Debt binge ‘will trigger £30bn crisis’

LEADING lenders are ignoring a dangerous debt binge which could trigger £30billion losses in the next downturn, the Bank of England has warned.

Buoyed by record high employment and interest rates at all-time lows, banks have been extending credit to consumers at an unprecedented rate.

Consumer credit – borrowing using credit cards, car finance, personal loans and overdrafts – has grown at 10 per cent a year, far outstripping wage rises. The threat of potential losses of £30billion emerged in the Bank’s annual ‘stress test’ examining how lenders would perform in a recession.

The figure is a fifth of the total debt – a similar scale to losses during the financial crisis – and £10billion more than predicted in the 2016 test.

As a result, a string of banks could be forced to set aside more cash to ensure they stay safe.

James Daley, of consumer group Fairer Finance, said: ‘I’m amazed it’s only now we’re starting to hear these warnings.

‘It’s been blatantly apparent for the past year to 18 months that we’re heading into a real problem.’

The Bank’s Financial Policy Committee said lenders were becoming complacent as the proportion of consumer debts written off dropped from 5 per cent to 2 per cent from 2011 to 2016.

But in a downturn with higher jobless figures and interest rate rises, people will find it harder to repay their debts, warned the committee.