New stats have revealed that household debts has risen to £1.5tn in the UK for the first time a figure which represents 83% of the UK’s annual economic output. According to Bank of England figures, total debt rose by £50bn in the past year – or 3.5% or following a 2.3% increase the previous year (1).
Breaking this alarming figure down reveals that UK adults owe an average of £30,000 mostly in mortgages, but also in loans and credit cards. 87% of this debt is in the form of mortgages, secured by property but UK adults also owe an average of £3,737 in loans and credit cards (3).
The Money Charity who run debt awareness training are concerned that with inflation set to rise borrowers need to start cutting their debts. Fears over inflation have followed a warning from the Governor of the Bank of England who said that inflation rates are likely to rise to 2.7% next year (2).
The 3.5% rise in debt is certainly less than the pre-credit crunch growth which neared 10%, but shows a renewed upward trend after a period of stagnation (3).
Michelle Highman from the Money Charity said (1): “When we see these record levels of debt, it’s important to remember that there is nothing necessarily wrong with borrowing. But with interest rates so low at the moment, it’s easy to think that high levels of debt are manageable.”
“More inflation means higher interest rates, which we’ll all have to pay on our mortgages, loans and credit cards. If you’re in debt, particularly if you have a variable mortgage, it’s time to prepare by taking control of your finances.”
At Precision Financial we always advise our customers to regularly review their finances and arrange annual reviews of their pension arrangements.
The value of pensions and the income they produce can fall as well as rise. You may get back less than you invested.