Despite the financial crisis that has hammered British savings, incomes and jobs for the last four years, British household debt has begun to rise once again. Whilst the start of the economic downturn saw many households begin to pay down their debt, reducing the overall amount they owed, people have begun borrowing again.
Mortgages are the main vehicle which people are using, either increasing their current mortgages or taking out second mortgages. The extra cash can be used to pay for anything from holidays to cars to home improvement, but Credit Action, an organisation that works to educate people about their finances, fears the borrowing is to cover essential household bills.
With inflation continuing to rise disproportionately to household budgets and wages, people are finding there simply isn’t enough cash in their pocket to ensure everything is paid up. When this happens, it’s necessary for them to either reduce their outgoings, on option that can be difficult if not impossible for many people, or to borrow to make up the deficit.
Of course, it’s not just the households that are affected; one of the main contributing factors to the current economic crisis was the level of debt owed to banks by households, debt which they were not in a position to pay back, leading to banks having nowhere near enough liquid capital to fulfil their obligations if called on. That means it’s in everybody’s interest to ensure situations like this don’t happen.
That’s not to say there’s no room for households to take on extra debt, just that it needs to be of a manageable level. Credit Action had this advice for those looking to borrow: ‘If you need to take on extra credit, make sure you shop around and find the best deal you can, and ensure you know and understand the terms and conditions involved.’