Britons pile on credit card debt

Bank lending surged by a record amount last month, figures showed today, reigniting fears that millions are saddling themselves with debts they cannot afford.

In a sign that Britain's borrowing binge continues to gather pace, the British Bankers' Association said the month-onmonth increase in personal lending, comprising loans, overdrafts and credit card borrowing, topped £1billion for the first time.

Credit card borrowing alone rose by £335 million, slightly down on November's record £369 million rise on October. Ian Mullen, BBA chief executive, said: "Given the strong value of retail sales in November and December, and the continued low cost of carrying debt, it was not surprising to see consumer credit strengthen."

He added that bank deposits are also weak, suggesting that consumers are running down their bank accounts as well as taking on more debt. Separate figures showed mortgage lending hit a record £161.5 billion last year, up 35 per cent on 2000.

The figures from the Council of Mortgage Lenders showed almost a third of the lending represented remortgage activity, as homeowners shopped around for better deals or unlocked the rising value of their homes to finance higher spending.

Analysts say the debt is affordable because interest rates are so low. Some credit cards such as Egg are offering zero interest deals and the average new mortgage rate is now only 4.68 per cent.

But economists expect job losses to mount as part of the global economic-slump. When this happens, they say, millions could find themselves struggling to repay their debts.

Estimates have put the average household's credit card debt at 107 per cent of its disposable income.

Some are warning of a re-run of the arrears and debt crisis which followed the late-Eighties boom.

The Financial Services Authority, the City watchdog, has already warned against racking up unaffordable debt through "reckless spending". The Bank of England has also expressed concern.

CML director general Michael Coogan said: "While the economic outlook remains positive, small rises in interest rates and higher unemployment are expected. Borrowers need to think how this may affect their household finances and whether they need insurance to cover their mortgage payments if they lose their jobs."

City & Business