More and more people are turning to consumer credit, as figures released today by the Bank of England show an annual increase of 3.5%.
Households are increasingly turning to personal loans and overdrafts in order to maintain their living standards, as wages continually fail to rise with living costs. The Bank of England is reporting the fastest increase in the use of consumer credit - credit cards, overdrafts and unsecured loans - since December 2008 when the financial crisis began.
Consumer credit increased by £600m in July, up from £400m in June - the bulk of this increase being in “other loans and advances”, which includes overdrafts and personal loans.
These figures, alongside a growing public concern over payday loans, can be seen as further evidence of a willingness among consumers to turn to expensive borrowing. Personal loans come with average interest rates of over 7% - way above the Bank of England base rate which remains at 0.5%.
This year has also seen a rise in the number of mortgage approvals, which increased to their highest level since March 2008. This, and other signs that the housing market is picking up, has been welcomed by many. However, when coupled with an increased reliance on consumer credit, this boost in the property market has led some industry experts to raise concerns that Britain’s recovery is perhaps built on shaky ground.
John Longworth, the director general of the British Chamber of Commerce, highlighted the dangers of premature optimism:
“We have had false dawns in recent years and although this upturn appears to be on stronger ground, we must be aware that complacency could lead to setbacks.”
Government schemes like Funding for Lending and Help to Buy have been partly behind this revival in the market, but some mortgage professionals and economists have raised concerns about their long-term effects. It has been suggested that the schemes are artificially pushing up property prices and borrowing levels, creating a housing bubble that will eventually burst.