The average UK household will have unsecured debts of £10,000 by the end of next year, according to a report prepared by a leading accountancy firm

The figure includes spending on credit cards, bank borrowing and student loans, but excludes securing borrowing.

It is reported that one reason for the increase is the amount of money being borrowed by students, in fact nearly half of the increase - 46% - was accounted for by student loans. 
This differs from consumer credit because the debt is repaid only when the recipient earns a high enough income.  Once this is removed, outstanding unsecured debt remains a fifth lower than before the financial crisis. Adjusted for inflation the UK remains a long way from hitting the debt-fuelled peaks of 2008.

Borrowing on credit cards was responsible for 22% of the rise, with the rest from other sources, such as loans and overdrafts. 

It is reported that there is general confidence on the ability to repay these debts, principally due to the low level of interest rates, however a rise in those interest rates would impact on the levels of confidence and make repayment more difficult especially for families who are on fixed incomes and at the limit of their monthly expenditure.

When interest rates do rise, pressure will be applied to family budgets that rely on borrowing and the complacency of those who have seen low interest rates as the norm, will be faced with stark choices in order to make the debt repayment or face recovery action by creditors.

As far as secured lending is concerned, the Bank of England has previously said that a sudden rise in interest rates could leave more than 600,000 families vulnerable to a rise in mortgage rates.

Should you wish for advice on acting as a creditor to recover unpaid debt or requiring advice on your own financial circumstances, please contact us on 020 7186 1144.

Author
Gareth Price
Tel: +44 (0) 20 7186 1173
Email: gprice@moorfieldscr.com

About Moorfields

Moorfields is one of the UK's leading independent firms of restructuring and insolvency specialists. Our highly skilled teams include restructuring professionals and licensed insolvency practitioners who provide leadership, experience and high quality advice to companies and their stakeholders in financially distressed situations

• Share