Household debts reduce as confidence returns to market

The future looks bright for consumers as a significant reduction in household debt-to-income ratio has been recorded.

Figures supplied by the EY Item Club show this figure fell from 170 per cent to 140 per cent in 2013 as people made a concerted effort to bring their finances under control. 

Write-offs on consumer lending are also forecast to drop to two per cent by 2015, which means Britons will start to become more attractive propositions to lenders in the coming years. 

Andrew Goodwin, senior economic advisor to the EY Item Club, thinks 2014 is going to be a "real turning point" for households in the UK.

"This year we expect growth across the board – as well as a swell in consumer demand for credit cards, we expect stronger demand for big-ticket purchases, driving retail finance and personal loans, which will be good news for banks," Mr Goodwin said. 

While it is good that confidence is returning to the consumer lending market, people need to be sensible when it comes to lending, as the last thing they want to do is find themselves in the red needlessly. 

This is particularly true if consumers have spent the last few years working hard to bring their financial situation under control. 

Figures from the Finance & Leasing Association demonstrate the overall level of consumer finance activity in the UK rose in November, with £165 million spent on store cards and £3.1 billion on credit cards and personal loans.

Geraldine Kilkelly, head of research and chief economist at the FLA, said: "We have seen steady growth in overall consumer finance new business in recent months, amounting to five per cent over the 12 months to November."

People need to think seriously about whether or not they need to take out credit before doing so. For example, if disposable income is already quite tight, this should be an indication that a credit deal might push consumers over the edge.

By Amy White