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Debt time-bomb may be a dud

New figures from the Bank of England show that most households are far from overstretching themselves financially.

The report, contained in the BoE's Quarterly Bulletin revealed a relatively small proportion of households accounted for a large amount of the assets owned, income earned and debts owed by the whole sample.

The majority of households appeared to be comfortable with their finances. But there were a small number of households who appeared to be in distress: typically they had below-average incomes and no or not many assets to draw on.

Data from the survey is probably implying that the recent jump in consumer bankruptcies to record levels is symptomatic of a social problem, rather than one that will have any significant impact on the wider economy.

Indeed, the Bank makes the point that most consumer debt is secured on property and that very few people have reported problems servicing the said debt.

The survey also indicated that very few people viewed bankruptcy as a solution to debt problems.

Debt was not evenly distributed across the households who participated in the survey. Two out of every five households had no debts whatsoever, and among those who held debt, there was a wide variation in the amount owed.

The fraction of households in the survey who did not hold any debt was unchanged on a year ago. In fact, the proportion without debt was little changed on a decade earlier.

Housing accounted for the largest items on both sides of the typical surveyed household's balance sheet: their mortgage was their main liability, and their house their main asset.

For most homeowners the current value of their house exceeded the outstanding mortgage on their property. In other words, most homeowners had some equity in their home, so their house was a source of net worth. However, similar to the previous survey, there were a very small number of households in the survey who reported having negative equity