UK unsecured debt to hit nearly £10,000 per household next year -PwC

The ‘big four’ firm’s ‘Precious Plastic: How Britons fell back in love with borrowing’ report found that only just over one in ten are worried about making future repayments compared to one in four in the last survey carried out in August 2013.

According to the PwC data, total UK outstanding unsecured borrowing grew by nearly £20bn in 2014 or 9 per cent, its fastest rate of growth in more than a decade, to reach £239bn. This equates to almost £9,000 per household, surpassing, in cash terms, its pre-financial crisis peak.

The firm said that outstanding unsecured household borrowing is expected to continue to grow, reaching £10,000 by 2016, with total household debt to income ratio projected to reach around 172 per cent by 2020 – exceeding its previous peak in the run up to the financial crisis.

PwC warned that this increase, coupled with UK household’s vulnerability to interest rises, could leave households over stretched.

For example, PwC analysis indicates that a 2 per cent point rise in interest rates on total household debt would leave households needing to find an extra £1,000 a year just to cover the additional interest costs.

However, as the Scottish economy continues to show healthy, sustained growth, outperforming other UK regions in 2014, So is consumer confidence, PwC said.

This is reflected in the joint PwC/YouGov survey data, which reveals that half of Scots intend to save more in the next 12 months, the highest proportion since the financial crisis, and ahead of every UK region with the exception of South East and East of England.

Meanwhile, 41 per cent of Scots pay off their credit cards in full every month, ahead of households in North East England (28 per cent), Wales (31 per cent) and the East Midlands (35 per cent).

Dependence on credit to pay for essentials such as food and household bills is also at its lowest level since PwC’s Precious Plastic survey began, with only 8 per cent of Scots having done so in the last six months – almost half the 2013 figure (14 per cent).

This is also 4 per cent lower than the British average (12 per cent) and the second lowest of all the British regions - regional results include 26 per cent in Wales, 11 per cent in London and 13 per cent in South East England.

And a boost in workplace confidence is also reported. The last report confirmed that nearly a third (32 per cent) of respondents believed their pay would be frozen – or even decrease – a figure that has now dropped by a staggering 12 per cent to just 21 per cent.

Similarly, fewer Scots (11 per cent) are concerned about losing their jobs in the next 12 months (13 per cent - 2013) compared to one in five in Wales (19 per cent) and North West England (18 per cent).

But it is not all rosy in the Scottish garden – a few thorny areas remain as Steve Davies, Edinburgh based UK retail and commercial banking leader, PwC (pictured) explained: “While most people in Scotland and across Britain are currently in control of their borrowing, and seem confident in their ability to remain so, there are a few pockets that need to take much more care – namely the squeezed 35-44 year old generation. 20 per cent are now borrowing simply to pay for essential items and make ends meet every month.

“We’re also seeing changes in the way people borrow. As well as a revival in old favourites such as credit cards, newer forms of borrowing such as peer-to-peer lending are also starting to gain ground, particularly among younger borrowers.

“Despite our survey revealing a relatively high degree of confidence among consumers about their ability to stay on top of their debts, affordability of the UK’s household debt pile may come under pressure in the coming years.”

Steve Davies, Edinburgh based UK retail and commercial banking leader, added: “With unsecured borrowing showing strong growth, bad debt levels receding to pre-crisis lows and funding costs remaining relatively low, credit card issuers are seeing strong margins and profits.

“However, there is a risk that this combination of increasing household debt to income ratio and future interest rate rises could leave consumers feeling squeezed again, potentially undermining growth for lenders and feeding through to resurgence in bad debt.

“Over the next few years, the credit card industry will also face other challenges from regulatory scrutiny of their business model to the reduced appeal to younger borrowers and it’s vital they grasp the nettle now to innovate and reinvent themselves while they are in a position of strength.”