Average household debt to reach £10,000 by next year
The average UK household will have amassed a record £10,000 in unsecured debt by the end of 2016.
Borrowing on credit cards, personal loans and overdrafts grew by nearly £20 billion to £239 billion in 2014 – or £9,000 per household – according to research from accountancy firm PwC.
The increase is the fastest rate of growth in at least a decade, with £9.1 billion (46%) made up of student borrowing, £4.2 billion (22%) from credit cards and £6.4 billion (32%) from other borrowing.
PwC expects borrowing to continue to grow over the next two years between 4% and 6% annually.
And while just 18% of people are worried about how they will make future repayments, PwC warns UK households could be become increasingly overstretched and vulnerable if there is an expected interest rate increase. Just a 2% rise would leave households needing to find an extra £1,000 a year just to cover the additional interest costs, the reports adds.
Worryingly, a sizeable majority of households misunderstand the true cost of debt too. Just 21% of households, when presented with a number of options, were able to correctly estimate the correct cost of a mortgage.
One a more positive note, the report found that consumers are feeling more confident about their job security, with just 13% of people worried they may lose their jobs in the next 12 months (down from 16% in 2013), while a quarter (26%) expect to see their wages continue to be frozen or even decreased in the next year, down from 48% in 2010.
Changes in borrowing
Simon Westcott, a director in PwC's financial services practice, said: "Underlying this significant growth in overall unsecured borrowing, we also saw changes in the way people borrow. Old favourites such as credit cards are staging something of a revival, while newer forms of borrowing such as peer-to-peer lending are starting to gain ground."
He added: "Despite our survey revealing a relatively high degree of confidence among consumers about their ability to stay on top of their debts, affordability of the UK's household debt pile may come under pressure in the coming years.
"As the total household debt to income ratio heads towards 172% - exceeding its previous peak in the run up to the financial crisis - and interest rates increase, consumers could begin to feel squeezed once again. This could undermine growth for lenders and feed through to resurgence in bad debt."