Debt levels decline for first time since 1993

02/09/2009

Personal debt levels in the UK fell for the first time since records began in 1993 during July, according to the latest figures from the Bank of England.

Total lending to individuals declined by £600 million over the course of the month, with secured loans seeing a net repayment of £400 million and consumer credit lending falling by £200 million, although credit card borrowing rose by £92 million.

Financial education charity Credit Action said that in January 2008, total lending grew by £8.4 billion.

The average amount of unsecured debt per household using credit is £21,457, a very slight fall from August figures. Average household debt excluding mortgages stood at £9,226 in July. This rises to £58,280 when mortgage debt is included. The typical amount outstanding on a home loan for the 11.1 million households with a mortgage was £110,476.

Over the 12 months to July 2009, interest repayments on personal debt totalled £65.9 billion.

Despite the fall in personal debt, Credit Action said figures from KPMG indicate that an average of 362 people are still being declared insolvent or bankrupt every day in the UK.

By the end of 2009, this is expected to rise to 411 individuals a day, the equivalent of a person becoming bankrupt or entering into an IVA every 3.5 minutes.

EuroDebt director Kevin Still commented: "On-going lending restrictions and consumers looking to repay debts has undoubtedly had an effect on the overall levels of consumer credit and debt.

"The rise in credit card usage may also reflect that some people are financially struggling and having to use credit cards as a stopgap where there is insufficient disposable income to meet all monthly commitments.

"There is likely to be a long tail to this recession, where things get worse before they get better. As government measures are relaxed, it is likely that interest rates will rise and we will see more personal insolvencies and property repossessions.

"There continues to be a squeeze on disposable income and borrowing more is unlikely to be the solution.

"With property prices beginning to rise, we may see more 'reluctant landlords' selling up and settling their debts from the remaining equity.

"Being saddled with debt can be serious burden and requires a long-term plan to become debt free, whether this is through self-management, a Debt Management Plan or where people are insolvent, an IVA or even bankruptcy."

Tags; Debt Management and Banking, Young Family Finances, Credit Card Lifestyle,

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