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MONEY COMMENT
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The Bank of England released the latest Lending to Individuals data yesterday, which made for interesting reading. In January alone, we increased our collective debt by over ten billion pounds. This works out at an extra £461 of debt per household (there are around 21.7m households in Britain). Our mortgage debt is growing by over 14% a year, with other credit growing by almost 13% a year. Those figures may not mean very much to you, so let me put them another way: At the end of January 2003, we owed a total of £834 billion; one year on, we now owe £945 billion. Therefore, our personal debt has increased by almost £111 billion in a single year. That's more than we've ever borrowed in any previous twelve months in history, and our appetite for credit shows no sign of letting up. So, how does your share of this £945 billion compare to the average? Well, the average outstanding mortgage is over £67,000 but, for new borrowers, it's more like £100,000. However, with the average house price hitting £139,000, our mortgage debt isn't a problem, right? Wrong, because around six out of ten home loans charge variable interest rates, and the Bank of England will probably raise its base rate at least twice more this year, after hiking it in November and February. Also, we owe an average of almost £7,900 per household on credit and store cards, personal loans, overdrafts and so on, a total of £171 billion. However, many problem borrowers owe far more. Some commentators argue that higher debt levels don't matter, because rising wages make us better off, plus inflation (rising prices) helps to erode our debt. However, both have been low in recent years, while house prices and personal debt have rocketed. For example, our debt burden has increased by 230% in the ten years since January 1994, whereas inflation (as measured by the Retail Price Index) has only increased by around 30%. Currently, wages are increasing at about 3.5% a year, which is far slower than the growth in debt. So, our debt is growing at a much faster rate than both inflation and wages, plus a mere 0.5% rise in the base rate will cost us around £400 million a month more in interest! Here at the Fool, we're seriously worried about the dangers of debt. If you're worried about your spending habits, check out these articles: