The combined level of debt held by UK citizens now stands at £1.5 trillion.
By far the largest part of that figure is secured debt in the form of mortgages and this stands at £1.3 trillion.
With regard to unsecured debt £68 billion is the amount owed in the form of credit cards. Overdrafts, personal loans and car finances amounts to £130 billion. Student loans comprise of £86 billion and this is one of the fastest levels of accumulated debt, doubling in the last 5 years.
If we compare our level of debt as a percentage of disposable income in comparison to other countries, we are quite high up the list. There are however other countries (with comparable economies such as Australia, Denmark and Canada) where their citizens have debt as a higher percentage of disposable income than in the UK.
It must be said that debt is only a problem if the debtor cannot afford to repay when it is due. When this happens the debtor is ‘insolvent’. It can become a problem when debt, or credit is used to pay for everyday items and household bills. When finances are stretched to this level it only takes a small increase to cause a household to become insolvent. For example, on an £85,000.00 mortgage an extra 1 per cent to the interest rate will mean an extra £71.00 per month which needs to be found. This £71.00 may be the straw that breaks the camel’s back and mean that that household would become insolvent and need to look at insolvency solutions such as Bankruptcy or an Individual Voluntary Arrangement (IVA).
The Bank of England recently stated that personal debt is growing at its fastest rate since 2006 and has made noises warning against a possible future ‘debt bubble’.
Hopefully, we are not on course for another financial meltdown and debt and credit will be reigned in over the next few years. This however remains to be seen!
If you do find yourself in debt that you are no longer able to pay back and would like to speak to a specialist in debt, bankruptcy, and IVAs, Farleys can help. Call us now on 0845 287 0939 or send your enquiry online.