Britain’s credit card binge has gathered pace, with households borrowing at the fastest rate in more than eleven years.
Official figures published by the Bank of England yesterday revealed an alarming surge in spending on plastic.
Last night one MP described the borrowing boom as a ‘ticking time bomb’ which could come back to haunt households and the wider economy.
Britain’s credit card binge has gathered pace, with households borrowing at the fastest rate in more than eleven years
The total amount owed on credit cards jumped by £600 million last month to a record £68.1 billion – or an average of more than £2,500 per household.
After a brief slowdown, the annual increase in borrowing picked up sharply to 9.7 per cent in the year to April, up from 8.9 per cent in the previous month.
It means credit card debt is growing at the fastest pace since February 2006, during the reckless lending spree that preceded the financial crisis.
Borrowing – excluding mortgages- is also continuing to grow at breakneck speed.
Households owed a record £198.4billion on credit cards, personal loans, overdrafts and car finance last month, according to the Bank of England.
This is the highest since December 2008 and equates to an average of more than £7,300 per household.
The pick-up in borrowing is likely to alarm regulators – including the Financial Conduct Authority and the Bank of England – both of which have raised concerns about the rapid rise in household debt.
MPs and economists said the increase shows households are ‘feeling the pinch’, with inflation running at its highest level for more than three and a half years.
But they also blamed lenders for fuelling a dangerous debt bubble through controversial teaser rate credit cards which encourage people to rack up more debt.
Lenders are falling over themselves to attract new customers by offering increasingly tempting deals.
Analysis by Moneyfacts has found that the average introductory purchase deal period now lasts for 381 days – an increase of more than 100 days from last year.
The longest deal – offered by Sainsbury’s Bank lasts for 31 months.
Many credit cards also offer zero per cent periods on balance transfers – or existing debts. These can last up to 43 months before borrowers are stung with high interest rates.
Analysis by Moneyfacts has found that the average introductory purchase deal period now lasts for 381 days – an increase of more than 100 days from last year
Lenders are aggressively promoting these deals to attract new customers.
They are effectively betting that enough customers will slip up and fail to pay off their debts by the time the introductory period ends – when the interest rate will typically be jacked up to 18.9 per cent. Only then will they make a profit from these deals.
John Mann, Labour candidate for Bassetlaw, said: ‘Consumers are being given a false sense of security which will come back to haunt them and the economy. This could ruin the chances of the economy coming out of this period of slow growth. There needs to be tighter regulation for these cards which encourage people to mismanage their money.’
Chris Leslie, Labour candidate for Nottingham East and former shadow chancellor, said: ‘The cost of living squeeze is making too many households dependent on credit card debt, which represents a serious risk if Britain hits choppy economic times in the next few years.
‘Loading up on the sugar high of unsustainable short term zero rate credit cards risks a crash in tougher times. With inflation rising and real wages stagnant, the Bank of England needs to keep a closer watch on this situation.’
A recent report by the City watchdog revealed that around 3.3million people are saddled with credit card debts they may never be able to clear.
The Financial Conduct Authority accused lenders of doing little to help 3.3million customers mired in debt because they are so profitable. These customers are on average paying interest of around £2.50 for every £1 repaid.
In the worst cases, the FCA said credit card customers repaying the bare minimum will take decades to pay off their debt – racking up enormous interest payments in the process
Banks are also offering credit cards to families with little or no income, having dramatically relaxed their lending criteria.
There are 3.3 million people already in persistent credit card debt
A Money Mail investigation published earlier this year showed three quarters of all credit cards now take applications from customers earning nothing. Lloyds, Halifax, Sainsbury’s, Yorkshire Bank and M&S have no minimum income requirement.