Student loans help household debt rise for first time since 2008

Monday, 25 November 2013 01:27

A new report indicates that household debt has gone up for the first time since the financial crisis started in early 2008.

PriceWaterhouseCoopers reports that non-mortgage related debt increased by £8.5 billion, equivalent to four per cent, over the last year to £216 billion. It takes the average level of household debt to £8,159.

The report found that since 2008, UK consumers have paid off 25 per cent of their total credit card, personal loan and overdraft debts. However, Britons remain some of the most indebted people in the world.

It found that just a one per cent increase in interest rates would increase annual interest repayments by an average of £550.

Student debt had a big impact on the figures. Since the tripling of university fees by the coalition government in 2010, annual university fees have risen to £9,000.

If student debt was stripped out of the figures it would reduce the average household debt by £2,259, down to around £5,900, meaning that underlying overall consumer debt remained at a similar amount.

Students who start university in 2012 can expect to graduate with debts of between £40,000 and £50,000. With competition for graduate jobs intense, many will find it hard to repay the debt and will start of their independent financial lives with a huge debt burden that will impact their future dreams of buying a first home.

Simon Westcott, a director in PwC's financial services practice, said: “Although student loans are provided on very favourable rates and repayment terms, this significant increase in student debt is likely to have profound effects on graduates' future borrowing and consumption patterns.

“With house prices continuing to rise ahead of earnings, and their debt levels increasing, new graduates are likely to find it more difficult to get onto the property ladder, which could start to contribute to the erosion of the UK's home ownership culture as we breed a new generation of long-term renters. The ability and appetite of graduates to take on unsecured debt will also be affected.”

PwC’s report said that other forms of credit such as payday loans are likely to rise in popularity and there will be more pressure for mainstream lenders to launch product that caters for this area of the market.

PwC found that traditional forms of borrowing such as loans, credit cards and overdrafts continue to decline, falling by around one per cent in 2013. However, newer types of borrowing such as payday loans and peer-to-peer-lending went up by 14 per cent in 2013, though in total they only make up one per cent of debt, this is expected to rise in the coming years.

.The report said: “We believe pressure on larger, more mainstream lenders to service this market will increase over the coming months and years.”

Meanwhile, the Chancellor, George Osborne said today that the government will introduce a cap on the total cost of payday loans. The legislation will be included in the current Banking Reform Bill that is going through Parliament.


Comments Bubble Comments

Twitter: My Finances

Join the conversation at #news_myfinances

Newsletter sign up


In addition to the weekly newsletter, which areas of finance would you like to hear from us about:

Tick this box if you would like us to send you promotions from carefully selected third parties.

By signing-up you agree to the terms of use and privacy policy.

sign-up button

Get the latest information on: