Statistics published by UK Finance, that covers ten of the UK’s biggest financial institutions demonstrated:
- outstanding loans increased by 25% since 2013-14.
- the outstanding loan amount stood at £37 billion in 2016/17
- equivalent to £1,384 per UK household in 2016-17
- half of UK households had increased their borrowing by 25%
- an increase of £7 billion from three years ago
Compared during the same period, the Office for National Statistics (ONS) said the typical employee has seen a pay increase by only 6.5%, over the same period.
Unless employee salaries can cover the increase in borrowing then UK households are going to seriously sink into debt.
Households are having to borrow money for food
Due to increased living costs and the negligible increase in employee pay; the poorest households are having to borrow money to simply survive.
Rising food prices and the cost of living compared with salaries remaining static is making it harder for households to cover their monthly living expenses.
Households are approaching high street banks and building societies to obtain credit to supplement or better manage their finances.
The Financial Conduct Authority (FCA) commented that the “vast majority” of loans were awarded to applicants who could afford repayments.
The Bank of England says UK households owe £1.5 trillion in debt including mortgage debt, and that an increase in personal loan borrowing could pose a danger to the UK economy should households not maintain the levels of spending.
To keep the UK economy buoyant, households need to spend money to keep retailers in profit and employ staff simultaneously. Less profit for retailers means less staff required and job losses will occur.
Several charities are worried that people are receiving loans that they will never be able to repay, thus leaving a trail of debt.
Strong action against disreputable lenders
To ensure that credit is not given to those who shouldn’t have it, the FCA has warned irresponsible lenders would be dealt with if they lent to households who were unable to afford it.
Overall current levels of personal debt are around the long-term average, but we are concerned about vulnerable consumers who could be exposed to high-cost lending.
The vast majority of lenders are sticking to the rules which mean that when a bank lends money to someone, it needs to make sure the repayments are affordable, and we will take action where we see our rules being broken.
In other words, the FCA is happy to see that responsible financial lenders are ensuring that they only offer credit to those who can really afford. Action will be taken against any lender who does not follow these rules to protect those who are most financially vulnerable.
This research data by UK Finance does not include payday, car or student loans.