FSA issues consumer debt warning

In its latest Financial Risk Outlook, the watchdog said the level of debt in relation to income is at a record high and is twice as much as it was in the 1980s.

The report stated that there is a risk that optimistic consumers are unprepared for a “weaker economic environment”.

According to the FSA, a “significant minority” of consumers face serious financial hardship because of the amount of unsecured debt they are carrying, which could present a risk to the UK economy.

“Even at low interest rates people are struggling,” said Lyndon Nelson, head of risk at the FSA.

The watchdog also warned that homeowners would not be able to use the equity in their homes to consolidate other debts if house prices fell this year.