Britons’ credit binge continued last month with unsecured debt levels creeping close to the financial crisis peak, new monthly figures show.
Households racked up unsecured debts of over £204.2billion in credit cards, car finance, overdrafts and other loans as of September, latest data from the Bank of England reveal.
That’s an annual increase of 9.9 per cent, slightly lower than August’s 10 per cent rise, and below November’s peak of 10.9 per cent.
Personal debt: The latest data means Britain’s debt mountain is closing in on its record high
However, with the rise, it is within touching distance of its peak of £208.3billion in September 2008, when the financial crisis was in full flow.
While loans and other advances grew at a slower pace, borrowing on plastic accelerated to 9.2 per cent in September from 8.9 per cent in August, with Britons having an outstanding credit card balance of nearly £70billion as of last month.
The near-10 per cent increase in consumer credit comes as the Bank of England previously warned that it represents a significant risk to the economy and asked banks to increase the levels of capital they have to hold against their loan portfolio.
Howard Archer, chief economic advisor to the EY ITEM Club, said: ‘While unsecured consumer credit growth has come modestly off its peak levels, it remains too high for comfort and the BoE will likely be disappointed it has been pretty sticky in recent months.’
He added: ‘The BoE wants banks to provide evidence that they are lending responsibly to consumers and have not become complacent, but has stopped short of tightening borrowing controls.’
Rising: How consumer credit levels have risen in the last 20 years
The figures come just days before the Bank’s Monetary Policy Committee is predicted by many commentators to raise interest rates for the first time since 2007.
The Bank’s policymakers are expected to raise the base rate by 0.25 per cent to 0.5 per cent on Thursday.
The predicted small rise is unlikely to cause significant increases in the ultra-low rates of interest charged by lenders for credit cards or mortgages.
But there are concerns that consequent increases could push the cost of servicing debts higher and tip people who have taken on too much debt into serious financial problems.
Some card lenders have already began to reduce the number of zero-interest credit card deals on offer to customers.
On the rise: Consumer credit has been growing at around 10 per cent in recent months
Joanna Elson OBE, chief executive of the Money Advice Trust, the charity that runs National Debtline, said: ‘With household debt a growing concern and an interest rate rise likely as early as this week, we encourage households to exercise caution before taking on additional borrowing – and consider how they would be able to cope with repayments in the event of a shock to their income.
‘Millions of people will have never experienced an interest rate rise. We are concerned that a small rise, combined with high levels of borrowing, rising living costs and slow wage growth could be enough to push many households into financial difficulty.’
Figures by the bank have also showed that mortgage borrowing dropped to a three-month low in September.
Some 66,232 loans for house purchase were given the green light in September, marking the lowest monthly figure since June 2017.
It is the second month in a row that mortgage approvals have fallen and comes after a six-month high of 69,360 in July.
However, the Bank’s Money and Credit report showed re-mortgage loans picked up in September to 47,598, rising from 46,270 the month before.
HOW CONSUMER CREDIT LEVELS HAVE SOARED
Commentary by This is Money consumer affairs editor Lee Boyce
In recent years, the amount of consumer credit debt has risen steadily and could shortly surpass the record set during the financial crisis.
Digging through historical statistics, the record high was recorded by the Bank of England in September 2008 when it reached £208.3billion.
If current trends continue, this will be overtaken early next year.
So how does it compare over the years? Our chart above shows how consumer credit – mainly the amount borrowed on credit cards, personal loans and other finance agreements – nudged higher and higher ahead of the global financial crisis, which began in 2007.
In October 1997, the amount of consumer credit was £84.9billion. By October 2007, that had more than doubled to £195billion before reaching its peak a year later.
Between September 2008 and November 2012, the amount borrowed on credit fell and reached a nadir of £155.7billion – a fall of a quarter – and back to levels last seen in November 2002, exactly 10 years earlier.
Since 2012, the amount borrowed has ticked higher, smashing past the £200billion mark in June 2017.
Our editor Simon Lambert warned earlier in the year about the personal debt levels rising: so how worried should we be about Britain’s £200bn personal debt mountain?