The Bank of England recently asked lenders to set aside £11.4 billion over the next 18 months, to protect against potential defaults as consumer credit continues to grow faster than wage growth. It has recommended that mortgage lenders tighten their rules to ensure they are not over-exposed.
Changes would including a check to ensure that borrowers can still pay the mortgage should a percentage increase of 3% be applied to standard variable rate (SVR), the rate borrowers would be paying without a mortgage product deal. The previous gauge was 3% above base rate (which at 0.25% is significantly below SVR).
Experts are now predicting a rise in the Bank of England base rate to a possible 3% by the end of 2019, so let’s look at how household debt stands today.
The Money Charity estimated in August 2017 that UK unsecured debt has grown to nearly £201 billion for the first time since the financial crisis of 2008. Figures show that debt is increasing at the same rate it did in the mid-noughties, at around 7% over the last three years.
The average total household now owes £7,413 in unsecured debt (up by £530 from just a year ago) and £57,005 including mortgages (up from £56,791 last year).
UK debt is now equivalent to £29,842 per adult and 113.8% average earnings.
£68.5 billion is owed on credit cards
£24 billion is owed to banks for car finance
9.45 million people in the UK have no savings at all
While the total interest paid on household debt with Bank of England interests rates at 0.25% has decreased to £52 billion (from £86 billion in 2008). Had interest remained at a consistent rate that figure would be £94 billion today and households would be paying 81% more.
Financial education has been on the school curriculum since 2014 but, with an estimated third of young people finding themselves in debt by the age of 24, The Money Charity is campaigning for financial education to be improved.