UK families £7,900 in debt

UK households owe an average of £7,900 on personal loans, overdrafts and credit cards.
UK families are typically £7,900 in debt from personal loans, overdrafts and credit cards, despite three years of paying them down, a report has found.
Meanwhile, credit card use could fall into permanent decline, with the rise of digital technology and payday lenders changing how people access credit, the Precious Plastic report from PricewaterhouseCoopers (PwC) said.
Each household paid off an average of around £355 of their unsecured debt in 2011, but UK households remain “among the most indebted in the world” despite three successive years of net repayments, the report said.
The report predicted UK consumers will continue their determination to pay down their debts, owing around £7,500 by 2013.
But it highlighted “worrying” signs in spending habits, particularly among the 25 to 34 age group, where a quarter have used credit to fund essential purchases in the last year.
Average incomes have fallen by nearly 3.5pc in real terms over the past year, squeezing budgets even further as consumers have faced soaring bills.
Simon Westcott, director in PwC’s financial services practice, said: “UK consumers are among the most indebted in the world, with the average UK household still saddled with nearly £8,000 of unsecured debt.
“Although the UK Government’s austerity drive appears to be hitting home, with households paying off an average of £355 worth of their debt in 2011, three years of austerity by UK consumers has only made a small dent in the total levels of borrowing.
“In addition to this, our credit confidence survey has shown that there is a growing reluctance to borrow in the future and a marked deterioration in confidence about meeting repayments, particularly among 18 to 24-year-olds.”
The report said that historically, the United States has been a strong indicator of what happens in the UK, but consumer credit in the US saw the largest increase in a decade in 2011.
It put the contrast in behaviour down to UK austerity policies, which have had “a strong influence on consumer confidence and attitudes towards debt in the UK”.
Bank of England figures showed last week that consumers cut their debts at the fastest rate in two decades during December, amid signs they dipped into savings to pay for Christmas.
Credit card borrowing was also flat for the third month in a row, despite the festive season.
The PwC report said that credit card borrowing fell by 5pc last year, leaving the average balance at around £1,000, with tightening credit conditions compounding the issue.
Meanwhile, debit cards grew by 10pc in 2011, to become used more frequently than cash in payments for the first time.
Mr Westcott continued: “Forty-five years since it was first introduced, the credit card is suffering a mid-life crisis.
“Consumers discarded nearly one million cards in 2011, taking the number of credit cards in circulation down to levels not seen for almost a decade.
“The longer term trend suggests that numbers will continue to decline, with the younger generation showing a preference for debit cards and emerging digital alternatives such as mobile payments.
“This generation seems unlikely to switch to increased credit card usage in later life, as perhaps they would have done in the past, suggesting that debit cards, mobile payments and other innovations will force the credit card into an ever decreasing market.”
He suggested there could be a general move towards charging annual fees as regulators push for more transparent ways of charging.
Mr Westcott said: “Other banking products are likely to go the same way as consumers and regulators look for simpler products and the free bank account may become a thing of the past.”
The report argued that the innovation and convenience offered by “alternative lenders” such as high interest payday loan companies was encouraging a broader selection of consumers to choose their services over banks.
Mr Westcott said: “Mainstream lenders need to be aware that what may have begun as a last resort could be an enduring relationship as consumers are pleasantly surprised at the convenient and innovative service they receive from these smaller, more agile providers.
“As these providers become more conventional, we are likely to see them venture further into the mainstream market with their own credit card, longer term loan products or even current accounts.”

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