Consumer borrowing has escalated by as much as £1.2 billion from February to March of this year, the steepest rise since the financial crisis of 2007 to 2008, says the Bank of England.
The sharpest increase was in loans, overdrafts and other types of unsecured borrowing, accounting for £1.1 billion of the rise, according to Bank of England figures.
Credit card lending and mortgage borrowing remained largely flat. In fact, March saw 180 fewer mortgage approvals than the previous month. Credit card lending increased over the same period but by a relatively modest £200 million.
The surge in loan and overdraft consumer borrowing is probably due to the fall in the interest rates commonly charged by lenders. According to the consumer finance website, ‘Moneyfacts,’ someone borrowing £5,000 twelve months ago would have had to pay charges of 9.1 per cent. He or she would only have to pay 8.1 per cent now, on the same amount.
Both charities and economists are warning that the sharp rise in borrowing may lead to an increase in debt difficulties for consumers.
Howard Archer, chief economist at IHS Global Insight, cautioned that consumers are likely to be increasing their amount of debt in order to fund their spending. The charity for those in debt, StepChange, expressed concern that the surge in borrowing indicates that many are turning to credit to make ends meet, without having the means to repay all of their debt.
However, the Insolvency Service has reported the lowest number of personal insolvencies for ten years. During the first quarter of 2015, only 20,825 people were declared insolvent, the lowest number since 2005 and a decrease of 18.6 per cent from twelve months ago, one of the sharpest falls since records began
