Latest statistics and forecasts for household debt in the UK and international comparisons. There is also a guide explaining how to understand and interpret household debt statistics and a summary of research looking at its effects on the economy.Jump to full report >>
Household debt is money borrowed by individuals, usually from banks or financial institutions. This includes mortgages, personal loans, student loans and credit card balances.
Total household debt in the UK rose sharply from the late 1990s up until the financial crisis began in 2008. Debt as a proportion of household income rose from 85% in 1997 to 148% at its peak in early 2008 (the total amount of household debt went up from £500 billion to £1,450 billion over this time).
During the recession of 2008/09, banks were much more reluctant to lend money and consumers were less inclined to take on credit, with some focusing on paying off existing loans during difficult economic conditions. As a result, the household debt-to-income ratio fell to 127% by late 2015. Starting in early 2016, growth in household debt levels accelerated, leading to the debt-to-income ratio to increase from 127% in Q4 2015 to 133% in Q4 2017. It has since stabilised and stood at 133% in Q3 2018.
In October 2018, the Office for Budget Responsibility (OBR) forecast the household-debt-to-income ratio to rise slowly over the next few years, reaching 150% in early 2024.
The cost of servicing debt is lower now than it was prior to the recession, with interest rates at historic lows. This makes the debt burden more affordable for households.
Official statistics of household debt are not available for constituencies or local areas.
OECD data on international comparisons of household debt as a percentage of household disposable income show that the UK is above some countries like the US, France and Germany, but well below other countries like Australia, the Netherlands and Denmark.
The downsides to household debt are well known and include over-indebted households cutting back on their spending on other things, thus reducing economic activity. In addition, there could be problems in the banking system when loan defaults rise. Research from the UK and internationally has shown that large increases in household debt prior to recessions make those recessions worse and inhibits the following recovery.
Household debt, however, does provide benefits to an economy and individuals. It allows people to buy things, like a house, that they would not be able to pay for in one go, raising their standard of living. In other words, it allows people to smooth their consumption over time, including during periods when their incomes temporarily fall. This can provide stability to the economy.
Commons Briefing papers CBP-7584
Author: Daniel Harari