Credit Crunch

UK consumer debt totals over £1 Trillion

Research from leading accountants Grant Thornton has shown that the total amount owed by UK consumers in the form of mortgages, loans and credit cards has increased by 7.3% in the 6 months preceeding June. The figure now stands at nearly £1.5 trillion.

During the same six months, the UK’s Gross Domestic Product (GDP) only increased by just over 5% to £1.41 trillion, which means that personal debt in the UK exceeds the income that’s generated by the country as a whole.

According to Stephen Gifford, Grant Thornton’s chief economist, we needn’t panic about this news as personal debt is covered by the equity that’s owned in UK housing, but the figures do serve to further highlight the issue of personal debt in the UK.

Mr Gifford added that if the UK property market and our national economy continue to decline, the current levels of personal debt will increase and become unsustainable.

In the last ten years, the number of people declared insolvent has risen from an average of 24,000 per annum in 1997 to over 100,000 in 2007.  The latest insolvency figures show that during the first six months of 2008, more than 49,000 people were declared insolvent. Grant Thorton are also predicting that the total number for 2008 could top the 100,000 mark.

GE Money’s recently released report has established that over three million consumers in the UK have had a mortgage or a loan application rejected at least once in the last eighteen months. The restrictions on lending criteria have seen even those with a good credit history being refused credit.

These figures demonstrate that the days of getting cheap credit in the UK are - at least for the forseeable future - over, so UK consumers who are already struggling with debt will without doubt suffer more as a result.

Furthermore, figures released recently from the CBI have revealed that High Street sales have declined to their lowest level in twenty five years. This is being blamed on the lack of consumer credit too.

The Alliance Trust Research Centre have also established that this year has seen a record low in consumer’s household budgets as well as a record low in their net wealth. The drastic decline in property prices and values, as well as rising levels of debt, have put huge pressures on consumers and as a result, spending is declining overall in the UK.