Millions of debt-ridden Britons are facing financial meltdown, the country’s top banker warned yesterday. Mervyn King, Governor of the Bank of England, said borrowing had soared faster than all forecasts over the past three months. There is a risk that heavily indebted households will be badly affected by changes in economic circumstances or interest rates, said Mr King, whose monetary policy committee last week raised the cost of mortgage borrowing for the first time in almost four years. Everyone needs to think carefully about the amount of debt which they can afford.
Debt specialists said the borrowing timebomb was already blowing up in some people’s faces. Citizens Advice spokeswoman Sue Edwards said: Increasing numbers of people are struggling to manage their repayments and some of our centres are coming under enormous pressure because of the number of people coming in for advice about debt problems. Consumer experts warned that many borrowers were poised to spend yet more in the run-up to Christmas, using credit cards and loans to pay the bills. The Department of Trade and Industry said more than 9,000 people had been forced to declare themselves bankrupt in the three months to September, a rise of nearly 17 per cent on the same period last year. The figures are now running at a 10-year high.
A survey from market research analyst BRMB shows that the average person plans to spend £450 on Christmas this year, with half of all adults expecting the bill to be higher than last year. Frances Walker, of the Consumer Credit Counselling Service, a leading debt charity, urged consumers to cut their spending before it was too late. She said: We agree with everything Mervyn King said –the recent rise in interest rates should be seen as a wake-up call by those in debt, because it really is time heavily indebted people began thinking about how to pay off what they owe.
The CCCS is already coping with an increasing number of cases of borrowers facing desperate trouble, she warned. Our research shows that the people most vulnerable to falling into debt are those on low or middle incomes with mortgages, said Ms Walker. David Bitner, from the independent financial adviser The Marketplace, added: This issue has been worrying the Bank of England for some time. Debt levels have increased massively since the beginning of the year and I think last week’s base rate rise was meant to remind people with debts that interest rates can rise as well as fall in the run-up to Christmas.
Mr Bitner warned that the Bank of England was likely to raise the cost of borrowing again in an attempt to put people off taking on further debt. People are used to living the high life now and it will be very hard to change that mentality, he said. Florian Ritzmann, director of online adviser Unravelit, added: There is a significant number of UK cardholders for whom credit card debt is in danger of spiralling out of control. This is a problem that is sure to escalate if the cost of borrowing rises.
The Bank of England also admitted that the runaway housing market had failed to slow in the way it had expected this autumn. Mary Francis, director general of the Association of British Insurers, warned that the housing boom was encouraging many home owners to stake their financial futures on property People seem to believe they can rely on housing if all else fails, she said. That may be over-optimistic and I do think there is a danger of putting too much trust in such a view.
Figures by the Office of National Statistics show that the average Briton now owes £5,330 on top of their mortgage – 50 per cent more than in 1997. Businesses are about to be hit with the most expensive and crippling tax yet, trade and industry leaders warned. From December 1, firms signing a lease for shops, offices, pubs and even doctors’ surgeries will see their stamp duty bill increase as much as 10 times. This new Stamp Duty Land Tax will raise £230 million a year for the Treasury.
(Daily Express 13th November 2003)
