Household debt to hit £10,000: Borrowers more exposed to hike in interest rates

Michael Bow
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Borrowing is set to reach £10,000 per household by 2016 (Source: Corbis)
British borrowers are more vulnerable to an interest rate rise than ever before after new figures showed unsecured household borrowings hit an all-time high last year.

Unsecured debt rose nine per cent in 2014 to a record £239bn in cash terms, or £9,000 per household, driven by an increase in student loans and credit card borrowing, according to the figures compiled by PwC.

The rate of growth is the fastest in a decade, and represents an additional £19.6bn borrowed last year.

However, with borrowing set to reach £10,000 per household by 2016, Brits are even more exposed to a hike in the Bank of England’s base rate, currently at a record 0.5 per cent low.

A two percentage point hike in the base rate would add £1,000 to each household’s interest payments on total debt every year, according to the professional services group.

It also warned borrowers had become “conditioned” to low rates since the central bank lowered them six years ago.

“Despite our survey revealing a relatively high degree of confidence among consumers about their ability to stay on top of their debts, affordability of the UK’s household debt pile may come under pressure in the coming years,” PwC’s financial services practice director Simon Westcott said.

“As the total household debt to income ratio heads towards 172 per cent – exceeding its previous peak in the run up to the financial crisis – and interest rates increase, consumers could begin to feel squeezed once again. This could undermine growth for lenders and feed through to resurgence in bad debt.”

Nearly half of last year’s additional debt came from student borrowing, which weighed in at £9.1bn. Credit card borrowings rose by £4.2bn while personal loans and overdrafts accounted for an extra £6.4bn of debt.

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