Why are we borrowing so much more these days?

New figures show that consumer borrowing has been growing rapidly, and this has worried the Bank of England, as well as the financial watchdog The Financial Conduct Authority (FCA).
Picture: PAPicture: PA
Picture: PA

At a time when wages are relatively flat, and prices are rising, some people are funding their spending by borrowing more on personal loans, car finance, payday loans and, most especially, credit cards. According to the Bank of England’s February report, consumer credit grew by more than 10% in the year to December 2016.

This is supported by stats from Leeds based debt charity StepChange. It says it has seen a rise in the average level of debt levels amongst people coming to them for advice, increasing from £13,900 to £14,251 in a year. Over two-thirds of the people they help have credit card debt – with three credit cards each on average.

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As well as this, the charity says that four in ten people are behind with their household bills - and this number has been rising – adding to the overall debt burden that people face.

What people don’t want to see is a return to the conditions that led to the financial crisis a few years ago. In the run up to 2008, credit was comparatively easy to get hold off, which meant some people were able to borrow too much – and subsequently couldn’t afford to pay it back. Regulators are worried that the rise in borrowing – particularly on credit cards and car finance, might suggest that a similar thing is happening again.

The concern is that with prices rising faster than wages, people’s disposable incomes will be squeezed leaving them with less money to make debt repayments. And, if interest rates rise, that could add to the pressure on households, if they see their repayments increase. If the economy slows and unemployment climbs that could make the situation worse too.

The Prudential Regulation Authority (PRA), which regulates and supervises the largest financial firms like banks and building societies, is monitoring lenders to find out whether there’s been a slide back into the bad lending practices of the past.

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As always, if you’re considering borrowing the advice is to think carefully before you do so. Consider whether you can afford to make the payments, not just now, but in the future. Would you still be able to make them if you were earning less or paying out more for your bills?

Debt Advisory Centre: 0161 871 4881

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