What constitutes a loan to the household sector and what types of loan enter each category

You asked

While various ONS articles shed light on the methodology underlying some aspects of the household sector balance sheet, there seems to be a lack of information on what constitutes a loan to the household sector, and what types of loan enter each category of the financial balance sheet. This makes it difficult to reconcile aggregate estimates of household sector liabilities from the National Accounts with microdata on household liabilities from the Wealth and Assets Survey, for example.

The components of AF.4 Loans included in the household sector financial balance sheet are (Blue Book table 6.2.11):

1. AF.41N1 Short-term loans issued by UK monetary financial institutions.
2. AF.41N9 Short-term loans issues by the rest of the world monetary financial institutions
3. AF.422 Long-term loans secured on dwellings.
4. AF.424N1 Long-term loans -- other, issued by UK residents.

Please could you provide details on the types of loan included in categories 1, 2, and 4 above. In particular,

• Do (1) and (2) consist primarily of formal consumer and business loans?
• Does (4) consist of formal/informal lending between households, or something else entirely? The values seem too large to consist entirely of inter-household loans.
• Are student loans included as a liability in the household sector financial balance sheet? This article (link) suggests that student loans (the part that will be repaid at least) are categorised as an asset in the government balance sheet, but it is unclear whether there is a liability counterpart in the household sector balance sheet and student loans not appear to fit into categories 1-4 above.
• Are loans from corporations (such as outstanding balances on store cards, hire purchases, arrears on household bills) classified as a loan anywhere in the household sector financial balance sheet?

We said

Thank you for your recent Freedom of Information request.

In the UK Economic Accounts (UKEA), the categorisation of loans is consistent with the requirements of the European Statistical Office's European system of accounts (ESA) 2010:

https://ec.europa.eu/eurostat/documents/3859598/5925693/KS-02-13-269-EN.PDF/44cd9d01-bc64-40e5-bd40-d17df0c69334

ESA 2010 determines what constitutes a loan and the classification of loans by original maturity, currency, and purpose of lending.  The following features determine that a financial instrument is a loan:

(a) the conditions governing a loan are either fixed by the financial corporation granting the loan or agreed by the lender and the borrower directly or through a broker;

(b) the initiative to take out a loan normally lies with the borrower; and

(c) a loan is an unconditional debt to the creditor which has to be repaid at maturity and which is interest-bearing.

In the UK further categorisation is determined by the length of maturity:

(a) short-term loans (F.41) with a short-term original maturity (less than one year), including loans repayable on demand

(b) long-term loans (F.42) with a long-term original maturity (over one year).

These characteristics and length of maturity give us the framework for the balance sheet items you have highlighted:

• AF.41N1 Short-term loans issued by UK monetary financial institutions
• AF.41N9 Short-term loans issues by the rest of the world monetary financial institutions
• AF.422 Long-term loans secured on dwellings
• AF.424N1 Long-term loans -- other, issued by UK residents.

Below are details of the type of loans found in each item.  Please note that inter-household lending is not included in the National Accounts as they consolidated out, that is the liability of household one is equal to the asset of household two:

With regard to payment arrears, the accumulation of interest is recorded in the financial account with the financial instrument to which it relates. Arrears in repayments simply mean that the financial liability of households, including an element of interest, does not change.