The accountancy company PricewaterhouseCoopers have released data showing that by the end of 2016, the average UK home will have unsecure debt amounting to £10,000. This type of debt comprises of loans taken from banks, student loans plus expenditures on credit card facilities. It does not incorporate mortgage loans.
The predicted amounted would be the highest average debt in terms of cash that the average UK consumer has had. The report also stated that the average UK home had nearly £9,000 worth of unsecured debt in 2014. This is more than the estimate given by the Bank of England which was £8,000.
PwC also stated that despite the figure being so high, the vast majority of consumers were positive that they would be able to settle those debts. One of the reasons why consumers seem to be so confident in their ability to do so is the fact that the interest rate is so low at the moment. Furthermore, PwC revealed that unsecured lending increased by £19.7 billion in 2014 which is a hike of 9%.
Part of the explanation for this massive hike in borrowing is the behaviour of students. A huge 46% of this 19.7 billion was down to student loans. Further to this, 22% of the increase was accounted for by credit card borrowing, with the remaining 32% due to overdrafts and over types of lending schemes.
The PwC went on to argue that though the majority of people at present were in a stable position concerning their unsecured debt, the situation could become far more problematic when interest rates ultimately do go up.
They also stated that this could lead to a situation where the ratio of household debt compared to income would be beyond the highest figure that was set just prior to the economic crisis in 2008.
A financial services business director at PricewaterhouseCoopers, Simon Westcott, commented on the possibility of this happening: ìConsumers could begin to feel squeezed once again.î
In tackling the subject of secure debt, the Bank of England have warned that if there were to be an increase in interest rates, over 600,000 families might be left susceptible to a consequential increase in mortgage rates.
Despite this warning, the Bank of England did also state in December 2014 that household debt levels had reached a figure that was lower than the long-term average, thus allaying any immediate fears.