UK household debt at record high

The Momentum UK Team 29 November 2013

Household debt in the UK has reached a new high - slightly above the record set at the beginning of the financial crisis - according to new figures from the Bank of England

Adults in the UK now owe a combined total of £1.43 trillion, including mortgage debt, with an average debt of £28,489 per person.

The previous record was set in September 2008, just before the effects of the financial crisis and subsequent recession began to take hold. Today’s figure is just £29m higher.

The news has received conflicting interpretations. Some commentators have said that the figures reflect an increase in consumer confidence as the recovery gets underway, with others suggesting that consumers are resorting to borrowing to deal with rising living costs and bills.

As may perhaps be expected, most of the debt comes from mortgages. Recent increases in property prices, driven partly by new demand generated by schemes like Help to Buy, have almost certainly contributed to the new debt figures.

As well as mortgages, unsecured lending such as credit cards and personal loans has also started to pick up again - although interestingly, this type of borrowing actually decreased in October.

Some have argued that the UK’s economic recovery is based on borrowing, and that this is unsustainable - as opposed to increased spending driven by rising incomes. However, others have pointed out that these figures have not yet been adjusted for inflation.

The news comes a day after the Bank of England announced that it was scaling back its Funding for Lending Scheme (FLS). The scheme, which allows banks to borrow money cheaply from the Bank on the condition that it is used for lending, will no longer apply to mortgage lending. Bank of England governor Mark Carney said of the move:

“Over the past year the Funding for Lending scheme has contributed to the recovery by helping to significantly improve credit conditions, especially for households.

"The changes announced today refocus the FLS where it is most needed - to underpin the supply of credit to small businesses over the next year - without providing further broad support to household lending that is no longer needed.”