Total indebtedness on both secured and unsecured lending stood at 1.1 trillion at the end of June 2005 – around 23,000 for each adult.
A report from PricewaterhouseCoopers also shows that individuals who enter into individual voluntary arrangements owe an average of 60,000 on credit card and other unsecured borrowing to 11 creditors.
2005 saw record levels of IVAs. PricewaterhouseCoopers examined 1,257 IVAs registered in July 2005 and found 75% of debtors report their difficulty is a result of living beyond their means rather than unavoidable events such as divorce or unemployment, commonly assumed to be the primary causes of bad debts.
However, PricewaterhouseCoopers also notes that the increase in bad debts reported by many banks during the interim reporting season, while perhaps unexpected, is not yet a cause for longer-term concern, unless there is a significant deterioration in the economic climate.
Richard Thompson, partner at PricewaterhouseCoopers, says: “All the major clearing banks have now agreed to share positive data on borrowing levels and account operation. At present it is estimated that 6% of consumers owe more than their entire gross salary on unsecured debt. We expect the new commitment to positive data sharing to help reduce those cases of extreme over-borrowing.”
Tim Hague, director of BM Solutions, says: “Over the last few years, consumer confidence has been high, as a result of low interest rates, low inflation and low unemployment levels. This in turn has led to increased consumer spending.
“However, all of the recent indicators would suggest that consumers are now keen to cut down on levels of unsecured debt. What must be remembered is that varied research has shown there are a host of reasons why people find themselves in financial difficulty and as an industry we should strive to provide a service to those who are on the road to recovery, whilst being careful not to fuel indebtedness further.”