UK household debt not at unsustainable levels, says Bank of England deputy governor Ben Broadbent

Bank of England deputy governor for monetary policy Ben Broadbent said household debt in the UK has not hit unsustainable levels.

Rapid debt growth is a better predictor of potential financial distress than debt levels, he said, and argued that British household debt has not grown at a worrying rate.

Traditional unsecured debt, including credit card balances, consumer loans and overdrafts, has not grown much relative to income since the mid-1990s, Broadbent said in a speech to the London Business School today.

The debt that has risen, mainly car finance and student loans, neither of which, Broadbent said, “is really unsecured debt in the conventional sense or at least carries the same risks for borrowers."

“This makes it slightly puzzling to read, as one often does, that household debt is “unsustainably” high. This view is ubiquitous,” he said.

“My suspicion is that, at least in some cases, people come to it because they have in the back of their minds an alternative and rather attractive world in which we all have fewer debts but the same assets.

“In this imagined and happy place we’d all have lower mortgages but own the same houses. Firms too would have fewer liabilities but possess the same productive capital.

“In other words, people might implicitly be assuming that less debt would necessarily mean greater net wealth.”