How Much Is The UK In Debt?

How Much Is The UK In Debt?

Living in the UK isn’t cheap, and the last 12 months, with the coronavirus pandemic hitting hard around the world, has only made finances more difficult for many. Furlough, flexible working and mass redundancies have changed not just working practices across industries but also the shape and direction of any sectors and making it more difficult for those looking to find work.

Thankfully, the UK has many money lenders who are stepping up and helping people with short-term and long-term finance options to help them get by. As Britain’s leading loan provider, The Money Shop knows a thing or two about finance, so let us explain it all here.

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How much is the UK in Debt?

When we talk about debt, it’s important to understand the overall picture of lending across the country and the context it sits in now. The UK’s national debt is the total amount the British government owes to other private sector organisations and UK gilts’ buyers (a type of bond between government-issued units of debt and extremely low-risk for investors). In July 2020, the net debt of the UK public sector sat at £2,004 billion, which is the first time it’s ever sat at over two trillion. This is due to the ongoing impact of coronavirus lockdowns and restrictions on worldwide economies and is likely to rise further yet. Undoubtedly, this is a huge amount of money, but almost every country in the world has seen their debt rise at an unprecedented scale due to the turbulence over the last year.

What is the average household debt in the UK?

According to The Money Charity, as of December 2020, the UK’s average total debt per household was a whopping £60,860! On average, each adult in the country owes £3,815 in unsecured debt, and the average credit card debt per household is £2,094. At the end of 2020, individuals in the UK owed £1,695.4 billion. That’s an increase of £20.9 billion from 2019 (almost £400 per person in the UK). However, when you consider the context behind this increased borrowing and the circumstances the British public has been living in over the last year, these figures really come as no surprise.

In addition to this debt, many people owe money on interest payments and fees rather than the exact amount borrowed. In December 2020, the British public’s total interest payments on personal debt would have been £44,910 million across the year – an average of £1,511 per household and £848 per person. That works out at just under 3% of the UK average salary; so manageable, but a lot when you consider that it’s not technically an amount borrowed.

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Your questions, answered

How has the Covid-19 pandemic affected the job market?

There’s no overstating it: 2020 was tough. 4.5 million workers remained on furlough in January 2021, and this was only a fraction of the amount that had experienced it at some point through 2020. Over 454,000 people were made newly unemployed in 2020. They remained unemployed at the end of the year: a result of both the furlough scheme’s projected end, businesses in many sectors ceasing to operate and restructures held in businesses that remain open. 

The most recent labour market review conducted by the Office for National Statistics in March 2021 uncovered some worrying predictions moving forward. Although minimal gains have been made in the overall number of people on a company payroll, the number of job vacancies is down almost 30% compared to the previous year. 

Moreover, over 60% of those who have lost a job were aged 25 or under, suggesting they may not have as much experience as their older counterparts and therefore are less likely to have the transferable skills required for them to be seen as desirable by employers. Exact statistics vary between geographic areas, but employment rates remain the highest in the locations least affected by coronavirus (such as the Isles of Scilly) and the lowest in areas most affected (such as central London).

What is the cost of living like in the UK?

Even before the pandemic, the UK was not one of the world’s cheapest countries to live in. As the cost of living has risen, fewer people than ever own a home. The ‘millennial’ generation is three times more likely to rent rather than own their home than they were 20 years ago, and the average time it takes a first-time buyer to save for their first house deposit is now ten years. Furthermore, the average house price for a first-time buyer increased 7.9% in 2020 alone. Whilst the British government are in the process of implementing measures, such as 95% mortgages to encourage property purchases by first-time buyers, the results of such schemes are yet to be seen and cannot be predicted accurately in such tumultuous times.

What is the most popular type of borrowing?

Credit cards remain a popular method of borrowing in the UK, with over £72.1 billion owed through them at present. In the last decade alone, credit card debt has risen by almost 9%. The ARR (Average Representative Rate) on credit cards sat at 20.65% in mid-2020, up almost 2% from the year before. Despite the amount of money owed through credit cards rising, very few of these debts are being written off. Only £339 million in credit card debt was written off in the first quarter of 2020 – so, not only are they becoming a more expensive borrowing option than ever, they’re also less likely than ever to be absolved. Credit card debt decreased in the years following the recession as individuals worked to reduce their personal debts but rose again steadily just five years later.

What is the forecast for debt and borrowing in the UK?

Looking forward, the Office for Budget Responsibility forecast debt levels and borrowing rising even higher. Their forecast analysis, published in November 2020, projected that household debt of all types would rise from £2,062 trillion in 2020 to £2,373 trillion in 2025. This would increase the average UK household debt to £83,308 (assuming household numbers track with population projection increases released by the Office of National Statistics).

Is it risky to take out a loan?

While these national figures read as very high numbers, there’s nothing to worry about when borrowing and repaying responsibly. When we think of borrowing money as a loan, most of us consider a large amount that runs into the thousands. This may be the case for long-term, large-spend loans to cover large unexpected bills or a big purchase, but there are now plenty of short-term small loans available ranging from just £50 upward. Small loans are a fantastic way to ‘tide over’ people between pay packets and/or to cover small expenses. When repaid on time and in full, they can boost the borrower’s credit score.

For large money borrowing, it may be appropriate to seek an Independent Financial Advisor (IFA) advice, but for smaller amounts, informed decisions can be made by the individual. 

What is the eligibility criteria for borrowing?

To apply for a loan at The Money Shop, you must meet the basic eligibility criteria. Still, otherwise, you can apply for any appropriate amount for your circumstances, with no stipulations on how to spend the money you borrow. The Money Shop’s eligibility criteria span five key requirements:

  • The applicant must be a UK resident.
  • The applicant must be aged over 18.
  • The applicant must be employed. This can be on a full-time, part-time, contract or flexi basis and through an employer or self-employment.
  • The applicant must have a regular income and be able to prove evidence of this income.
  • The applicant must have a UK bank account registered in their own name.

How can The Money Shop help you?

If you’d like more information on The Money Shop or other products and services, get in touch with our specialist loans team. We always available to discuss finances, offering support and guidance where appropriate, without obligation to apply or purchase. We constantly work to develop the business in a direction that benefits customers (existing and potential), so let us know if you have any feedback on our products or services. We’ll consider it in line with future business direction and decisions.

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