According to the latest BBC News research, the total value of pending personal loans in the UK has increased four times faster than income/wages. The current value of outstanding loans stood at £37 billion in the financial year 2016-2017 according to recent UK Finance data.
The CAP (Christians Against Poverty) attests this fact by saying that January 2018 was the busiest month ever for individuals seeking debt advice. This is despite the fact that the FCA claims a majority of the loans taken in the recent past went to individuals who could afford to repay.
UK Finance statistics
UK Finance covers 10 of the largest building societies and banks in the UK. Their statistics indicate a 25% since in the value of outstanding loans since 2013-2014. However, wages have grown by just 6.5% over the same period according to data from the ONS (Office for National Statistics). UK households accumulated a record £37 billion in outstanding personal loans in 2017 alone which represents a £7 billion increase from 2014.
In Northern Ireland alone, outstanding personal loan debt stands at approximately £1 billion. Most British households say they have been forced to borrow loans because of the rising cost of living yet wages have stagnated.
UK households are borrowing to survive
According to a recent BBC News interview, Mel Reynolds, a Batley, West Yorkshire resident and mother of two says ”I borrow money to pay for food.” According to Reynolds, her salary is only able to cater for her mortgage and utility bills. The situation has been so bad for Reynolds she has had to choose between fueling her car and feeding her two boys. This is despite the fact that Ms. Reynolds works full time. She has accumulated approximately £28,000 in debt through bank and credit card loans from 2007 to 2015.
The CAP which has been helping Ms. Reynolds says January was the busiest month ever for individuals seeking help with their loan/debt problems. The CAP was started in 1996.
According to Daniel Kelly, the Creditor Engagement Manager at the charity, there are an estimated 8 million people in the UK worrying on a day-to-day basis how they will pay their bills. What’s more is; January 2018 was the busiest year ever for the CAP debt call centre.
The outstanding loan problem could be bigger given that the latest data from the UK Finance covers personal loans issued by building societies and banks only. Credit card loans, student loans, and payday loans have been excluded from the latest UK Finance data.
BBC England analysis
BBC England’s Data Unit has dived deeper to offer a more in-depth analysis of the debt problem in the UK. For instance, BBC England Data Unit reveals that the current outstanding personal loan debt translates to £1,384 per UK household in 2016-2017. The data analysis also reveals that the debt problem is most prevalent in areas which have experienced the lowest increase in average pay among full-time workers. BBC England data analysis also reveals that St Albans is the worst hit with an unsecured lending increase of 43%.
It gets worse. UK households have over £1.5 trillion in mortgage debt which could pose serious economic risks in case of a sharp increase in personal loan debt.
Welfare organisations’ take
Many welfare organizations in the UK have expressed concerns about the possibility of many people ever being unable to repay their outstanding debt. One such organization is Leeds-based charity, Money Buddies. According to Sylvia Simpson from Money Buddies, the charity has many clients who have confessed to struggling with debt but still willing to take more debt if banks are willing to lend more. This highlights why the FCA has intensified its efforts to crack down on irresponsible lenders.
The FCA’s take
According to Chris Woolard, the Director of Strategy & Competition at the FCA, the current personal debt levels have hit the long-term average triggering a concern for vulnerable borrowers who could be exploited further by high-cost lenders. Woolard, however, states that most lenders are following the rules. The FCA is also taking stringent action when lending rules are broken.
The UK Finance is also committed to responsible lending. This is according to sentiments expressed by one of the association’s spokespersons. ”UK Finance undertakes thorough risk assessment before approving credit applications. The association also advises struggling customers to talk to their lenders immediately.” The association also goes further and states that majority of its borrowers are able to meet their loan repayment obligations without problems.