UK household debt surges in the last year

dhLONDON | The average family debt in the UK, excluding mortages, has increased by 48% in the past 12 months despite improvements in general levels of income. The latest report from Aviva, an in-depth study into the financial needs of the 84% of the British population who live as part of a modern family, shows a worrying portrait of a middle classes’ lifestyle deeply affected by the current economic climate.

Aviva’s data indicates that the number of families saving nothing has reached its highest level, 42% since 2010. The majority of families (62%) are most concerned by the rising cost of living.

Family debt has grown from £5,360 in January 2011 to £7,944 in January 2012, that is a 32% of the typical annual net household income (£24,792 in January 2012). This points at the fact that families are building on their existing debts rather than clearing them.

The typical monthly net income for families in the UK is now £2,066, an increase of 7% in the last year (in January 2011 it was £1,937). However, not all family groups have seen an increase in their year-on-year monthly incomes and divorced, separated or widowed parents saw it fall significantly by 22% over this same period, from £1,387 in January 2011 to £1,075 in January 2012. The most common source for families’ income remains the salary from a primary earner, in a 69% of cases. However, this has fallen steadily over the past six months from a high of 72% in August 2011 to 70% in November 2011, suggesting that unemployment among families is on the increase.

Accoding to Aviva’s Louise Colley, head of protection sales,

“…prices of essential goods and services have also increased, meaning that families are struggling to keep up. Many appear to have acclimatised to this economic environment by shopping around and seeking to minimise their spending in certain areas. However, at the same time there are still a worrying number of families with insufficient savings or large debts.”

Adding to the gloomy panorama, consumer finance expert at MoneySupermarket Clare Francis commented this week, too, that over the past year, UK households have experienced a sharp increase in the cost of living

“with rising fuel, petrol and food prices having a major impact on the financial state of the nation, so it is no surprise that they make up the main financial concerns for the year ahead. Although we have already seen signs that the rate of inflation is set to slow down in 2012, these costs still remain high and they represent a large proportion of everyday household expenditure.”

The activist group SaveOurSavers has used the Bank of England’s own research to confirm that British households are more indebted than ever: total consumer debt stood at £1,461 billion in November 2008 and £1,452 billion in November 2011. But banks wrote off £26.7 billion of consumer debt, so the total excluding bank write-offs rose by £18.4 billion.

“Credit card debt continues to run rampant, rising from £53.3 billion to £56.5 billion. But an extraoardinary £13 billion has been written off during that period. Total credit card debt excluding write-offs has risen £16.1 billion.”

About the Author

The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.

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