UK debt reaches saturation point

With debt reaching saturation point in the UK it comes as no surprise to hear that Datamonitor have published figures showing the population owes a full one third of all outstanding unsecured debt across Europe.

According to figures from Datamonitor debt levels in the UK consumer credit market reached £214 billion, with the average Briton owing £3,175 against £1,558 average in Europe.

Paul Marsh, financial services analyst at Datamonitor, which carried out the survey said, "The difference between Britain and the rest of western Europe is striking and is a result of the UK’s insatiable appetite for credit. In contrast, many other major European countries have a culture of saving and frugalness, and countries such as France and Germany are particularly debt averse."

It was during the Thatcher years that UK credit markets were deregulated, which led to extensive promotion of both credit card lending and an increase in the amount of general unsecured loans. Generally, governments in the rest of Europe took a more ‘patrician’ view and restricted unsecured lending. Whilst in the UK the ‘buy now, pay later’ culture was promoted with vigour.

As a result credit cards account for nearly a 30 percent of all debt in the UK, but only 1.6 percent in France.

At the same time more recently, fierce competition between the banks in the UK has pushed more of them into promoting unsecured loans.

The UK government has started to take note, with a YouGov survey suggesting that nearly 1 million people had problems meeting obligations to debt payment each month. In the UK over 8million people (1 in 5 adults) have unsecured debts of over £10,000. Though whether this will result in constraints on lending is unlikely.

As the UK encourages more students to stay on and enter the higher education market the numbers of young adults in debt has increased dramatically as well. Twenty-five years ago 6 percent of the population went to higher education, now the figure is nearer 20 percent – and the old system of grants has been replaced by student loans. This year fees for colleges virtually doubled across the board, leading to further debt.

As we reported before, Citizens Advice has said that rising debt was its number one problem and called for government action on banks lending to families that were unable to afford repayments.

At the same time, mainland Europe is now starting to see debt rise as banks and consumer lending is gradually deregulated across Europe. With expectations of the same levels of fierce competition driving a lending frenzy that hit the UK.

The only good news for the UK is that debt has started to hit a saturation point. Though the worry is that any further increase in rates may exacerbate the current exposure people have as costs generally increase. The number of people at the cusp of financial insolvency is large indeed.