With another £100 billion put on the slate in 2005, we're still spending tomorrow's money today. What can you do if your lifestyle is fuelled by borrowing?
For the past twelve years, we Brits have been on a huge spending spree, thanks to a massive borrowing binge which is unsurpassed in British history.
To prove this bold claim, I've analysed a dozen years of Lending to Individuals data provided by the Bank of England. Please note that the final figures for 2005 aren't released until tomorrow morning, so I've guesstimated borrowing for December 2005 from previous data. Here's what has happened to our debt mountain since 1993:
The mortgage boom
Thanks to the housing crash that began in 1989, mortgage lending in the early Nineties was subdued. However, when house prices started to take off in the second half of the decade, mortgage borrowing followed suit. Here's the table (any discrepancies are caused by rounding):
| Year-end | Total mortgage
debt (£bn) | Annual
change (£bn) |
|---|
| 1993 | 357 | N/a |
| 1994 | 376 | 18 |
| 1995 | 390 | 15 |
| 1996 | 410 | 19 |
| 1997 | 431 | 22 |
| 1998 | 456 | 25 |
| 1999 | 494 | 38 |
| 2000 | 536 | 42 |
| 2001 | 591 | 55 |
| 2002 | 674 | 84 |
| 2003 | 773 | 99 |
| 2004 | 876 | 102 |
| 2005 (est) | 965 | 89 |
The 21st Century has been wonderful for mortgage lenders; for the first time ever, net lending even exceeding £100 billion in one year (2004).
The credit splurge
The figures in the table below show how non-mortgage borrowing (also known as unsecured lending or consumer credit) has grown since 1993. Borrowing on credit and store cards, personal and car loans, overdrafts and so on is all included in these totals:
| Year-end | Total mortgage
debt (£bn) | Annual
change (£bn) |
|---|
| 1993 | 53 | N/a |
| 1994 | 58 | 5 |
| 1995 | 68 | 10 |
| 1996 | 77 | 9 |
| 1997 | 87 | 11 |
| 1998 | 101 | 14 |
| 1999 | 115 | 14 |
| 2000 | 127 | 12 |
| 2001 | 141 | 13 |
| 2002 | 157 | 16 |
| 2003 | 166 | 9 |
| 2004 | 182 | 16 |
| 2005 (est) | 193 | 11 |
Our appetite for borrowing eased in 2003, thanks to the onset of the Iraq war, and again in the second half of 2005, due to consumer concerns about the economy. Nevertheless, our overall debt has increased relentlessly, month after month, and year after year. For example, the extra £11 billion put on the slate in 2005 means that the average household debt (ignoring mortgages) increased by £440 last year alone.
The good news is that rising mortgage debt has coincided with a colossal increase in housing wealth, which hit £3.3 trillion in 2005. Then again, although some commentators argue that rising debt levels are of no real concern, I disagree. Indeed, in the last ten years, our non-mortgage debt has risen by over £125 billion, almost tripling from £68 billion in 1995 to £193 billion today!
Alas, that's not the end of the story, because mortgage equity withdrawal (where homeowners borrow against their homes and spend the cash elsewhere) has soared, reaching £58 billion in 2003 alone. The bad news is that a whopping three-fifths (60%) of this amount comes in the form of secured loans for debt consolidation (which, in itself, is far from wise).
So, it appears that the typical British household is overspending to the tune of hundreds -- even thousands -- of pounds each year. The only really reliable way to tackle this potentially disastrous situation is to spend less and earn more, so start by reading these articles:
Good luck with demolishing your debts!
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