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Posted - 23 August 2007 : 10:20:11
Consumers' debt overtakes gross domestic product
Britain's live-now-pay-later culture has left the amount owed on consumer debt exceeding the annual output of the economy for the first time, experts in insolvency reveal today.
A report by the consultancy firm Grant Thornton found that debts on mortgages, overdrafts and credit card balances had risen to £1,345bn - higher than the UK's 2007 expected gross domestic product.
The firm said it would take the UK until January 5 next year to generate enough goods and services to cover what consumers owe. "Fortunately, most consumer debt is secured and can be repaid over several years, otherwise we would be technically bankrupt," said Stephen Gifford, Grant Thornton's chief economist. "Britain's huge level of consumer debt is symptomatic of the country's well-established buy-now-pay-later culture. We can no longer generate enough GDP to cover the amount we owe."
The Grant Thornton research coincided with the release of another survey showing that around 7% of adults - an estimated 2.5 million - are "very concerned" about their ability to keep on top of their debts. Research from MoneyExpert.com found that a quarter of consumers have added to the amount they owe over the past three months, with around one in 14 increasing their borrowing by a fifth or more.
Grant Thornton reports that the date when the UK could cover its borrowings was coming later in the calendar. In 1997, the year the present government came to power, the sum of individual mortgage and personal debt stood at £503bn and GDP was £786bn. In the subsequent 10 years, the date when the UK generated enough GDP to cover its debts had moved from August 23 to January 5.
Of the £1,345bn, almost 85% was secured against property - a similar proportion to that recorded in 1997.
Over the past 10 years personal insolvencies have risen from 24,000 in 1997 to 107,000 last year and there is concern that the five interest rate increases since August 2006 will mean the 2007 total will set another record.
"It's not uncommon these days to see some individuals with unsecured debt upwards of £50,000 spread across four or five credit cards and a mortgage on top of that," said Mark Allen, a partner in Grant Thornton's personal insolvency practice.
"These are the sort of people walking a perilous financial tightrope. All it takes is an increase in costs or, as is the present case, a rise in mortgage premiums to force people to default."
Source: guardian.co.uk
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