Alarm bells ring as unsecured consumer credit snowballs in 2016

The amount of unsecured consumer credit, such as credit cards, car loans and second mortgages, grew at its fastest rate since 2005 in the year to November.

According to figures from the Bank of England, a credit boom saw unsecured consumer credit increase by 10.8 per cent to £192.2 billion, its most significant rise in more than 11 years.

Credit card debts made up more than a third of this (34.7 per cent), hitting a record high of £66.7 billion as Brits resorted to their flexible friend to fund Christmas.

One in ten UK adults are likely to fall behind on their finances in January, as a result of Christmas spending, according to a survey of more than 2,000 Brits commissioned by National Debtline.

Less than a third (32 per cent) have set a budget, while only one in eight (12 per cent) have set out how they plan to repay any debts currently owed.

For some context, the level of UK consumer credit debt reached a peak of £208 billion in September 2008 when Lehman Brothers collapsed and kicked off the banking crash that caused a global recession. Going off November’s figures, the UK is less than £16 billion away from topping that tragic peak.

No reprise of 2008

Peter Tutton, head of policy at debt charity StepChange, believes that alarm bells should be ringing within the UK government.

“Previous experience shows how such increases in the levels of borrowing can leave households over-indebted and vulnerable to sudden changes in circumstances and drops in income that can pitch them into hardship,” he said.

“Lenders, regulators and the government need to ensure that the mistakes made in the lead-up to the financial crisis are not repeated and that there are better policies in place to protect those who fall into financial difficulty.”

Brexit scraps saving

Joanna Elson, chief executive of the Money Advice Trust which runs National Debtline, told the Guardian that while most people are able to handle the extra borrowing, they could find it more difficult to repay if the economy suffers in the years ahead.

Additionally, saving seemingly went out the window following news that British voters had decided that the UK should leave the European Union.

The Bank of England revealed in December that British households set aside the smallest portion of their incomes since 2008 in the three months after June’s EU Referendum.

However, homeowners remained upbeat, according to the Bank’s figures, as the number of mortgages for house purchase approved by lenders hit an eight-month high of 67,505.

The Bank forecast in November that mortgage approvals would slow to a monthly average of 65,000 over the next six months, and major lenders expect weaker house price growth.

Net mortgage lending, which lags behind approvals, rose to £3.157 billion in November, the Bank said, less than a forecast of £3.5 billion in a poll of City economists.

By Joe White