UK’s unsecured debt mountain reaches £300 billion - or £11,000 per household - exceeding pre-crisis peak by 30%

As evidence of the increased debt burden, total levels of unsecured personal debt are now 30% higher than their pre- financial crisis peak.

Rising by 11%, or close to £80 million per day, almost £55,000 per minute, the UK’s unsecured debt mountain has grown faster in the past year than any year since 2002. Reflecting the heightened appetite for credit, the UK’s unsecured debt pile has also grown at least three times faster than secured debt in each of the last five years.

Student debt, credit cards and car finance represent more than three-quarters of the growth in unsecured lending in 2017.

In the Midlands, there has been a marked decline from 15% of adults using credit cards to purchase essential items in 2016 to 10% in 2017. This could be in part due to increased anxiety about the ability to repay debt in the future, reflected in the data which saw a 3% increase in adults worrying about debt, from 15% in 2016 to 18% in 2017.

Matthew Hammond, PwC’s Midlands regional chairman and senior partner at its Birmingham office, said: “The rapid increase in unsecured borrowing in recent years reflects a change of attitude on the part of households across the Midlands. Average individual unsecured debt for the region stands at around £5,732. Following the financial crisis, we saw households repaying their unsecured debt, reducing their borrowing by around 10% between 2008 and 2012 - or closer to 25% if we exclude student borrowing.

“However, since then, and despite the uncertainty created by political upheaval, a number of macro-economic factors have combined to create a climate of rising consumer confidence and borrowing. Car finance especially has grown by at least 15% in each of the past five years, representing the largest increase among the main unsecured lending products.

“The true scale of the issue has now been put into sharp relief, but there is still more to come. We project that growth in unsecured borrowing across the Midlands will continue over the next three years, albeit at a slower rate. Our projections show the UK is heading for an unsecured debt pile of more than £340 billion before we reach 2020.”

Despite the record levels of unsecured debt, political and economic uncertainties, and the prospect of interest rate rises, PwC’s Credit Confidence survey sampled households across Great Britain and found that consumers are more confident in their borrowing than at any time since the financial crisis. However, this headline position masks underlying complexity with certain groups under more pressure:

Young people: compared to older borrowers (55+), 25-34 year olds in GB typically hold five times more unsecured debt, are three times more likely to need to use credit to pay for essential items and are three times more worried about their ability to repay their debts in the future.

Renters: Compared to homeowners with mortgages, renters are around twice as likely to have needed to pay for essential items on credit and are more worried about their ability to repay future debt.

Looking ahead, households may need to be better-equipped to cope with the implications of interest rates rises. For some households, a 1% increase base rates could equate to ca.£1,000 a year in additional interest costs (assuming a tracker mortgage of £150,000 over a 25-year term). With real wages having fallen since 2008 and the household savings ratio (excluding pensions) expected to remain negative over the next 2 years, some may find the additional cost difficult to absorb.

Looking at secured credit, close to 60% of people felt they had a good understanding of mortgages,however only around 20% correctly estimated the cost of repayments. Financial literacy was particularly low among younger age groups.

The PwC Credit Confidence Survey also revealed low levels of financial literacy. The poll revealed a worrying gap between individuals’ perceived grasp of everyday financial products and their actual understanding, when asked to estimate the true cost of borrowing.

Simon Westcott, consumer credit leader at PwC, said: “Our analysis revealed concerning levels of understanding in relation to the cost of everyday lending products. People’s perception of the cost often underestimated the reality. For example, across all age groups and unsecured credit types, only around a quarter of our GB sample correctly estimated the true cost of borrowing on everyday lending products. Furthermore only 6% of people recall being taught about financial literacy at school.

“The industry, regulators and government need to work together to ensure people are equipped with this crucial life skill, especially as the debt burden increases.”

“When the penny drops, only then can consumers can start tackling the pounds.”