Britain is sitting on a new £173bn debt time bomb

from This is Money Households are sitting on a £173billion debt time bomb after being lured into a spending splurge by banks and credit card companies. An investigation by Money Mail has uncovered the startling rise in debt levels due to people splashing out on new cars, TVs, conservatories and home improvements. But with a rise in interest rates imminent for the first time in more than eight years, fears are growing that many families will be left struggling with repayments. Bank of England governor Mark Carney has sent a letter to all fund managers asking for reassurance they are able to deal with an anticipated rush of investors making emergency cash withdrawals to cover their mortgages. Meanwhile, the amount of borrowing being taken on by households continues to grow at a startling rate, spurred on by hundreds of offers for credit cards and loans. Analysis of debt levels shows the amount being taken out by homeowners remortgaging to pay for an extension hit £477 million between April and June — a five-year high. The sum owed on mainstream credit cards is increasing by 5.2 per cent a year and has reached £41.4 billion. Much of this is due to a boom in long interest- free deals, which let borrowers transfer balances from another card or not pay any money on purchases for as long as 40 months. Estimates suggest the amount the nation owes on credit cards is increasing by £45 a second. Car buyers with a history of bad debts are being offered loans with few financial checks for new or second-hand vehicles — a return of so-called sub-prime loans. Industry data suggests that as many as 40,000 buyers who took out car loans in the past 12 months may be already missing payments. Figures from Citizens Advice show it dealt with 292,000 cases of individuals struggling with credit card and personal loans over the past 12 months and a further 200,000 unable to pay their council tax bill. ‘We’re seeing evidence of real concern at meeting payments. A rate rise could see households under more pressure,’ says Gillian Guy, chief executive at Citizens Advice. ‘The nation’s personal debt crisis isn’t going away — it’s getting worse.’ Bank of England figures show how the total amount of unsecured lending — on credit cards, store cards, personal loans and overdrafts — has been rising month on month since November 2012 and is now £173 billion. The total outstanding bill in consumer credit on the High Street is a staggering £84.4 billion — made up of the record £41.4 billion on credit cards, £6.7 billion on overdrafts and £36.3 billion on personal loans. In July, a record £9.39 billion of new spending was put on cards. But, at the same time as debts grow, the average rate offered on them has soared from 17.5 per cent in 2008 to 21 per cent today, according to research by analyst Moneyfacts. This increase in rates could net the banks an extra £600 million in interest every year, despite 42 per cent of credit cards not charging any interest on balances. The boom in borrowing is fuelled by a glut of lenders falling over themselves to offer cheap deals for those with decent credit records. Virgin Money has just launched a balance-transfer card that means you pay no interest on your debt for a record 40 months. Eight other cards offer a deal of at least three years. Barclaycard, Britain’s biggest credit card company, is offering many customers the chance to shift money from a card into a bank account to spend as they like. Yorkshire and Clydesdale banks have just launched a credit card offering 0 per cent on purchases for 26 months. And credit card lenders, including MBNA and Halifax, are increasingly sending unsolicited card offers to householders. Continue Reading>>>

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