According to the latest family finance report by Aviva,
family debt has increased by 42% in the last 6 months of 2015; the highest
level seen for two and half years.
BBC News have asked Bev Budsworth MD of the Debt Advisor Ltd based
in Old Trafford in Manchester to comment on these stats and Bev’s responses to
the questions posed to her on BBC News live coverage on Wednesday 13 January
2016 are summarised below.
HOUSEHOLD DEBT STATS
On the Aviva debt stats Bev added,
“An increase of 42% in 6 months is significant. According to the Money Charity,
UK consumer debt has increased by similar sums in the past 2 years; £9BN per
year an increase of around 5%.
However, if total debt is taken in account, the past year has seen an
increase of £36BN bringing total UK debt to £1.47 Trillion, the highest ever.
The increases are causing concern, according to the Centre for Social
Justice “CSJ” there are 8.8M people over indebted borrowing on credit cards,
overdrafts and pay day loans. Research commissioned by the CSJ and undertaken
by JP Morgan has found that over 15 million people are going into debt to pay
their bills. Many of these people are low income families who cannot access
reasonable priced credit and have to therefore rely on expensive forms of
credit or incur penalties when they end up with insufficient funds to meet
their household expenses.
REASONS FOR INCREASES IN DEBT
Low Interest Rates
The low interest rate of .5 % which has now held for nearly 8 years and
marks a most exceptional and unusual period for UK monetary policy – with the
official Bank Rate now expected to be kept at its lowest level in recorded
history for the best part of a decade. Low interest reinforces a “spend more,
save less” mentality. It means our mortgage payments are at an all time low and
we can borrow money more cheaply.
Inflation has been dropping steadily since it peaked at 5.2 % in September
2010. January 2013 saw inflation dip below 2% and in August 2015 it hit
zero. This means we can shop more cheaply especially as supermarkets have
to compete with discounters such as Aldi and Lidl and also contend with price
wars at the pumps as petrol prices dipped below £1 per litre for the first time
in 6 years. This is all good news for consumers who have seen prices decline,
leaving more pounds in their bank accounts for spending.
Consumers Expectations are artfully managed
From the moment we open our eyes, our expectations are very deftly and
artfully managed by businesses wanting us to spend our money. As
consumers have become more discerning about how they consume, businesses have
become more artful with getting us to engage with texts, emails, social media,
radio, TV programs promoting celebrity style lives. The feel good factor as a
result of low interest rates, low inflation, etc has meant that we have been
spending. Consumer spending hit an all time high in the 3rd quarter
of 2015 at £278.2 BN. This is £10 BN higher pre-credit crunch – the last
quarter of 2007. A record low for consumer spending was £60.5 million in
4th quarter of 1956.
Bev Budsworth MD of The Debt Advisor adds, “Yes I do think it is too easy
when it comes to high interest credit cards and short term loans. High interest
cards like Aqua and Vanquis extend credit to individuals who are on debt
management plans and in IVA’s. A recent case referred to us was an individual
with 14 creditors. Despite having adverse credit and a judgment, pay day
lenders and finance companies lent him a further £10,000 when he clearly could
not afford his existing debts.
If you Google “no credit check pay day loans” there is a plethora of
companies offering no credit check loans. This is despite a Good Practice
Charter that 90% of payday lenders are supposed to have signed up to which
provides that they must carry out proper and appropriate affordability
assessment and credit vetting to check that customers can afford the loan.
Should regulators do more to make sure market is more fair and
balanced and consumers are better protected?
When the FCA took over responsibility for regulating the consumer credit
market in April 2014, many of the new rules were based on existing standards
apart from new rules for the high cost short term lending market and debt
management sector. These two sectors have seen the most change with many
operators exiting the market.
The FCA is undertaking a detailed review of the rules in the Consumer Credit
Handbook or CONC and a review is to be submitted to the Treasury in April
2019. This includes rules on pre-contract information, terminations,
early settlements, etc. The new rules and principles aim to ensure that
consumers are treated fairly.
However, the FCA have a tough battle as they are responsible for taking over
the regulation circa 50,000 businesses involved in offering some form of
consumer credit in a market which is worth £200 billion. It will take time to
ensure that the new regulation is fit for purpose and working.
The FCA is very concerned about the consumers who get themselves into debt
difficulties and are undertaking research on the drivers that push people into
untenable financial situations.
On 1 October 2015 the new Unfair Trading Regulations and Unfair terms in
Consumer Contracts regulations came into effect. This replaces the Consumer
Rights Act. The FCA have set up a consumer helpline to report scams. However,
they do not investigate individual complaints and expect consumers to lodge
complaints direct with the company in question and if your complaint is not
dealt with adequately, then directing your complaint to the Financial
Will interest rises see more people get into difficulty?
Research by The Building Society Association of people with a mortgage found
over a quarter (27%) believed they would face financial difficulty when
interest rates rise. The YouGov survey reveals that 39% say that they will have
to cut spending on holidays and eating out to cope with rate rises, whilst a
fifth say that they will be forced to cut back on essentials like clothing and
There are many including Joanna Elson of Money Advice Trust who believes
that mortgage-payers are in for a big financial shock when interest rates begin
to rise. She has stated that for many, that shock will be too much to
absorb – and there is a real risk that we will see a surge in unmanageable debt
problems as a result.
Are we becoming a debt culture nation?
According to the Office for Budget Responsibility total UK debt will
increase to £2.551 trillion by 2021. This suggests that average household debt
will almost double from £53,918 at present to £94,481.
Debt has been around for centuries and at present consumer spending and the
increases in debt are fuelling economic growth. However, this is at the expense
of saving and with more people not saving and in fact pulling money out of
pensions, this is giving rise to real concerns about lack of investment which
is vital for sustainable growth in the economy.
Concerned about unmanageable debts?
The Debt Advisor has a handy budget
calculator to enable you to see exactly where you spend your money each
If you are struggling with debt there are a range of debt solutions
available for individuals struggling with debt and the right type of solution
depends on your circumstances. If you are struggling, please do give our team a
call on 0800 0851 825 or use our contact form. Our
advisors can speak with you about all available debt solutions such as Debt
Management, IVAs, Bankruptcy and Debt Consolidation.
All debt solutions need to be carefully considered. IVA’s are formal
solutions and failure to keep to the terms can result in your IVA failing and
you could end up bankrupt.
There is also free debt help and advice available through a variety of debt
charities. For more information, we recommend you visit www.moneyadviceservice.org.uk.
The Debt Advisor is authorised and regulated by The Financial Conduct Authority (reg no:
606669). We are also a member of the Debt Resolution Forum and
we adhere to their codes and standards.