WARNING ON UK’S £68BN CREDIT BINGE
Experts fear new debt crisis 10 years after global collapse
FAMILIES are bingeing on debt at the fastest pace since the start of the global financial crash ten years ago.
Spending on credit cards is growing twice as quickly as it was last year, it emerged yesterday.
On the ten-year anniversary of the start of the financial crisis, industry figures showed households owed a record £68.2billion on plastic.
This was revealed as Lord Darling – who was chancellor during the bailouts of Northern Rock, Lloyds and Royal Bank of Scotland – said rising household debt and uncertainty over Brexit should ‘raise alarm bells’ for the economy.
Former pensions minister Baroness Altmann said: ‘We are in danger of repeating mistakes of the past.’
Some £16.5billion was spent on credit cards in June, up 6.9 per cent over the year. This is £1.1billion more than was spent in June last year.
It is also more than double the 3.4 per cent growth in the year to June 2016,
according to UK Finance, which represents Britain’s lenders.
The number of purchases made on credit cards also leapt by 9 per cent to 304million. This was driven in part by consumers using contactless cards to pay for smaller, everyday purchases.
Speaking to BBC Radio 4’s Today Programme, Lord Darling said the financial system was now safer but warned regulators must remain ‘very, very’ vigilant about the risks to the economy.
On household debt, he said: ‘When interest rates go up, and they will go up, if not this year then certainly next year, and suddenly people find they are going to be paying more in their monthly payments, that’s when you need to watch out.’
The figures published yesterday only reveal the amount spent on credit cards, not the amount paid back.
But credit card debt is rising at its fastest since the financial crisis. Regulators say this has been fuelled by the rise of zero per cent rates which encourage people to go on sprees.
More than £200billion is now owed on short-term loans – including credit cards, overdrafts and personal loans, according to Bank of England figures. This has also been driven by a boom in car finance.
Baroness Altmann said: ‘It is really troubling that so much is being bought on credit cards and borrowed in car finance.
‘But by keeping interest rates so low the Bank of England is sending people the message it’s not worth bothering to save and you might as well spend money.’
The warning came as debt campaigners revealed growing concerns about ‘guarantor’ lenders which focus on households with poor credit records.
They charge 50 per cent interest or more and are typically targeted at younger people, including the unemployed. Borrowers must get a friend or family memple ber to guarantee to make repayments if they cannot.
The market is growing rapidly, with lenders such as Amigo Loans advertising extensively on daytime TV and radio.
But it has emerged a quarter of borrowers have fallen behind on their repayments.
In a little-noticed document published last month, the Financial Conduct Authority said peo- taking out guarantor loans have a worse credit score than those taking out payday loans.
They also have an average of six outstanding loans or debts totalling £7,400, despite earning £20,800 on average.
StepChange Debt Charity said guarantors are often chased ‘aggressively’ for the money.
Chief executive Mike O’Connor said: ‘Nearly a quarter of the guarantor loans we see are in arrears and as the market grows we worry that lenders may not be lending responsibly.
‘We are concerned that guarantors may not understand their responsibilities and aggressive collection practices can damage important relationships between lenders and guarantors.’
James Daley, founder of Fairer Finance, said: ‘It’s become increasingly difficult to get a mortgage. But the irony is it’s incredibly easy to rack up debt through unsecured loans, car finance and credit cards. Borrowing is getting up to dangerous levels again.’
A spokesman for Amigo Loans said: ‘Amigo exists to help the millions of ordinary people who are unfairly turned away from mainstream lending because of a poor credit score – and we are proving every day that they deserve the opportunity.
‘We are continuing to lead the industry with our responsible lending practices and giving customers a lower cost and safer option than many of the poor alternatives they’re faced with.’
A UK Finance spokesman said: ‘Our members are committed to responsible lending and undertake a thorough risk assessment of a customer’s finances whenever they apply for credit.’
‘Up to dangerous levels again’