Record household debt as property prices spike

UK households are now more indebted than they were pre-crash in 2008, and house prices are rising at 6% per annum.

by Andrew Saunders
Last Updated: 17 Dec 2013

Crikey. Hardly has the slavering economic bear of recession drawn in its grizzly talons, than it is replaced by the raging bull of recovery, pawing the ground and ready to charge.
Here at MT we’re not at all sure which is worse. What happened to the happy cow of stable prosperity, contentedly chewing the cud of sustainable growth? It seems to have gone missing somewhere.
The latest figures from the Bank of England show that household debt is now £1.429624tn (yes, trillion) a hairsbreadth £29m above its previous peak in pre-recession 2008. A frankly alarming statistic given that it was excessive debt throughout the global economy which caused (at least partly) all the trouble in the first place.
Mortgage approvals have also hit their highest levels since 2008, and house prices rose 6.5% in the last month, up from 5.8% in October, according to the latest Nationwide survey. No prizes for guessing what most of that additional debt is being spent on then.
The average UK property now costs £174,566 according to the Nationwide, although that figure is of largely academic interest. As housebuyers know only too well, the property market is hyper-local and prices vary enormously street by street, never mind region by region.
These two sets of inter-related figure make interesting comparisons. On the one hand it’s a positive sign that people are feeling confident enough about their jobs and the future to loosen the purse string a little. But on the other, loose purse strings may not be such a good idea if the only thing in the purse is a big fat IOU. Debt fuelled growth is not really growth at all.
There is some glimmer of good news on the debt front however – unsecured debt on credit cards and overdrafts fell slightly in October, from £158.8bn to £156.6bn.  But that really isn’t very much.
More significantly, the household debt numbers are not adjusted for inflation, so our levels have only risen in absolute terms. In real money values, the picture is not quite so glum. But the question remains whether we have paid off enough of the remaining costs of the last big party to embark on another hooly. Only time will tell on that one…

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