease the possibility of slipping into another financial crisis.

From a personal point of view it seems highly unlikely that Britain’s household debt level will decrease in the short to medium term. Since the credit crisis of 2008 lending from the bank has steadily increased. The banks are now not quite as cautious with regard to their lending criteria and mortgages and unsecured loans are becoming more available. House prices are also rising steadily which means people are likely to re-mortgage their properties to take equity out of their home. This obviously increases household debt significantly.

It remains to be seen whether the IMF link of household debt to increase the chance of a financial crisis would come to fruition.

On a debt advice level it is always best to take advice before taking on extra borrowing. If you feel you need any advice with regard to any debts, loans or credit you have, contact Farleys’ Bankruptcy & Insolvency department on 0845 050 1958, alternatively please complete an online enquiry form.