Why has personal debt increased so much in the UK?

Reasons for higher Personal Financial Debt in the UK

1. The % of mortgage debt payments have increased as a % of disposable income. This is mainly because house prices have risen faster than the rate of inflation. In the past decade average UK house prices have risen from £64,692 to £181,122 (source Money Net) However average incomes have only increased by less than 100%

2. Ending of mortgage interest relief. Mortgage repayments used to attract significant tax savings for couples who were married, this policy has been ended.

3. Many household bills have risen faster than the rate of inflation. In particular council tax bills have hit many homeowners more than non homeowners. Last year rising energy bills were also a factor.

4. Low interest rates have made it more attractive to borrow money. When interest rates were much higher (15% in 1992) there is clearly a very strong disincentive to borrow money. However as interest rates have fallen considerably (currently 5.25%) people are much more willing to take out loans and increased mortgage payments. Also interest rates seem more stable and tend to only change in increments of 0.25%

5. Increased willingness of banks to lend. E.g the number of banks offering mortgage multiples more than 5 times income

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Blogger Clear Start.org said...

Personal debt is a growing problem in the UK, highlighted by this month's insolvency figures.

There were nearly 30,000 individual insolvencies in England and Wales in the fourth quarter of last year which was an increase of more than 44% on the same period in 2005.

February 19, 2007 at 9:21 AM  

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