UK Consumer Credit Confidence

Total household debt in the UK now exceeds £2 trillion for the very first time – the equivalent to £71,000 per household. This is almost equivalent to the UK’s GDP (£2.2 trillion). Around 80% of household debt is secured against properties, with total outstanding secured debt of £1,619bn, having grown 4.1% in the previous year. Meanwhile, the total amount of unsecured debt now exceeds £400bn, which equates to a record high of £14,300 per household. In the past year alone, unsecured debt has grown by almost £900 per household, at an annual growth rate of 7.2%.

Measures of affordability provide some useful insight on whether we should be concerned about current levels of consumer debt. One such measure is the UK household debt-to-income ratio, which currently stands at 133%. While this figure is high by historical standards, it has declined since the 2008 peak of 149% and been relatively flat since 2014.

PwC's Consumer Credit Confidence Index has fallen back to the same level as in 2013 and is only marginally above 2009 levels.

First run in 2009, the PwC Consumer Credit Confidence Index provides one of the longest running and most comprehensive pictures of Britons’ finances. The index brings together multiple elements of consumer credit confidence into a single consolidated measure. This year’s result shows a significant decline in overall confidence since our last measure of the Consumer Credit Confidence Index, falling back to the same level as in 2013, and only marginally above 2009 levels.

There appears to be a disconnect between how confident people feel in making financial decisions and their levels of financial literacy.

With inflation continuing to reduce how far the money in people’s pockets will go, we wanted to understand how well informed consumers feel they are to manage their personal finances and make good choices. Whilst financial decisions can feel daunting to some people, we found that 88% of consumers feel confident or very confident in making such decisions, suggesting relatively high levels of financial literacy. However, there appears to be a disconnect between these confidence levels and consumers’ actual understanding of everyday financial products.

When tested on basic multiple choice questions around how much interest someone would pay by holding common banking products, just 37% of people correctly estimated the value range for a mortgage, and 31% for a personal loan, not significantly better than the 20% probability of guessing between the five multiple choice options offered. Even if we isolate the 88% who feel confident in making personal financial decisions, slightly above a third of the group then went on to answer the questions correctly (39% for the mortgage question and 33% for the personal loan question).