Up to our oxters in debt

It seems the citizens of the UK now owe as much as the entire value of the British economy while, not to be outdone, Ireland has moved to the top of the eurozone’s indebtedness table.

Starting with the UK, the Independent reports that gross domestic product (GDP) will hit £1.33 trillion this year, less than the £1.35trillion which was outstanding on mortgages, credit cards and personal loans in June.

Housing debt is the main cause at £1.131trillion while debt on personal loans and credit cards totals £214bn.

The research further darkens the storm clouds gathering over the British economy. Repossessions, personal insolvencies and debt judgments have all risen by about a third in the past year as borrowers have struggled to cope with the impact of five rate rises in a year.

The Bank of England has responded by saying it predicts debts would remain a “social” rather than an “economic” problem. Hardly surprising that there will be social problems when repossessions have jumped 30 per cent in the first six months of 2007 compared to the same period last year.

Mortgage payments are making ever-larger dents in household income, rising from 12.5 per cent in 1997 to 17.6 per cent in May this year. Datamonitor, the independent financial analyst, warned this week that the total number of Britons credit blacklisted by 2011 will jump by 20 per cent to 8.6 million…

The level of debt has so far not caused much of a problem for the UK economy. Interest rates have been historically low and the UK economy has been ticking along healthily. But with five interest rate rises in the past year the picture is changing and becoming a burden for families and households.

Here are some worrying statistics showing how the banks must be making a killing on high-interest unsecured loans:

– 1.2 million electricity customers and 8,000 gas customers are in debt and have debt payment arrangement scheduled to last longer than 13 weeks

– Almost half of those working in Britain were in the red at least once last year and over 2.1m are permanently overdrawn.

– More than 7.4 million household bill payments have been missed or paid late in the past six months.

– 1.23m regular bill payments ranging from gas and electricity to mobile phones and council tax have been missed each month.

– Personal debt as a proportion of income has risen from 105% in 1997 to 164% in 2006 – the highest ever recorded and the highest in the developed world.

– Citizens Advice Bureau (CAB) clients have an average of £13,000 of debt which is nearly 17.5 times their monthly income. On average it would take CAB clients 77 years to pay back their debts in full.

Things are even worse when we look at credit cards:

– 4.1 million credit card bills (700,000 per month) have been missed in the first six months of 2007 – that will be £12 a time.

– Total credit card debt in June 2007 was £53.5bn.

– There are more credit cards in the UK than people

Moving on to the Irish Republic, according to the Central Bank, personal debt is slightly better proportionally at 139,903 million euros (94,874 million sterling) while GDP was 174,705. GNP, which was 149,130 million in 2006, is probably the more appropriate figure to take.

House Mortgage Finance makes up the majority of personal debt at 115,704 million. In comparing Ireland to the rest of the eurozone the Central Bank says the following:

The ratios of personal-sector credit to GDP for the euro area countries (excluding Luxembourg) in June 2006 and June 2007 are shown in Chart 3.4 Ratios increased over the year in most euro area countries with the exception of the Netherlands and Germany.

Interestingly, the ratio of personal indebtedness in Spain in June 2007 is almost equal to that of Ireland. Spain has had the fastest rising ratio of personal indebtedness to GDP since end-2005, and it increased by 6.6 percentage points over the year to June 2007. Households in the Netherlands had the highest ratio of personal-sector credit to GDP in June 2007.

However if GNP is substituted for GDP, arguably a more relevant concept for Ireland, Ireland rises to first place in both time 4 Personal-sector credit data for the euro-area countries include cross-border lending within the euro area.

In Ireland, however, four-fifths of personal credit is secured on property. This compares with a euro-area average of two-thirds.

The mountain of credit card debt is smaller, helped by the fact that a lot of people used their matured Special Savings Incentive Accounts (SSIAs) to pay off their outstanding bills.

Figures from the Central Bank at the end of June showed that the level of payments received by credit card companies jumped by 217 million euros between April and May to their highest level – 1.3 billion.

Credit card debts, including balances that may be paid in full by the payment due date, stood at 2.67 billion (1.8 billion sterling) at the end of May.

  • RG Cuan

    Hopefully Mick’s not in debt on account of us enjoying Slugger to much!

  • Mortgage payments are making ever-larger dents in household income, rising from 12.5 per cent in 1997 to 17.6 per cent in May this year.

    And that 17.6% figure is bullshit as far as many of us are concerned; that includes a lot of people in their 50s who bought their house for next to nothing, students who haven’t even thought about a mortgage, and pensioners who’ve paid off their mortgage. And council/NIHE/corpo tenants who don’t have one. Among twenty- and thirty-somethings, the proportion of income spent on mortgage repayments is much, much, higher. If Cameron wants a real Gordon Brown fugazi to run with as an issue, he could run with this, but that might piss off too many of his own supporters who’ve done very well out of the current property frenzy. Nobody will touch housing with a barge-pole, even though it’s arguably New Labour’s biggest cock-up, even by their own admission.

    And then politicians wonder why young people are less inclined to vote…

  • DC

    La la la la la (fingers in ears) – everything’s fine, nothing to be concerned about here.

    Move along please.

    Also there’s £1.5 billion not to be had for public services here.

    I said move along.

  • kensei

    This only tells half of the story. What is the corresponding increase in assets. I’d wager Ireland is top of that table because people own a lot of assets. A housing crash would put paid to the health of the balance sheet, but it hasn’t happened yet.

    Other things to consider would be inflation, wage increases and disposable incoming increases. I have no doubt there has been a vast increase in consumer debt, but this type of figures tend to be used for alarmism rather than grasping the problem.

  • DC

    Kensei, you don’t know where a region could score a little £1.5 billion around here?

    It’s just I’m in the mood for a bit more disposable myself are you?

  • snakebrain

    Anyone who doubts the long-term danger of personal debt figures like these has their head either in the sand or up their own a***. The US economy, and consequently, the rest of the world is currently under massive pressure because of the famous subprime mortgage debacle.

    Sub-prime mortgages are personal debt. Economic indicators are suggesting serious suffering in store for the fringes of the EU, the collapse of the Balkan and Irish property bubbles (amongst others) and the danger of major worldwide recession as a consequence of this kind of risky debt.

    The current financial panic is caused, broadly, by an almost total loss of confidence in huge swathes of the debt markets. This has now extended into other areas, commercial paper being one notable example. Governments and central banks will continue to try to keep their economies afloat, but the injection of huge quantities of revenue or credit can only ever function as a stop-gap.

    There are several major problems extant in the world financial markets, uncontrolled high-risk debt being only one. The risk is of a domino effect toppling these weak points one by one and eventually causing critical damage to the global financial system.

    A significant threat lies with unsecured currencies, the U.S. dollar and Pound Sterling amongst them, which have no value asset backing them. The “flight to safety” in U.S. Treasury bonds that has characterised the last few weeks in the markets may yet seem hasty and regrettable, as value deserts the currency and the safe haven becomes another hotspot. I’d buy some gold, right now, if I had a lot of liquid assets to deal with.

    We live in interesting times. It’s also worth noting that no unsecured currency has ever survived longer than a century and a half or so, and most nothing like so long.