Britons’ borrowing enters uncharted territory
Unsecured debt per household has reached an all-time high in the UK in 2016
Increase in Britons' credit confidence indicator vs 2009
No. of people that may have difficulty accessing credit from mainstream sources
2016 has seen unsecured borrowing in the UK rise to a record £270bn, according to our ninth annual survey of the country’s unsecured lending landscape. Conducted against the backdrop of the country’s vote to leave the European Union, this year’s research offers a post-Brexit snapshot of individuals’ attitudes towards their finances and provides key insights for lenders on the opportunities and risks ahead.
Unsecured borrowing in the UK is now at an all-time high, with credit card, overdraft and personal loan debt (among other types of borrowing) standing at the equivalent of close to £10,000 for every household in the country.
Rising 9% in 2016, unsecured debt exceeded its pre-crisis peak, reaching close to £270bn in 2016, a £56bn increase from 2007. We expect this figure to continue to increase, with debt as a proportion of household income set to reach around 165 per cent by 2020, a level last seen in the run-up to the financial crisis.
Despite the relatively high levels of borrowing, Britons’ credit confidence is at its highest level since PwC’s Credit Confidence Survey began in 2009. Continued low interest rates, record levels of employment and above-inflation earnings growth have combined to underpin these relatively high levels of confidence. Also, the proportion of UK consumers worried about their finances (for example their ability to make repayments and secure credit) has dropped continuously over the past seven years.
Brexit has not adversely affected credit confidence overall. Although, as our report findings show, younger segments and those who voted Remain are more worried.
Unsecured lending continues to deliver strong returns for lenders, with bad debt in 2016 falling back to pre-crisis levels and credit spreads improving. Retail banks might be expected to prioritise unsecured lending given the margins available and the pressure on other product lines, following this year’s further reduction in interest rates. However, with mortgage lending and credit for small and medium-sized enterprises accounting for around 90% of the balance sheet of a typical UK bank, unsecured lending exposures may perhaps not be given the attention they deserve.
Partner, Strategy& UK Financial Services lead, PwC United Kingdom
Tel: +44 (0)7595 610434
Banking and Capital Markets Leader, PwC United Kingdom
Tel: +44 (0)7711 773030