UK household incomes rising in tandem with debts

29th December 2014

UK families face a tricky conundrum going into 2015 as while households may have enjoyed a rise in income they have also taken on a heavier debt burden.

According to the latest Aviva Family Finance Report incomes have risen to £2,012 a month on average, marking a 4% rise over six months. But simultaneously families have seen a 3% increase in expenditure and are taking on more debt, while the spectre of interest rate rises, which would increase mortgage costs, is troubling more families.

Household debt, which risen markedly, now typically stands at an average of £16,300 per household against £7,840 six months ago – reversing the sharp drop seen between July and December last year.

Much of this is due to credit card spending where six months ago the average debt was £1,720, and it is now £2,940. Families also owe more on personal loans up from £1,210 to £2,090, while worryingly the amount owed to payday lenders has more than tripled from £350 to £1,290.

The study however also highlighted that more families are saving regularly, and the proportion who save nothing each month is now at a record low of 24% – a step forward from the 39% who were not saving three years ago. But the average monthly amount put away has dipped slightly – an average of £84 compared with £85 a month six months ago – and savings cushions have declined to £1,770 against £2,274 six months ago.

Aviva’s data also showed that the average family home is worth £244,100 – the largest figure ever recorded by the Family Finances Report series. In December 2013 the average home was worth £222,280, meaning households have enjoyed a near 10%, or £21,720 increase in property wealth over the past year. This is good news for those who bought when prices were lower but a challenge for those trying to get on the property ladder

In fact the number of families in privately rented accommodation has leapt, from 16% to 24%, while the fear about rising mortgage rates is up 7% – with more than a quarter of the population listing this as one of their top three financial concerns.

However the report also found that more are taking steps to protect their families from the unexpected. There are fewer people than ever without a savings cushion at all, while more people are taking out protection insurance for their families such as life insurance, now standing at 42% versus 36% six months ago. In addition more have taken out health insurance policies, critical illness cover and income protection.

Louise Colley, protection director, at Aviva, said: “Our biannual Family Finances Report reveals that some families are feeling the dual pressures of debt and high housing costs, but hopefully some of these demands could be eased by rising incomes.

“It’s also encouraging to see more families are getting the message that it is important to protect your finances against sudden shocks – building up a savings cushion and taking out insurance. The Family Finances series has shown UK families to be a resilient and resourceful bunch, as finances have fluctuated over the years, so now it’s great to see that people are taking actions to make sure they’re prepared for whatever life has in store.”

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