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Debt charities warn level of UK credit binge “approaching 2008 peak”

Debt charities have warned this week that the UK is currently in the midst of a credit boom that is close to levels not seen since the 2008 financial crash.

New figures from the Bank of England show that unsecured consumer credit – an umbrella term that includes credit cards, car loans and second mortgages – increased by 10.8% last year to a total of £192.2 billion, the fastest rate of growth in more than 11 years.

The UK’s consumer credit debt peaked in September 2008 – the month that Lehman Brothers collapsed and the banking crash caused a worldwide recession – at £208 billion.

Credit card debts account for £66.7 billion of the current total, which hit a record high last month as shoppers used them to fund their Christmas shopping at record levels.

Responding to the latest figures, debt charity StepChange said the rise in levels of consumer debt could leave thousands of UK families vulnerable to changes to income and redundancy as well as higher levels of inflation.

Head of policy at StepChange, Peter Tutton, said:

“Levels of outstanding borrowing are approaching the 2008 peak, and the growth rate of net lending is at its highest since 2005. Alarm bells should be ringing.

“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.

“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.”

Looking further into UK shoppers’ spending habits in the run-up to Christmas, YouGov research on behalf of National Detbline found that a third of UK adults used credit cards to buy Christmas presents and food over the festive period.

On releasing the research findings, Joanna Elson of National Debtline also revealed that there had been a spike in calls to its helpline recently. She added:

“Consumer credit continues to soar, and this is something we should all be concerned about amidst the current uncertainty over the UK economy.

“Most people are currently able to handle this extra borrowing, but if the economy does indeed suffer in the years ahead, these extra debts could become even more difficult to repay.”

Economic forecasts for the year ahead

Reuters recently polled economists and found that many expect UK economic growth to reduce by more than half in 2017 to a rate of 1.1%, as well as rises in inflation to almost 3% (up from 0% at the start of 2016) due to the sharp fall in sterling since the Brexit referendum result in June.

The warnings from debt charities follows more than a year of fierce competition between credit card companies who are currently attracting new customers with 0% introductory interest rates.

Despite the growing concern amongst debt charities, the Bank of England’s recent figures show that UK homeowners remain positive, with the number of approved mortgages rising to an eight-month high of 67,505.