Credit card debt has soared by almost £1billion, fuelling fears that the national spending spree is set for a painful ending. The ‘spend now, pay later’ culture sent borrowing on plastic up to a new record of £11.9billion in March, £l85million more than in February. But the latest Bank of England figure for debt, the amount still to be paid off, suggests that some people are already struggling with their card bills and are being hit by crippling interest and penalty charges.
Many house buyers also appear to be covering higher mortgage bills by the short-term tactic of letting their credit card balances rise. The Bank is expected to push up base interest rates again this week in an effort to make people change their borrowing habits. While most analysts predict a 0.25 point rise, some suggest the shock tactic of a 0.5 point increase. City experts believe the continuing property boom is a key factor in the spending binge. Young people buying their first home or those moving up the property ladder are splashing out on kitchen and electrical equipment, furniture and decoration.
The Bank’s figures showed that mortgage approvals, loans agreed but not yet made, totalled 127,000 in March, the same level as a buoyant February. Personal debt is still on course to top £1trillion this summer. March’s £963million increase took credit card debt alone above £54billion. Once new home loans, overdrafts and personal loans are added, total personal debt rose by £17.5billion to £973.7billion.
Shadow Chancellor Oliver Letwin warned last night: ‘Mounting personal debt is causing severe problems for an increasing number of families. ‘As many as one in 20 households now use more than a quarter of their income on consumer credit repayments. Unsurprisingly, poorer households tend to be hit the worst. This is not an issue that can be ignored.’ Liberal Democrat Treasury spokesman Dr Vince Cable said: ‘Large numbers of people are gambling on the house price boom – a gamble they may regret if house prices start to fall. ‘It is time for the Government to take action to protect ordinary homeowners against irresponsible lending.’
(Daily Mail May 5th 2004)