UK personal debt outstrips GDP

The UK economy has reached such a crisis pint that the personal debt of residents amounts to more money than the country earns annually.

Mortgages, loans and credit borrowing amounted to almost £1.5 trillion in June this year, a rise of 7.3 percent over 2007, while gross domestic product measured just £1.41 trillion.

If this sounds familiar, it is because this is the second year running that personal debt has exceeded gross national product, an indication of just how firmly the credit crunch has gripped the nation for almost two years now.

The problem begins with the financial institutions using advertising to entice people into believing they can afford to indulge in excessive credit, adverts that treat borrowing as akin to extra salary, and with people naturally wishing to move ever upwards and onwards, the situation escalates until repayments equal, or exceed, earnings across the board.
    

Massive rise in debt over ten years

In 1997 – just ten years ago – the personal debt level was only £503 billion, indicating just how much the country has embrace the credit culture as apart of the everyday routine.

With 80 percent of personal debt accountable by mortgage borrowing, the picture becomes clearer as to why the situation is so dire. The housing market has long pushed purchasing your own home as a preferable and somehow more respectable option than renting, but this is not always the case. The populace, however, have taken this on board as the way to go, and house buying reached a frenzy some years ago with prices rocketing at simply alarming rates.
    

Increased borrowing fuels house price rises

The financial institutions, having cottoned onto the growing trend to buy, loosened the belts that surrounded lending and the offering of mortgages far in excess of peoples earning power has added to the problem.

Buy to let investors also exaggerated the problem, with tax relief offered on mortgages whose sole intention was to borrow at a low rate, rent at the market rate, and pay back with cash to spare in the long run.

The country has shirked on savings, too, which is no surprise when the bank of England relates inflation to a consumer price index of 4.4% compared to a retail price index of 5%. This equates to interest rates in the country, with bank base rate at 5%, remaining stationary at 0% growth overall – not a good sign for the population.