The 'friends’ generation are the UK’s biggest debtors

18 to 30s are much less reliant on credit – but they are far less likely to get on the housing ladder.

The ‘Friends’ generation – those in their early 30s – have the highest borrowing of any age group and they also have a tendency to miss repayments, according to Alliance & Leicester’s latest Borrowing Monitor research.

People in their early 30s have the highest borrowing including mortgages of any age group – and spend the highest proportion of their income paying interest. They have the highest mortgage exposure and their average unsecured debts total £5,863, 29% above the national average. It is the typically at this stage of life that people begin to settle down with a partner and buy their first home, so in some respects, this high borrowing reflects the costs of setting up home. Two thirds (66%) live with a partner and 63% are homeowners, both well above the under 30s.

Not only is their debt level the highest, but they are also amongst the most likely to skip when it comes to repayments. They are the group most likely to only make the minimum credit card repayment, and the least likely to pay in full. They are amongst the highest regular users of overdrafts and the age group most likely to have a personal loan but also amongst the most likely to miss their monthly loan repayments.

Contrary to the stereotype, the ‘Club 18-30’ generation are less likely to have consumer debts of any kind than their older counterparts and when they do, they have lower balances than most older groups. Many of them, however, also have student loans, which account for 47% of their overall borrowings, by far the largest type of debt they have.

Chris Rhodes, Director of retail banking at Alliance & Leicester said: “The early 30s are a transitional age where careers are taking off and before family responsibilities kick in. Many are buying their first homes at this point, but are also enjoying rapidly rising salaries and are keen to enjoy life to the full. Some, particularly those not trying to get on the housing ladder, may find themselves in financial difficulty as a result living beyond their means.

“The picture for the under 30s is dominated by student loans. A hangover of student debt is constraining their appetite for other borrowing and delaying their ability to get on the housing ladder.”

Finding a partner and buying a home dramatically changes attitudes to borrowing

Apart from age, homeownership makes the biggest difference to people’s attitude to borrowing. Settling down as a couple also tends to lead to a more responsible attitude.

Although 45-54 year olds have slightly higher unsecured borrowing than the 30-34s, they are also more likely to be homeowners – and almost four times as many own their homes outright (17%) meaning that they have no monthly rent or mortgage to pay. Their homes are also more valuable (meaning that they have a good asset backing to their borrowings). Those who have mortgages owe two-thirds as much as the 30-34s, and on average they have savings twice the level of the younger group. For this group, financing their unsecured borrowings is therefore relatively easy as they have fewer other demands on their income.

The over 55s exhibit by far the most responsible attitude to borrowing. They are the least likely to have borrowings and the most likely to have savings.

Furthermore, the finances of older groups tend to improve rapidly. The trend to outright homeownership and higher savings rises very rapidly from the age of 50. By the age of 60, half of households own their home without any mortgage left outstanding. Those who still have mortgages by this time, owe less than £50,000. Within five years, the picture has changed dramatically again. More than two thirds (69%) of the over 65s own their homes outright, without a mortgage.

No debt or low debt – the majority

Around two thirds of UK households (17 million) have very low unsecured borrowings compared to their incomes, ranging from 0% to 9%. This group is dominated by homeowners and couples. The average for the UK as a whole is 16.2%.

At one end of the scale, the ‘Prosperous Squirrels’ (high income, zero debt) make up 9% of households, around 2.3 million households in total. They are dominated by people in their late 40s, and the reason they have no unsecured borrowings is very clear when you see that the average level of savings of this group is £130,000, 4.6 times the national average of £28,000. Virtually all of them are homeowners (94%) and their homes on average are worth £365,000, over 50% more than the national average.

Above average borrowing but well controlled

Amongst the rest of the population who have above average borrowing, there is a far higher proportion of renters and single people.

Those ‘Living the High Life’ have a good level of income, but they owe 39% of their income in unsecured debts (compared to 16.2% on average). They are in their late 30s (average age 39) and four fifths are homeowners. They have the largest mortgages, but also valuable homes and plenty of equity, as well as average savings of £26,000. Less than a quarter have no savings at all, better than the national average. They rarely pay off their credit cards in full and regularly use their overdrafts. However, this group can easily afford to live their high consumption lifestyles and despite average borrowings of over £22,000, they generally have a good payment record. They make up just less than 6% of households.

Higher debts and more likely to be struggling

The ‘The Irresponsibles’ have low incomes and high debts. They owe more than their annual income in unsecured debts (108% on average). They tend to live in rented homes without a partner, and are in their mid 30s. Over half of them have no savings at all. They are the biggest users of overdrafts with 31% using their overdraft “most or all of the time”. This group is by far the most likely to be in default on their borrowings, with one in eight (12%) having regularly missed loan payments and the same proportion having missed a credit card payment totally. Overall, they make up less than 5% of households, but their position is the most precarious.

Those with ‘Champagne Tastes on Beer Incomes’ have borrowings equivalent of 66% of their annual income. However, they have a higher disposable income and in general are pretty good at keeping up with their repayments

The ‘Big Spenders’ have low incomes but lower debts than the ‘Irresponsibles’, owing on average £4,500 which equates to 36% of their annual income. Although this is a similar proportion of their total income than those ‘Living The High Life’, their disposable income is much smaller so it is much harder for them to sustain this level of borrowing. This is reflected in their worse payment record. Like the ‘Irresponsibles’ they struggle when it comes to repayments; they are the least likely to repay their credit card balance in full; they make frequent use of their overdrafts, and miss payments on their personal loans. There are 2 million such households and they need to take care as their low income leaves them vulnerable to changes.

Chris Rhodes, comments: “The vast majority of UK households have very manageable debt levels and very few are living beyond their means. Responsible borrowing enhances lifestyles and helps families manage their finances over a period of time, enabling them to buy big ticket items such as cars and improve their homes, or spread the cost of expensive times of the year like summer holidays and Christmas. When borrowing becomes a lifestyle in its own right, the red light starts flashing.”