Personal Debt Dxceeds Britain's GDP
By Martin Hickman
24 August, 2007
have racked up so much debt on loans and credit cards that the total
borrowed now exceeds the entire value of the economy, new research shows
today. The financial consultant Grant Thornton is forecasting that gross
domestic product (GDP) will hit £1.33 trillion this year, less
than the £1.35trn which was outstanding on mortgages, credit cards
and personal loans in June.
The symbolic overtaking is
the first time that the country's 60 million people owe more to the
banks than the value of everything made by every office and factory
in the country. It prompted a warning that personal borrowing was so
out of control that many more people would be pushed over the "financial
edge". The runaway housing market is the biggest reason why consumer
debt has spiralled, totalling £1.131trn. Debt on personal loans
and credit cards totals £214bn. Overall, individuals owe the staggering
sum of £1,344,721,000,000.
Grant Thornton ascribed the
level of borrowings to a "buy now, pay later" culture and
warned that interest rate rises could impose a significant burden on
families and individuals. "Fortunately, most consumer debt is secured
and can be repaid over several years otherwise we would be technically
bankrupt," its chief economist, Stephen Gifford, said.
The research further darkens
the storm clouds gathering over the British economy. Repossessions,
personal insolvencies and debt judgments have all risen by about a third
in the past year as borrowers have struggled to cope with the impact
of five rate rises in a year.
Yesterday the financial website
moneyexpert.com suggested that 2.5 million people were "very concerned"
about their personal financial situation.
In the United States, the
sudden failure of the poor to repay home loans in recent months has
sparked a "sub-prime" crisis that has spooked the financial
markets and wiped billions of pounds off share prices.
Responding to the latest
figures, the Bank of England predicted debts would remain a "social"
rather than an "economic" problem, indicating it believes
indebtedness will be contained to individuals rather than threaten businesses.
Grant Thornton's notional
payback date for personal debt has advanced markedly through the calendar
during the past 10 years. In 1997 the UK took until 23 August to pay
off its debt, but this year the date will be 5 January the following
Mark Allen, a personal insolvency
partner, said it was not uncommon to encounter individuals with debts
of £50,000 spread across five credit cards on top of a mortgage.
"In our experience these are the sort of people walking a perilous
financial tightrope," he said. "All it takes is an increase
in costs or, as is the present case, a rise in mortgage premiums due
to higher interest rates, to force people to default on their repayments
- hence the increase in bankruptcies and individual voluntary arrangements."
Repossession leapt 30 per
cent in the first six months of this year compared with the first half
of last year. County court judgments rose 32. 5 per cent and personal
insolvencies in England and Wales 33 per cent to more than 62,000 last
Mortgage payments are making
ever-larger dents in household income, rising from 12.5 per cent in
1997 to 17.6 per cent in May this year. Datamonitor, the independent
financial analyst, warned this week that the total number of Britons
credit blacklisted by 2011 will jump by 20 per cent to 8.6 million.
in its survey that 7 per cent of adults were "very concerned"
about their ability to keep on top of their debts, which would amount
to 2.5 million adults. However, 40 per cent of the 2,000 respondents
were unconcerned about their ability to manage their borrowings.
Malcolm Hurlston, the chairman
of the Consumer Credit Counselling Service, said Grant Thornton's research
made a symbolic point. "Basically speaking, it's just a mathematical
question: the relationship between GDP and borrowing. It's really another
way of saying that house prices have been going up quicker than wages,"
he said. "But what is happening is that unsecured debt is less
of a problem than it used to be, whereas secured debt is the problem,
and I think the Council of Mortgage lenders is expecting the figures
for repossessions to get worse."
He added: "The problem
on the secured front - mortgages - is getting worse because of the rising
gap between house prices and incomes. In terms of volume, it's not going
to be as bad as the early 1990s because the mortgage companies are gearing
up for it - this time they will be trying to avoid repossessions as
much as possible. But there's going to be a lot of activity and a lot
of people will find that they can't pay the money back."
Mr Gifford said: "The
level of debt has so far not caused much of a problem for the UK economy.
Interest rates have been historically low and the UK economy has been
ticking along healthily. But with five interest rate rises in the past
year the picture is changing and becoming a burden for families and
© 2007 Independent News
and Media Limited
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