Britons urged to be responsible as borrowing rises

27 April 2011 13:06:22

Households are set to take on more debt.

Household debt, including mortgages, personal loans and credit cards, is expected to soar over the next four years, according to the latest forecast from the government's spending watchdog. The Office for Budget Responsibility (OBR) has published new figures detailing its projections for household debt until 2015. Here, CompareandSave.com takes a look at the forecasts and the likely implications for families' finances.

Consumption set to rise more quickly than disposable income
According to the OBR, household debt will rise from £1.6tr in 2011 to £2.1tr in 2015. In terms of disposable income, this means that the total amount of mortgage, personal loan and credit card debt will increase from 160% of income to 175%. The OBR's report states that household consumption and investment "will rise more quickly than household disposable income over this period". This is partly because, despite relatively weak wage rises and higher-than-expected inflation, families will be keen to maintain the standard of living to which they are accustomed, even if this means relying on credit cards or going online to compare personal loans.

Access to personal loans likely to improve
The OBR report observes that the availability of credit showed "some improvement" last year and predicts that this trend will continue. This could be good news for those who need to borrow money, as they may find more personal loan and credit card providers are willing to lend to them. However, this gradual improvement in credit conditions should not be regarded as a green light to borrow excessive amounts of money, as this could cause households to spiral into unmanageable debt.

Many households already struggling with debts
According to the Consumer Credit Counselling Service (CCCS), budget pressures are already causing many households to struggle with their monthly outgoings, including credit card and personal loan repayments. The debt charity recently revealed that it counselled 90,000 homeowners in 2010, who typically owed an additional £30,160 in unsecured debt on top of their home loans. While many households have benefited from the record low Bank of England base rate, some have still failed to make ends meet and have been relying on credit cards to make their mortgage repayments. This means that when interest rates start to creep up again, their ability to make their monthly repayments will be impaired even further.

Delroy Corinaldi, external affairs director at the CCCS, said that families should consider the impact of a future interest rate rise on their repayments "and seek help at the earliest opportunity if they feel that they cannot cope". Those who are considering taking out a new personal loan or applying for a new credit card should also make sure they are in a position to make the necessary repayments, both at present and in the event that their other monthly outgoings increase.

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