For the first time, Britons' personal debt exceeds Britain's GDP
Another worrying milestone on a nation's journey deeper into debt
Britons 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 year, 2008.
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 year.
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.
Moneyexpert.com suggested 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 households."
- 1 Five-year-old Iris Grace is raising awareness of autism through her extraordinary paintings
- 2 Car tax disc changes: Two days to go - and they affect you much more than just not displaying a piece of paper
- 3 The Simpsons death: Creator Al Jean would 'kill himself' before a character like Homer or Lisa
- 4 British man raped while urinating in bushes at Oktoberfest beer festival in Germany
- 5 Pope Francis assures atheists: You don’t have to believe in God to go to heaven
Isis, we are told, is a 'clear and dangerous threat to our way of life'. I’m sorry, but I just don’t buy it
Exclusive: 'Putin's Russia has been my biggest regret,' says Nato's outgoing Secretary General
'Women, walk wherever you want' posters taken down in Stamford Hill following 'unacceptable' signs separating men and women
There’s no excuse for Dave Lee Travis’s behaviour, but we need to keep a sense of proportion
Mark Reckless becomes second Tory MP to defect to Ukip in a month
Should gay sex be illegal? 16% of Britons think so
- < Previous
- Next >
iJobs Money & Business
NEGOTIABLE: Austen Lloyd: TRUST ACCOUNTANT - KENTIf you are a Chartered Accou...
£18000 - £20000 per annum + OTE £30000: SThree: SThree are a global FTSE 250 b...
Highly Competitive Salary: Austen Lloyd: CITY - Law Costs Draftsperson - NICHE...
£300 - £330 per day: Ashdown Group: SQL Developer (Stored Procedures) Watford...
Day In a Page
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location