The UK’s household debt burden is rising, and the latest indicator of this is a significant fall in the rate at which homeowners are paying off their mortgage debts.

In the final quarter of 2016, the amount mortgage borrowers injected into their homes was £10.2 billion more than the amount borrowed. This undoubtedly sounds like a significant amount, and it is important to bear in mind that this figure was negative for the first seven years of the 21st century – UK consumers were at that time borrowing more than they were paying off. However, the £10.2 billion figure represents a significant fall over the last six months, as the equivalent figure for the second quarter was £13.3 billion, which was a record high.

Furthermore, the £10.2 billion figure for the last three months of last year is effectively the lowest such figure since the first quarter of 2012, save for a period in 2015/16 when stamp duty changes are considered to have affected the figures.

Mortgage interest rates are still at historically low levels, so the fact that consumers are committing less to paying off their mortgages could suggest firstly that they are becoming burdened by other debts, and secondly that they are struggling to put amounts aside for a rainy day.

The Prudential Regulation Authority (PRA), which regulates the prudential standards of banks and other large financial institutions, is conducting a review of firms’ lending criteria, amid fears of another debt bubble similar to that which caused the financial crisis of a decade ago.

UK household debt rose sharply in 2016 to reach a record high. As of the end of the year, the average UK household owed £12,887 (excluding mortgage debt). This is an increase of £1,117 per household compared to December 2015, representing a rise of around 9.5% – the highest annual increase since 1997.
Total UK household debt has reached £349 billion, well above the £290 million figure seen in 2008 at the height of the banking crisis. This £349 billion figure represents 27.4% of total household income, which is the highest share for eight years.
Around half of the UK population now have little or no savings.
The Financial Conduct Authority (FCA) estimates that 3.3 million people in the UK are in what it describes as ‘persistent debt’. It believes that a person has a persistent debt problem if, over an 18-month period, they pay more in interest and charges than they pay towards repaying their debt. The regulator adds that 1.8 million people have had persistent debt for two consecutive 18-month periods. It has therefore launched a consultation on proposed new rules for how credit card firms handle customers in persistent debt, which could result in firms being forced to reduce, waive or cancel interest or charges due for customers with severe debt problems.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.