The Office of Budget Responsibility (OBR) has forecast no end to the credit-fuelled spending binge for households. Low pay rises along with low-interest rates mean that people feel the debt is a great option if they want to acquire consumer goods or improve their quality of life by taking the family on holiday.
“Unprecedented” levels of debt
This build-up of debt has been all the more sudden given that after the financial crisis, households pulled in their horns and ran surpluses. The OBR has described this as “unprecedented”. There is nothing in the economic history data to show what happens when households carry this much debt for such a long period. The debt boom seems to have been fuelled by increasing confidence among consumers, even though they have actually not been better off due to low or no pay rises. Unfortunately, with all these rising costs it can end up meaning moving out of where you are living to a smaller more affordable place. If you are using a landlord they might be using a Property Inspection app which allows them to keep track of repairs and move in and outs so why not check out sites like https://inventorybase.co.uk to see your choice of places now.
The OBR is forecasting that unsecured lending – mainly credit cards and loans –will rocket to £662bn by 2020. The debt figures are now getting close to their peak before the financial crisis, and financial regulators are beginning to worry about a credit bubble.
They have a good reason to worry. If there’s a sudden economic bump in the road and people begin to suffer unexpected periods of unemployment, people’s ability to service the debt will decline and defaults will start to rise.
Mark Carney, Governor of the Bank of England, has been warning that these high debt levels might pose an indirect threat to the UK’s economic health. He has said that the Bank will act if credit growth becomes unsustainable. Many would say it already is. If you recognize yourself in this position, you can use providers to see whether it would help you get things back on track.
“Generation Internet” expects everything to be free, and with interest rates at these levels, money almost is. Interest rates have been at dramatically low levels for seven years.
In that time, many 20-year-olds have started work who have no knowledge of what life is like with interest rates at more typical levels. However, as rates return to their long-run levels, many people are going to find that they have over-borrowed and cannot service their debts at a higher level of interest.