A Critical Overview of Household Debt, Average Mortgage Interest Rates, and Individual Insolvencies
Household Debt as a % of Disposable Income
The ratio of household debt to disposable income has been a concern for policymakers and economists alike, as it reflects the vulnerability of households to economic shocks and their ability to manage debt. In Q2 2008, household debt peaked at 150.1% of disposable income, which was a worrying sign for the UK economy. However, by late 2015, the ratio had declined to 126.5%, which suggested that households were becoming more cautious in their borrowing and spending habits.
Growth in Household Debt Levels and Current Trends
Despite the initial decline in household debt, there has been a recent acceleration in its growth since early 2016. As a result, the debt-to-income ratio rose again to 131.5% by mid-2017, indicating that households were once again taking on more debt relative to their income. In Q1 2021, the ratio was 130.2%, which suggests that although the growth in household debt has slowed down, it remains a concern for policymakers.
Statistical Note on Household Debt and Income Source Data
It is important to note that in May 2019, the household debt and income source data were changed to reflect only individuals in the household sector, excluding the non-profit sector. Previously, debt and income totals included non-profit organizations such as charities and universities. This change in data source should be considered when interpreting the historical trends. For further information, please see Box 1 in the Library paper on household debt.
Current Average Mortgage Interest Rates
Mortgage interest rates are a crucial indicator of the health of the housing market and the wider economy. In June 2021, the average Standard Variable Rate (SVR) was 3.62%, which was 0.03% lower than a year ago. Similarly, the average 2-year fixed mortgage rate was 1.37%, which was down 0.04% compared to a year ago. These figures suggest that mortgage interest rates have remained relatively stable in the past year.
Individual Insolvencies in England, Wales, Scotland, and Northern Ireland
The number of individual insolvencies is a crucial indicator of the financial health of households and individuals in a given region. In Q1 2021, there were 29,140 individual insolvencies in England and Wales, which was 1,629 fewer than the previous quarter. This follows the largest increase since the current series began in 2010, seen between Q3 2020 and Q4 2020. However, the Q1 2021 level is 0.7% higher than the level in Q1 2020, which suggests that despite the recent decrease, the number of insolvencies remains elevated.
In Scotland, there were 1,675 individual insolvencies in Q1 2021, which was 47% lower than a year before. In Northern Ireland, there were 424 individual insolvencies in Q1 2021, which was down 32% on the year. These figures indicate that while the number of individual insolvencies has decreased in Scotland and Northern Ireland, it remains a concern in England and Wales.
In conclusion, the ratio of household debt to disposable income has shown some concerning trends, with recent growth in debt levels and a ratio that remains high. Mortgage interest rates have remained stable, which is a positive sign for the housing market and the wider economy. Finally, individual insolvencies have decreased in Scotland and Northern Ireland, but remain elevated in England and Wales. Policymakers and economists must continue to monitor these indicators closely to ensure the financial stability and health of households and the wider economy