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."

PROMOTED VIDEO
Life and Style
Phillips Idowu, Stella McCartney and Jessica Ennis
fashionMcCartney to continue designing Team GB Olympics kit until 2016
Sport
Shinji Kagawa and Reece James celebrate after the latter scores in Manchester United's 7-0 victory over LA Galaxy
football
Voices
voicesGood for Lana Del Rey for helping kill that myth, writes Grace Dent
Sport
Farah returns to the track with something to prove
Commonwealth games
Life and Style
fashion Designs are part of feminist art project by a British student
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Junior Research Analyst - Recruitment Resourcer

    £18000 - £20000 per annum + OTE £25K: SThree: SThree Group has been well estab...

    Senior Analyst - Financial Modelling

    competitive: Progressive Recruitment: This really is a fantastic chance to joi...

    Associate CXL Consultant

    £40000 - £60000 per annum + BONUS + BENEFITS: Harrington Starr: CXL, Triple Po...

    Business Anaylst

    £60000 - £75000 per annum + BONUS + BENEFITS: Harrington Starr: Business Anal...

    Day In a Page

    Screwing your way to the top? Good for Lana Del Rey for helping kill that myth

    Screwing your way to the top?

    Good for Lana Del Rey for helping kill that myth, says Grace Dent
    Will the young Britons fighting in Syria be allowed to return home and resume their lives?

    Will Britons fighting in Syria be able to resume their lives?

    Tony Blair's Terrorism Act 2006 has made it an offence to take part in military action abroad with a "political, ideological, religious or racial motive"
    Beyoncé poses as Rosie the Riveter, the wartime poster girl who became a feminist pin-up

    Beyoncé poses as Rosie the Riveter

    The wartime poster girl became the ultimate American symbol of female empowerment
    The quest to find the perfect pair of earphones: Are custom, 3D printed earbuds the solution?

    The quest to find the perfect pair of earphones

    Earphones don't fit properly, offer mediocre audio quality and can even be painful. So the quest to design the perfect pair is music to Seth Stevenson's ears
    US Army's shooting star: Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform

    Meet the US Army's shooting star

    Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform
    Climate change threatens to make the antarctic fur seal extinct

    Take a good look while you can

    How climate change could wipe out this seal
    Should emergency hospital weddings be made easier for the terminally ill?

    Farewell, my lovely

    Should emergency hospital weddings be made easier?
    Man Booker Prize 2014 longlist: Crowdfunded novel nominated for first time

    Crowdfunded novel nominated for Booker Prize

    Paul Kingsnorth's 'The Wake' is in contention for the prestigious award
    Vladimir Putin employs a full-time food taster to ensure his meals aren't poisoned

    Vladimir Putin employs a full-time food taster

    John Walsh salutes those brave souls who have, throughout history, put their knives on the line
    Tour de France effect brings Hollywood blockbusters to Yorkshire

    Tour de France effect brings Hollywood blockbusters to Yorkshire

    A $25m thriller starring Sam Worthington to be made in God's Own Country
    Will The Minerva Project - the first 'elite' American university to be launched in a century - change the face of higher learning?

    Will The Minerva Project change the face of higher learning?

    The university has no lecture halls, no debating societies, no sports teams and no fraternities. Instead, the 33 students who have made the cut at Minerva, will travel the world and change the face of higher learning
    The 10 best pedicure products

    Feet treat: 10 best pedicure products

    Bags packed and all prepped for holidays, but feet in a state? Get them flip-flop-ready with our pick of the items for a DIY treatment
    Commonwealth Games 2014: Great Scots! Planes and pipers welcome in Glasgow's Games

    Commonwealth Games 2014

    Great Scots! Planes and pipers welcome in Glasgow's Games
    Jack Pitt-Brooke: Manchester City and Patrick Vieira make the right stand on racism

    Jack Pitt-Brooke

    Manchester City and Patrick Vieira make the right stand on racism
    How Terry Newton tragedy made iron men seek help to tackle their psychological demons

    How Newton tragedy made iron men seek help to tackle their psychological demons

    Over a hundred rugby league players have contacted clinic to deal with mental challenges of game