Personal Debt Climbs as Britons Express Concern about Credit Balances

Since the global economic meltdown occurred a decade ago, it’s hard not to put conditions under a microscope. In their effort to predict finance outcomes and avoid another catastrophic economic crisis, UK stakeholders try to answer questions that shed light on local economic health. Are consumers borrowing too much? Have banks become stingy issuing loans? Does the price of consumer goods match household earnings? Although these clues about debt and lending are helpful, economic trends are best measured over time, accounting for wide-ranging influences on national economic health.

Surging consumer spending effectively, if somewhat unexpectedly, buoyed an economic rally that helped the UK avoid some of the worst conditions of the global recession. Although it helped prop-up the economy, the accelerated level of spending left too many UK households with high credit balances. Fearing the worst, economists point to the UK’s high personal debt level as a cause for concern, potentially leading Britons down an unhealthy financial path. Recent data suggests mixed sentiments about tackling rising household debt.

Easy Access to Credit Troubles UK Consumers

According to a recent survey, 45 per cent of those polled feel it’s too easy to borrow money in the UK. And an additional 20 per cent share the belief lenders should be more strict issuing loans. The survey results show half of UK consumers believe it is too easy to access credit, yet personal debt balances continue rising. This apparent disconnect between lending conditions and consumer behaviour indicates British borrowers may need help managing their finances.

As debt levels continue climbing, it is increasingly important for British borrowers to show restraint and borrow only sums the can afford to repay. Banks and credit unions play an important role reviewing creditworthiness and maintaining consistent lending standards, but it is ultimately up to each individual to monitor personal debt levels and execute a sustainable budget.

Approximately 25 per cent of the survey participants identified unexpected bills as the biggest obstacle to effectively managing their debt payments. Increased cost of living was also identified by 20 per cent of those surveyed as a threat to healthy credit outcomes. What if their personal debts become unmanageable? 27 per cent of those polled said they would turn to their friends and family for help managing troubling credit balances.

Lenders Are Put on Notice

Personal responsibility is at the heart of effective credit management; however, institutions also play an important role promoting safe lending practices. If the survey is to be believed, UK borrowers are inclined to take on too much debt, as long as it is offered. As a result, lenders recently received a warning from the Financial Conduct Authority (FCA) cautioning against irresponsible lending.

Pointing to interest-only mortgages and other financial products that could put borrowers in peril, FCA representatives underscored lenders’ legal responsibilities. Officials from the organization called questionable lending an “unsustainable” practice and pledged to take enforcement action against firms that extend loans to consumers without the means to repay them.

Instead of risking loans that could become liabilities, lenders are urged to stress affordability reviews that measure borrowers financial health. According to the FCA, that includes assessing how changing economic conditions could adversely affect a borrower’s ability to repay a loan. In addition to outlining healthy lending standards for the future, it was also noted that UK consumer debt has not yet reached a level that will undermine the health of lending institutions.

Constructing economic forecasts and tracking financial trends both help observers evaluate the health of financial markets. However, it is ultimately up to each individual to manage personal debt and borrow sensibly. With a substantial share of UK households grappling with high debt balances, lenders and credit consumers are encouraged to act responsibly or face the consequences.

Paul graduated in 2001 with a degree in Finance. Since then he has gone on to work for several of the UK's most well-known financial institutions.

An avid blogger and a huge football fan, Paul is here to guide you through the ins and outs of personal finance and perhaps save you some money in the process!

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