It’s also easy to understand why. On the whole the mortgage stock grows not because the same people, living in the same property, progressively take out bigger mortgages over time. It does so because, if house prices go up, new entrants and those trading up the market have to  4  Even some of this is not debt as commonly understood. For example, if you use your credit card for retail spending but pay it off every month, never incurring any interest, the rolling balance counts as debt in these statistics. Partly for this reason, and probably because there has also been a rise in “zero-interest” offers on new cards, the share of credit card debt currently paying no interest at all seems to have risen. A simple comparison of actual interest payments on credit cards to quoted interest rates suggests it’s currently around one half, twice what it was a decade ago. 5 Over the past five years, and for every £ of debt, write-downs on mortgages have averaged just under £ per year. The comparable figure for credit cards and consumer loans is over £ This gap is not untypical. 6 This is a repeat of some of the points in Broadbent (2012). 9  All speeches are available online at www.bankofengland.co.uk/speeches  9  borrow more than their predecessors did – those now moving down the market – to buy the same properties.
If so, one wouldn’t expect to pick up any levels effects, even when they genuinely exist, in simple cross-country comparisons like that in Chart 3. Those might simply be telling you that, for various structural reasons, a  3  All speeches are available online at www.bankofengland.co.uk/speeches  3  pound of debt is not quite the same thing, or equally risky, from one country to the next.2 Besides, the distinction between levels and growth rates is in any case a bit fuzzy. If one country has a higher debt burden than another it’s probably gone through a period of faster growth as well. That’s got to be the case if one’s comparing levels of debt in the same country but at different points in time. Nevertheless, the comparatively poor predictive power of the level of debt is quite striking and I think there may be a few lessons one can draw from this. First, if there are structural differences in the nature or terms of debt, whether across countries or over time, it is important to try and take account of them. One example in the UK is within unsecured household debt. This is now a pretty broad category. It includes two things – PCP (“personal contract purchase”) contracts for car purchases and student loans – both of which are relatively new and neither of which, arguably, is really unsecured debt in the conventional sense or at least carries the same risks for borrowers. PCP contracts are more like rental agreements.