Households now owe £63.3 billion on credit cards and £115.3 billion in other loans, excluding mortgages, as record low interest rates drive up demand for unsecured credit.
Over the year to December, the growth in consumer lending was 8.6 per cent, the highest level since February 2006, according to Bank of England data.
Howard Archer, at IHS Economics, warned that households could be swamped in debt if trends continued. “It is important that consumers do not become increasingly tempted to take on excessive debt and also that bank lending standards do not slip,” he said. “Consumers need to allow for the fact that interest rates could yet start to rise before the end of 2016, even if the increases are likely to be gradual.”
The sharp growth in consumer credit came amid signs that the housing market is warming up. The number of mortgage approvals for purchases was above expectations, rising from 70,410 in November to 70,837 in December, the highest since August. However, net mortgage lending was £3.2 billion, the lowest since July and down on £3.7 billion in November.
Although the annual growth rate of household credit hit a near-decade high, there were signs that the consumer debt boom has peaked. Total net new borrowing in December was £4.4 billion, the lowest since July after a four-month binge since August. Borrowing in November was unusually high because of the Black Friday weekend, when shoppers made the most of deals available online. Growth in consumer credit jumped by £300 million that month to £1.5 billion before settling back at £1.2 billion in December, in line with September and October.
Economists said they remained relaxed about the rise in borrowing as the rate of overall household debt had yet to return to levels seen in the pre-crisis years. The total amount of household debt is £1.46 trillion, £1.28 trillion of which is on mortgages.
“Current rates of unsecured credit growth are not too worrying,” Simon MacAdam, at Capital Economics, said. “There are few signs that households are struggling to finance this growing debt burden.”
