Borrowers race for cash, personal debt soars
Consumers are rushing to borrow what they can as the credit squeeze continues and cheap re-mortgaging deals disappear.As a result, credit card debt increased by £350 million and bank loans and overdrafts soared by £2 billion in February. According to figures from the Bank of England, this represents the highest monthly increase since records began in 1987.
Tracey North of uSwitch.com said people are grabbing what credit they can. According to City economists, the increase in consumer borrowing was caused by the re-mortgage ‘tap’ being turned off by lenders because of the global financial crisis.
Internet bank, first direct, announced earlier this week that it has temporarily withdrawn all its mortgage products as it tries to clear a backlog of customer applications.
Alliance & Leicester and Scottish Widows have both curtailed their product ranges and Northern Rock recently set its new mortgage rates at uncompetitive levels, in a conscious effort to drive away new business.
Furthermore, the Co-operative Bank has withdrawn its two-year mortgage deals while Lehman Brothers, the US investment bank, is also withdrawing from the UK mortgage market.
Instead of being able to spend the equity in their homes, struggling families are having to seek more expensive forms of credit. However, the worry is that once borrowers have used up all means of credit, some could be forced into insolvency or have to give up their homes.
Howard Archer, chief UK economist at Global Insight, said February’s increase in consumer borrowing is very surprising and could be a consequence of people looking to borrow while they can amid fears that tightening credit conditions will make this increasingly difficult over the coming months.
Liberal Democrat shadow chancellor, Vince Cable said it is becoming evident that the downturn in the property market is much more than just a blip. As the credit squeeze continues to restrict lending and with many people saddled with masses of personal debt, a dramatic fall in mortgage approvals was inevitable.
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