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Household debt is money borrowed by individuals, usually from banks or financial institutions. This includes mortgages, personal loans, student loans and credit card balances.

Trends in household debt

Total household debt in the UK rose sharply from the late 1990s up until the financial crisis began in 2008. Debt as a proportion of household income rose from 85% in 1996 to 156% at its peak in 2008.

During the 2008/09 recession, banks were much more reluctant to lend money and consumers were less inclined to take on credit, with some focusing on paying off existing loans during difficult economic conditions. As a result, the household debt-to-income ratio fell to 128% by late 2015. Starting in early 2016, growth in household debt levels accelerated, leading to the debt-to-income ratio to increase from 132% in Q4 2015 to 136% in Q4 2017, before falling to 132% in late 2019.

During the coronavirus pandemic, total household debt and the debt-to-income ratio rose slowly. This increase was driven by rising mortgage debt but tempered by consumers repaying unsecured debt. The debt-to-income ratio was 134% between Q4 2021 and Q2 2022.

In the context of rising cost of living, debt advice charities like Stepchange and Citizens Advice are reporting an increase in debt advice clients. An ONS survey shows that of the 94% of adults who saw an increase in their cost of living in November 2022, 14% reported using more credit than usual as a result.

Who holds debt?

57% of UK adults had used some form of consumer credit in the year to February 2020. Those aged 25-44 are most likely to hold consumer credit, with 80% of 25-34 year olds doing so, compared with only 18% of those aged 75 and over.

High income households are most likely to hold debt, particularly property debt, because taking out large loans like mortgages requires a high income and savings. However, low income households are more likely to be over-indebted.

Interest rates

The interest rate set by the Bank of England is an important factor in determining borrowing costs, although it is up to individual banks and financial companies to set the interest rates they offer consumers. The Bank of England has been increasing interest rates since December 2021 in response to high inflation. The interest rate was increased to 3.0% in November 2022.

Household debt and the economy

Household debt can boost economic growth in the short run, as households who borrow can spend more. However, in the medium term, high debt in the economy can make a recession deeper and longer. Households with high debt levels cut back on their spending by more than other households during and after a recession, and are more likely to default on their debt, resulting in losses for lenders.

In July 2022 Bank of England’s Financial Policy Committee said the rising cost of living does not pose the same risks to lenders and the financial system as other shocks, because lenders are well capitalised, have limited direct exposures to Russia and Ukraine, and are resilient to risks from sectors with high commodity prices.


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