Personal debt will burst through the £trillion barrier in the New Year as the nation’s enthusiasm for borrowing hits new heights. Lending secured on homes rose by a record £9.47billion in October, the Bank of England said yesterday. That sent the total outstanding on mortgages, credit cards, bank and other loans to £916.16billion. Economists say the nation is gripped by a ‘Spend it like Beckham’ culture, where families want to own the designer label goods enjoyed by celebrities – whether they can afford them or not. Many are effectively using their homes as banks to fund their lifestyles, taking out bigger mortgages to release spending money.
The billions on loan are proving a goldmine for the banking sector, which is earning huge profits from interest and charges. But there is mounting concern that banks and building societies are throwing money at customers without making proper checks on their ability to repay. Economist Dr Clive Hamilton of Cambridge University said: ‘We are living in an era characterised sometimes as featuring luxury fever. In a previous era people took their consumption patterns from the people around them, in their neighbourhood. But now people aspire to what they see on TV. They look at the film stars and footballers and want to “spend it like Beckham”.’ The ease of getting the loans is a key factor, he told the BBC.
October’s rise in borrowing came before the Bank’s Monetary Policy Committee increased the base interest rate by 0.25 per cent to 3.75 per cent in November. The rate rise was coupled with warnings from Bank governor, Mervyn King, who said: ‘People should think carefully about how much they borrow. It is very easy to borrow in haste and repay at leisure.’ The latest figures will increase fears that the personal debt crisis could derail the entire economy.
There is serious concern that up to three million households will be unable to cope with the huge debts and monthly repayments they have taken on. The average debt of this group, before any mortgage, is put at £24,000, which City experts say leaves it vulnerable to even small increases in mortgage rates. This group, it is believed, will never be able to repay the debt because their income simply does not provide enough cash. Tory Treasury spokesman Oliver Letwin yesterday demanded urgent action to control personal borrowing, warning that Britain is in danger of ‘sinking under a sea of debt’.
(Daily Mail December 2nd 2003)