Is Britain’s £73billion credit card bubble about to burst? Bank of England fears as UK debt rises to equivalent of £1,400 per person

‘Banks have seen a ‘significant increase’ in customers defaulting on credit cards since the start of this year.

From The Daily Mail:

The rise in those unable to pay their bills sparked fears Britain’s £73billion plastic debt timebomb is about to go off.

More than one in five credit card firms saw an increase in defaults in the first three months of 2019 – the highest rate for two years, the Bank of England revealed.

Credit card lending has been growing rapidly for the past decade, fuelled by eye-catching offers.

The total amount owed has surged by 41 per cent since 2009 to reach a record £72.6billion in February. This is the equivalent of £1,364 for every adult in Britain.

The worrying findings came in a Bank of England survey of major lenders, 22.9 per cent of whom reported that more customers were failing to pay credit card bills.

The Bank said: ‘Default rates increased significantly for total unsecured lending.

‘This was driven by a significant increase in default rates on credit card loans.’

Labour MP John Mann, a member of the Treasury select committee, said: ‘These figures are deeply concerning and suggest that the credit card bubble which has been building in Britain for years could be about to burst.’

The problems are thought to have been driven in part by a crackdown on ultra-cheap credit offers, which allow customers to shift their debt to a new card and pay no interest on it for many months.

This encouraged some to rack up debt, in the belief they could repeatedly delay paying back the money by switching from one offer to another.

The Bank of England sent letters to lenders warning them to rein in risky card lending and be more aware of the dangers of losses. There was also action from the Financial Conduct Authority.

Zero-interest lending has since been sharply wound in, with the longest introductory rate on offer now just 29 months and only 82 deals available on the market, down by a third from 2017.

Many lenders are also thought to have tightened up their rules so customers need a better credit record to get the deals. As a result, borrowers who previously shifted their debt around and avoided paying it off may now find they are being charged interest which is unaffordable.

Rachel Springall, of Moneyfacts, said: ‘Consumers may well be finding it hard to pay back their debts before interest applies on their balances because the lengthy 0 per cent balance transfer card terms have been plummeting since the FCA shook the market with its persistent debt proposals.’ 

In a sign that the problem could continue, statistics from banking trade body UK Finance show that £29.4billion of debt or around 44 per cent of the total is still on credit cards where interest is not being charged.

If this money moves off zero-interest deals, then more customers may find they are struggling.

FCA data released yesterday shows a sharp rise in complaints about credit cards.

Lenders received 386,195 complaints about credit cards in the second half of 2018, up 19 per cent on a year earlier.’

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