UK Interest Payments Hit New High
Interest payments by UK consumers has jumped by £12.7bn to a massive £93bn a year - a record - once again stirring fears for the finances of UK families.
The £93bn figure suggests that Britons could be left under a welter of debt, with household bills rising at the same time. According to one study, almost 25% have admitted that repayments on their current debts are not manageable.
At the same time almost ten million cardholders have hit the limit on their credit card borrowing, or overdraft or loans in the last six months. Apparent heavy spending for Christmas and in the sales will only stretch family finances even further.
The study, carried out by personal finance website uSwitch.com, into repayments says that the average household bill for interest - which includes mortgages - is £3,744, up by 16% or £517 in the last 12 months. Britain has a total debt mountain (and never has the term been more appropriate) of £1.35 trillion, taking into account mortgages, credit cards, overdrafts and personal loans. Five interest rate rises between August 2006 and July 2007 increased debt pressure, until the Bank of England cut the base rate by a quarter of a point in early December. However, that quarter point reduction has not been passed onto customers by many mortgage and loan providers as they seek to protect their profits and cash flow in the wake of the credit crunch.
Although Britons seem to be carrying on with the big spend and borrow trend, banks and building societies are taking a tougher line on credit and more applications are being rejected. Nearly four in ten were turned down in the past six months. Twenty percent of personal loan applications were rejected.
The study also found that 6% of credit card holders have had their credit limit reduced.
Mike Naylor at uSwitch said that people with big debts should take action to protect themselves, suggesting that savings could be made on interest payments by consolidating debts into one unsecured loan. He said: "If consumers don't act now to sort out their finances, they could find themselves caught in a spiral of debt with no way out. People have enjoyed easy access to cheap credit for quite some time, but for some, the party really could be over. The base rate reduction is a step in the right direction, but it could be too little, too late for people in real financial difficulties."
More than 6,000 people a day seek help from Citizen's Advice for debt problems, which is a 25% increase on 2006. uSwitch say that this “indicates that debt problems for UK consumers could be getting out of control."
KPMG expects 130,000 individuals to either go bankrupt or seek Individual Voluntary Arrangements in 2008. In the 12 months to September 2007, the figure was 111,000.
Sadly for consumers, some providers are seeking to cash in on their troubles. The company behind the Marbles credit card, with 338,000 account holders, has announced huge interest rate increases, rising by 4% for purchases and 6% for cash withdrawals, to 26.9% and 33.9% respectively.
Published on January 4, 2008
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