Credit debt hits record high

Recently released figures from the Bank of England (BoE) show that credit card lending rose by £571m in November. Unsecured debt – in other words, debt which doesn't have a specific asset like a house that can be taken in place of payment – is also rising at the fastest level for the last 11 years. But what does this mean for the average household?

Rising debt  
The Office for Budget Responsibility has already increased predictions for household borrowing in 2016 from £41bn to £58bn. As a result, BoE Governor Mark Carney has said the Bank must “remain vigilant" around the situation.  

Nonetheless, the BoE Stability Report shows that the ratio of household debt to income was still below financial crisis levels in the second quarter of 2016. Commentators also believe that most borrowers are simply taking advantage of low interest rates and the improving economy, and that we’re not returning to the unsustainable lending that led to the recession.  

Economic uncertainty  
Much of the concern is less about borrowing habits and more about uncertainty over how the UK economy will perform over the next few years. The BoE report notes that UK financial stability “remains challenging” after the Brexit vote and that the economy is still vulnerable to slowing growth in China and the eurozone.    

Carney has previously warned that a fall in the economic situation could lead the Bank to increase interest rates, which would increase the price of debt. There’s also the risk of a rise in unemployment, which could knock some households further into 'high debt servicing ratios', meaning that they're struggling to repay debts.  

Playing it safe  
So while borrowers may not be falling back into old habits, we are in a time when it’s sensible to be careful with money management. The Bank of England is keen to keep ensuring banks carry out affordability checks under new mortgage regulations; people with rising debt levels might also consider doing early affordability tests of their own.  

If you are finding it difficult to keep your finances healthy, contact Dukes Bailiffs for support and advice on avoiding or getting out of debt.