UK household debt hits record high of £1.5tn

Debts of British households have reached unprecedented levels after hitting the £1.5 trillion mark for the first time.

The average British adult now owes almost £30,000, which when multiplied by the 51 million adults in Britain, equates to a collective debt of around £1.5 trilli…

Debts of British households have reached unprecedented levels after hitting the £1.5 trillion mark for the first time.

The average British adult now owes almost £30,000, which when multiplied by the 51 million adults in Britain, equates to a collective debt of around £1.5 trillion.

Considering that the average UK annual salary in 2016 is £27,500, this average debt represents 113.3 per cent of annual earnings.

This level of average debt also means that the amount Brits owe on their mortgages, loans and credit cards is now 82 per cent of what the entire economy produces in a year, said the Money Charity, which provides financial advice to young people and adults throughout the UK.

Growing debt

Average debt has grown by £1,036.58 over the 12 months leading up to and including September, and that debt continues to grow at the fastest rate since 2008’s financial crisis.

The vast majority of this debt (87 per cent) is mortgages, which is secured against property, however, Brits owe an average of £3,737 in unsecured debt like credit cards and personal loans.

The Money Charity said that the Bank of England’s decision to cut the base rate to 0.25 per cent in August should benefit borrowers by bringing down the interest rates people pay but it hasn’t made much difference to the rates consumers face.

They also report that mortgage interest has dropped slightly but noted that average credit card interest has crept up from 18.29 per cent in August to 18.42 per cent in September.

Debt trap

Michelle Highman, chief executive of the Money Charity, said that there is nothing wrong with borrowing when it comes to hefty expenditures like paying for university or your house.

However, with interest rates so low, she warned people not to fall into the trap of thinking that high levels of debt were manageable.

Ms Highman added that with inflation expected to rise to 2.7 per cent in 2017, this will “mean higher interest rates, which we’ll all have to pay on our mortgages, loans and credit cards”.

She concluded: “If you’re in debt, particularly if you have a variable mortgage, it’s time to prepare by taking control of your finances.”

By Amy White

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