Daily Research News Online no. 2501 - Rise in UK Consumer Borrowing

Rise in UK Consumer Borrowing

July 24 2003

Unsecured debt in the UK has risen by more than £1,000 per head over the past five years, according to independent market analyst Datamonitor. Borrowing via credit cards, motor and retail finance deals, overdrafts and personal loans now averages £3,383 per person, compared with just £2,231 in 1998.

Credit card borrowing has risen at the fastest rate, more than doubling since 1998 while the average personal loan burden has risen 52 per cent from £1,024 to £1,561. After several years of buoyancy, there is now concern about the strength of the economy and in turn the state of the personal loan market. Even a mild downturn will affect many consumers and consequently their loan providers.

The growth rate of balances outstanding has climbed from 14.1 per cent in 1997 to 18.8 per cent in 2002; that for gross advances from 8.8 per cent in 1997 to 10.9 per cent in 2002. Balances outstanding on credit cards grew by more than 100% between 1998 and 2002, compared to a growth rate of just over 50% for unsecured personal loans. Overdrafts and motor finance have also been growing fast whilst in relative terms retail finance is falling out of favour.

Table 1: Consumer credit balances outstanding per adult by product, 1998 and 2002 (in £)

	1998	2002	% change 1998-2002
Credit cards	507	1,062	+109.5
Motor finance	334	392	+17.4
Retail finance	255	213	-16.5
Overdrafts	111	156	+40.5
Unsecured personal loans	1,024	1,561	+52.4
Consumer credit total	2,231	3,383	+51.6

Providers of personal loans, which account for 48% of all consumer credit, would have the most to lose in the event of a downturn. Many unsecured personal loan providers now offer loans to customers that would traditionally have been refused. As a result, customers with poor credit ratings are more able to successfully apply for loans.

'Providing the base rate remains low, borrowing remains affordable, and mainstream lenders uphold their responsible lending policies, lenders are unlikely to be stung by rising bad debts to the extent experienced during the last recession' comments Alex Boorman, Financial Analyst at Datamonitor. 'However, if inflationary pressures return to the UK economy - something that has been successfully avoided despite rampant house prices - the subsequent forced rise in base rates could bring the issue of over-indebtedness back to haunt less cautious lenders'.

All articles 2006-23 written and edited by Mel Crowther and/or Nick Thomas unless otherwise stated.