50 per cent of people regularly need to borrow money to make ends meet, rising to 70 per cent of under 30s.
The recent interest rate rise from The Bank of England from 0.5% to 0.75% comes just when news that UK households are spending more, on average £900 more each year, than they earned for the first time in 30 years, according to a report from the Office of National Statistics.
Research has shown that much of this overspending is done on credit cards because people are having to use credit to pay basic bills and credit card lending continues to rise growing faster than other loans for the past 6 months. Both mortgage lending and consumer credit saw rises in June.
The Bank of England’s latest data shows annual growth rates remained the same last month, at 8.8% for consumer credit and 3/2% for mortgage lending.
The Bank reported that mortgage lending “remains modest compared to the pre-crisis period.”
Although, they also reported the number of mortgages approved in June was 66,000, close to the average since the end of 2013.
The Bank also said credit cards have been accounting for an increasing share of consumer credit growth over the past couple of years, with the growth rate of credit card lending exceeding that of other loans and advances such as overdrafts and car finance with credit card lending rising by 9.5 per cent.
Excluding 0% promotional deals, there is £36.9 billion of credit card debt in the UK . It is estimated with the rate rise of 0.25% it will cost borrowers a combined £92.25 million in extra interest charges per annum.
Younger people most affected.
Concerns have been raised that this will affect younger people the most who rely more on cheap lending to make ends meet. The availability of cheap debt is likely to diminish. With seven in ten young people borrowing just to pay the bills, it’s hardly surprising that a rate rise could see young people struggling with debt.
More people are now having to rely on their credit cards just to get by. One report, found that 50 per cent of people regularly need to borrow money to make ends meet, rising to 70 per cent of under-30s.
The trade body for the insolvency profession, R3, found in their research that almost half (44 per cent) of those aged 25-44 have an outstanding credit card balance, compared to 26 per cent of over-55 year olds.
Household debt has also risen to over £13,000 since 2017 with those in the 25-44 age group thought to now owe more than £14,500.
Alec Pillmoor, personal insolvency partner at RSM said: “Over the last decade, a whole generation of new borrowers has enjoyed ultra-low rates, but as normality starts to return and rates begin to rise, so will the repayment demands.”
“This might only be a quarter percentage point rise, but for those who are already struggling to meet monthly mortgage, loan and credit card repayments, it could be painful.”