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UK debt: worried lenders feel the pinch

15th March 2006
By Staff Writer

The average debt per adult in the UK was GBP4,021 at the end of 2005. Lenders are now feeling the strain of ever-increasing unsecured debts, and many have to increase their bad debt provisions, as consumers struggle to meet their debt commitments. With bad debts more of an issue, indebted consumers may find it more difficult to get relatively cheap credit.

Personal debt reached a milestone of GBP1 trillion for the first time in July 2004. Since then it has increased by a further 20%, to an estimated GBP1.2 trillion, of which GBP0.97 trillion (83%) is secured debt and GBP0.19 trillion (17%) is unsecured debt. Datamonitor estimates that the average unsecured personal debt per adult stood at GBP4,021 at the end of 2005. While this represents an increase of just GBP191 over the previous year, this compares to a 33.5% increase or GBP1,009 over 2001 levels.

There is increased evidence that such a high level of consumer indebtedness is taking its toll on consumers' ability to meet their debt commitments. The annual number of incoming calls at the National Debtline Service relating to debt problems is increasing and lenders' business performance is also suffering.

Data from the Bank of England shows that unsecured consumer debt write-offs by banks accelerated from GBP2.9 billion in Q1-Q3 2004 to GBP3.7 billion in Q1-Q3 2005 and many lenders are increasing their provisions for bad debt.

Indeed, lenders interviewed by Datamonitor expressed their concern about bad debts, although they emphasized that the situation is under control. Many have adapted their acquisition strategies accordingly in order to restrict bad debts from rising.

An increasing number of lenders are tightening their lending criteria and turning away many more customers, while some big lenders are focusing on cross-selling to their existing customer base.

As a result of increased indebtedness and lenders adopting a more precautionary approach to lending, consumers with a less-than-strong credit history may find it more difficult to get access to cheap credit in future.

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