Debt Tsunami - How the UK and US Are Struggling to Stay Afloat And What It Means for Housing

8th November 2025

In 2025, the debt crisis in both the United Kingdom and the United States has reached a critical juncture.

Government borrowing is surging, household debt is climbing, and the economic consequences are beginning to ripple through every layer of society.

The numbers alone are sobering. The UK's public sector borrowing in June hit £20.7 billion—one of the highest on record—while the US federal debt has ballooned past $38 trillion, with interest payments now exceeding $1.1 trillion annually. These figures are not just abstract statistics; they are symptoms of deeper structural challenges that both governments are struggling to address.

In the UK, the Treasury continues to issue record levels of gilts to finance its deficits, even as inflation-linked bonds drive up interest payments. The government faces a delicate balancing act: maintaining public services and infrastructure investment while avoiding further fiscal deterioration. Yet, with elections looming, there is little appetite for deep spending cuts or bold tax reforms. Meanwhile, the Bank of England is quietly urging financial institutions to tighten lending standards, hoping to curb the growth of private debt without triggering a credit crunch.

Across the Atlantic, the United States is navigating its own fiscal minefield. The recent decision by Congress to raise the debt ceiling by $5 trillion has bought time, but not confidence. Investors are increasingly wary of the long-term sustainability of America’s borrowing habits. The resumption of student loan repayments has added pressure to millions of households, while political gridlock continues to stall meaningful reform. The Federal Reserve, for its part, is holding interest rates high to combat inflation, inadvertently making debt more expensive for everyone—from homeowners to the federal government itself.

The housing markets in both countries are now showing clear signs of stress. In the UK, mortgage rates have surged above 6%, pricing many first-time buyers out of the market and triggering a slowdown in transactions. House prices, which had soared during the pandemic, are now stagnating or falling in many regions. Landlords are exiting the buy-to-let sector in record numbers, citing tax pressures and rising costs, which is tightening rental supply and pushing rents higher. The government’s response has been muted—limited support schemes and vague promises of planning reform have done little to ease the pressure.

In the US, the situation is equally fraught. Mortgage rates have hovered near 7%, the highest in over two decades, freezing the housing market and locking homeowners into their existing properties. Home sales have plummeted, and affordability has reached crisis levels in major cities. Meanwhile, rent inflation continues to squeeze lower-income households, many of whom are already burdened by credit card and auto loan debt. Federal housing policy remains fragmented, with piecemeal programs failing to address the scale of the problem.

The economic impact of this mounting debt—public and private—is already visible. Higher interest rates are crowding out investment and consumption, slowing growth and straining public budgets. Consumer spending, particularly among lower-income households, is weakening. Public services are under pressure, and infrastructure projects are being delayed or downsized. In both countries, the debt burden is beginning to erode trust—in institutions, in markets, and in the future.

So what should governments be doing? Economists argue that the answer lies in a mix of bold fiscal reform and strategic investment. Tax systems need to be modernized to close loopholes and ensure fair contributions from corporations and high earners. Spending must shift toward productivity-enhancing sectors like education, technology, and infrastructure. Households need support through financial literacy programs, regulation of predatory lending, and targeted relief for those most at risk. Housing policy must be reimagined—through expanded affordable housing initiatives, mortgage support schemes, and planning reforms that unlock supply.

Debt is not inherently bad. When used wisely, it can fuel growth, innovation, and resilience. But when mismanaged, it becomes a drag on prosperity and a threat to stability. In 2025, both the UK and US stand at a crossroads. The choices they make now—especially in housing and fiscal policy—will determine whether they emerge stronger or sink deeper into the debt spiral.