DCSIMG

Student debt puts families £8,200 in the red

The report estimated that students who started university in 2012 will on average graduate with 40,000-50,000 pounds worth of debt. Picture: PA

The report estimated that students who started university in 2012 will on average graduate with 40,000-50,000 pounds worth of debt. Picture: PA

  • by VICKY SHAW
 

The rising cost of student borrowing meant that households sank further into debt this year for the first time since the financial crisis, a report has found.

Households’ non-mortgage debt grew by 4 per cent in 2013 to £216 billion, marking the first increase for five years and taking the average sum families owe to £8,159, according to PwC’s Precious Plastic report.

Taking student debt out of the figures wiped £2,259 off the typical amount households owe, bringing the average amount to £5,900 and meaning that underlying consumer debt remained flat.

The report estimated that students who started university in 2012 will on average graduate with £40,000-50,000 worth of debt, which is likely to have a big impact on the financial habits of future generations and could crush graduates’ dreams of getting themselves on the property ladder.

It also said that young people appear “readier to save and are more reluctant to borrow” than their older peers.

Simon Westcott, a director in PwC’s financial services practice, said: “Although student loans are provided on very favourable rates and repayment terms, this significant increase in student debt is likely to have profound effects on graduates’ future borrowing and consumption patterns.

“With house prices continuing to rise ahead of earnings, and their debt levels increasing, new graduates are likely to find it more difficult to get on to the property ladder, which could start to contribute to the erosion of the UK’s home ownership culture as we breed a new generation of long-term renters. The ability and appetite of graduates to take on unsecured debt will also be affected.”

The report also said that the rising popularity of new forms of short-term online borrowing such as payday firms will increase pressure on mainstream lenders to cater for this market.

It said that traditional forms of borrowing such as credit cards, personal loans and overdrafts are continuing to decline, falling by about 1 per cent in 2013, while newer forms of borrowing, including payday and peer-to-peer lending, have increased by around 14 per cent.

The report added: “We believe pressure on larger, more mainstream lenders to service this market will increase over the coming months and years.”

Credit card write-offs have fallen sharply to less than 3.5 per cent of outstanding balances, the lowest in over a decade, and the proportion of people needing credit to pay for essential items has fallen by 2 per cent since 2011 as UK households continue to tighten their belts.

Households have shaved around 25 per cent off what they owe on their credit cards, overdrafts and personal loans since 2008.

Despite these years of “diligently” paying off debt, UK consumers remain “among the most indebted in the world” said the report, and are wary of taking on more borrowing, despite some recent signs that the economy is improving.

The report suggested that much of the reluctance to take on more debt stems from low pay increases and rises to the cost of living and that there would be “modest” debt increases over the next two years.

 

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