United kingdom Daily news: Paying off debts? Forget it ... Charity warns of 'dramatic' new surge in consumer borrowing

Kamis, 05 Juli 2012

Paying off debts? Forget it ... Charity warns of 'dramatic' new surge in consumer borrowing

Paying off debts? Forget it ... Charity warns of 'dramatic' new surge in consumer borrowing

By Andrew Oxlade

PUBLISHED: 09:15 EST, 5 July 2012 | UPDATED: 09:31 EST, 5 July 2012

One of Britain's leading debt charities today warned of a 'dramatic' rise in consumer borrowing, driven by lending on mortgages.

Credit Action, which promotes financial education, said a post-crisis phase of households paying down debt had ended and thatÂ 'aggressive upward trend' for average debt had 'established itself'.

Most of the increase appears to be driven by mortgages, suggesting struggling families are increasingly dipping into the equity in their homes.

Debt dilemma: Britons are borrowing again to try and make ends meet

Average household debt in the UK, excluding mortgages, was Â£7,891 in May, up from Â£7,879 in April. With home loans included, the figure
was Â£55,514 in May, up from Â£55,485 in April.

A Credit Action spokesman said: 'Until the turn of the year, average household debt - excluding mortgages - had been on a consistent downward trend, stretching all the way back to February 2010.

'However, in January 2012 this rose for the first time in nearly two years, and since then has followed a fluctuating but largely upward trend.

'Meanwhile, average household debt - including mortgages - remained reasonably steady between May 2011 and December 2011. However, it increased dramatically in January, and has continued to grow significantly throughout the opening months of 2012.'

Turnaround: Debts had been falling but have stepped higher in 2012 - Source: Credit Action

Households have been squeezed by fast-rising prices for consumer goods in recent years. The consumer prices index measure of inflation reached a high of 5.2 per cent last year, way above the target of 2 per cent.

A soaring oil price, in particular, has seen petrol prices breach the 140p-a-litreÂ level in recent months, and feed through to higher costs for other products, due to higher production and transportation costs.

The oil price has fallen back in the past few months, with Brent crude at $101 a barrel today down from a peak of $127 earlier in the year. And inflation fell to 2.8 per cent in May.

But with wages rising at a slower pace and austerity measures kicking in, families are struggling to make ends meet.

Mortgage madness: Consumers are racking on debts against their property - Source: Credit Action

Michelle Highman, chief executive of Credit Action, said: 'The trends highlighted by Credit Actionâ€™s debt statistics reflect the fact that households are having a pretty tough time of it at the moment.

'In particular, the periodic increases in average household debt suggest that people are under pressure and are having to fall back on credit in order to get through the month; clearly a source of concern.'

'If you need to take on extra credit, make sure you shop around and find the best deal you can. And ensure you know and understand the terms and conditions involved.'

Britain is the second most indebted country in the world after Japan.

While official government net debt is colossal, at a little over Â£1trillion or 65 per cent of total annual economic output, it is favourable to many other countries, such as Spain, Italy and France.

However, with 'financial interventions' included - bank bailouts and other measures - the figure ballo ons to Â£2.246trillion. Some of this additional 'borrowing' may be recovered, if banks recover and are sold off. But this remains far from certain.

But it is Britain's consumer borrowing that puts it in the debt super-league. Relative to the size of the economy, Britain has had a bigger debt binge than any other country and now owes Â£1.460trillion (Â£1,451billion), up from Â£1.451trillion a year earlier.

But Credit Action's figures also suggest borrowing may actually be growing even faster than the headline figure suggests. Huge amounts of bad debts are being written off by banks as bankruptcies rise.Â UK banks and building societies wrote-off Â£6.3billion of debt in just a year, according to the charity's figures.