Fears of households over-stretching on borrowing as consumer credit grows
Fresh fears have been raised over debts such as credit cards and personal loans being taken on by households as Bank of England figures showed consumer credit is growing at its fastest rate since 2005.
The Bank's Money and Credit report showed consumer credit increased by £1.9 billion in March, compared with an average of £1.4 billion over the previous six months.
The figures also showed consumer credit recorded a 12-month growth rate of 9.7% in March, up from a rate of 9.5% in February and the highest rate recorded on this measure since late 2005.
Low interest rates have helped people to keep their borrowing costs down, but concerns have been raised that people could be over-stretching their borrowing and that this will become apparent when rates eventually start to go up and the interest on debts becomes more costly.
Howard Archer, chief UK and European economist at IHS Global Insight, said: "March's jump in consumer credit is bound to fuel concern that consumers are borrowing more and saving less to finance their spending.
"Increased consumer willingness to borrow has likely been a consequence of relatively high consumer confidence and extended low interest rates."
Tashema Jackson, a money expert at uSwitch.com, added: "While rock bottom interest rates have helped consumers get great introductory offers and low mortgage rates, it also means the temptation to borrow beyond our means has seldom been higher."
Separate figures released by the Insolvency Service showed that the number of people taking out debt relief orders (DROs) across England and Wales increased during the first three months of 2016.
DROs are an alternative type of personal insolvency to bankruptcy for people with smaller amounts of debt but no realistic prospect of paying it off.
Peter Tutton, head of policy at StepChange Debt Charity, said: "Consumer credit has again risen rapidly and this is an area of growing concern.
"Slow wage growth and the rise in insecure jobs have left millions of households financially vulnerable and we have already seen an increase in the number of people coming to us for debt advice in 2016.
"If consumer credit continues to rise quickly, it risks increasing the vulnerability of households who are already struggling to make ends meet.
"The last time consumer credit increased at this rate was in the lead-up to the recession, when credit was widely available and many households became seriously indebted.
"Creditors must ensure they carry out thorough affordability checks and lend responsibly to ensure that the mistakes made back then are not repeated."
The Bank's figures also showed that the number of mortgage approvals for house purchase edged down in March.
Some 71,357 approvals for house purchase with a total value of £12.7 billion were recorded in March, compared with 73,195 approvals in February.
On April 1, a three percentage point stamp duty hike for buy-to-let investors came into force, and recent reports have suggested that some house purchases were brought forward earlier on in 2016 to beat the tax increase.
Re-mortgaging was up in March compared with the previous month. Some 41,347 re-mortgage approvals with a total value of £7.5 billion were made, up from 40,895 approvals in February.