The Bank of England is concerned that banks and building societies may have made it too easy to borrow money – and with good reason. Figures released by the Bank today show that household debt is at record levels, with credit card debt increasing at its fastest rate in more than a decade.
It’s not difficult to see how this happened. Lenders deluge households with offers of new credit cards, and regularly raise the borrowing levels on existing plastic. There’s a plethora of deals on cards to entice people to switch their debt to new providers and the minimum monthly repayments are often so minuscule that many customers only ever pay off the interest.
So it’s no surprise to learn that borrowing on credit cards increased by 9.3 per cent in the year to February, the highest rate of growth in 11 years and up from 8.6 per cent in January. In total, UK households put £600 million on their credit cards last month and now collectively owe £67.3 billion. That’s £10 billion higher than just two and a half years ago.
Analysis by This is Money shows that the rate of spend on credit cards is at highest level since February 2006, sparking fears that another credit-fuelled debt crisis could be on the cards. And so the Bank of England announced earlier this week that the Prudential Regulation Authority is to carry out a review into the credit quality standards imposed by lenders.
Despite the financial crisis, we’ve never stopped spending on our credit cards. Last year, a Financial Conduct Authority report discovered that 5.1 million credit cards would take more than ten years to pay off their balance.
Peter Tutton, head of policy at StepChange, a debt charity, said: ‘Consumer credit continues to rise rapidly, adding to levels of UK household indebtedness that are already high by historical standards. With the Bank of England Financial Policy Committee highlighting the need for lending standards to be monitored closely, we urgently need action to prevent more households falling into unmanageable debt.
‘February saw the highest increase in credit card debt in 11 years and the Financial Conduct Authority has already raised concerns over levels of persistent credit card debt. The FCA is due to announce the next steps from its credit card market study and it has the power to make a difference by ensuring responsible lending standards, banning unsolicited credit limit increases and compelling lenders to intervene early when people fall into difficulty.’
Data from the Bank of England shows that around one-in-three working-age households say they are concerned with their current level of debt, with this figure rising above two-in-five among the poorest fifth of working-age households. With financial worries one of the main causes of stress, help for those in trouble is long overdue.
Helen Nugent is Online Money Editor of The Spectator