The UK in recent years has seen a massive growth in the levels of personal debt and thanks to increases in secured loans corresponding to a strengthening of the housing market; it does not appear to be slowing down. Recent figures from Creditaction show that since the end of 1993, when debt levels were around the £400bn level, they have now risen to an astounding £1148bn, and it is growing at a rate of 10.2% per annum, or £100bn over the last year alone.

Mortgage loans currently make up about 83% of the total personal debt level following a 10.3% (£956.3bn) increase over the past year. Both the Bank of England and the Royal Institution of Chartered Surveyors (RICS) have reported a pick up in the property market compared with the previous 12 months. The RICS have seen increases in mortgage approval figures, as well as the number of prospective buyers making enquiries. A spokesman for RICS, commenting on the housing market, stated they believed, "2006 will see the first annual rise in activity since 2002, after three consecutive years of decline". International property consultant, KingSturge (http://www.kingsturge.co.uk/) is more cautious however, predicting a modest 3% UK residential growth in 2006, while chief economist for the Halifax, Martin Ellis, stated, "Another year of below trend economic growth and the continuing high level of house prices in relation to earnings... should curb housing demand and prevent a renewed bout of high house price increases in 2006". This will come as good news for the many first time buyers who are struggling to get onto the first rung of the property ladder.

Consumer unsecured lending over the past 12 months has risen by 9.8%, which is less than the rate of secured loans. According to Bank of England figures, this represents a slight drop in monthly credit card spending levels from October to November. Growing fears about abilities to repay the debts are seen to have been a major contributing factor in the slowdown. According to Experian three in four Britons worry about financial pressures during the festive season with 20% still paying off the debts accrued over Christmas six months later.

The Creditaction report has however indicated that overall average consumer borrowing through credit cards, motor and retail finance deals, overdrafts and unsecured personal loans, rose to £4,121 per UK adult by the end of November 2005. The average UK household debt was approximately £7,776 (excluding mortgages) and £46,491 including mortgages, with the average sum owed by each UK adult at approximately £24,636 each (including secured loans).

The means of making payments in shops has also seen changes, with debit cards now overtaking credit cards as the most favored card method to account for two thirds of all plastic payments. The switch to debit cards means that shoppers gain tighter control of their spending without wracking up greater debts. There is still more that can be done to reduce unnecessary expenses however, with the average credit card APR at 15.75%. This is about 11% higher than the base rate, and much higher than many widely available cards as shown on the financial comparison site Moneynet .co.uk.

Following on from a history of increasing personal insolvency rates in the UK, with the period from July to September being the worst on record, the recent figures make for welcome reading. However whilst the current trend seems to be progressing towards a more responsible attitude to personal debt from both lenders and borrowers, there is still much work and education that needs to be done.

Disclaimer:
All information contained in this article, is for general information purposes only and should not be construed as advice under the Financial Services Act 1986.
You are strongly advised to take appropriate professional and legal advice before entering into any binding contracts.

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Author: Michael Hanna

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