Banks forced to write off �40m a day in family debt
Daily Mail UK (Link) - Becky Barrow (September 1, 2010)
Cash-strapped families are being overwhelmed by debts they can never afford to repay, figures revealed yesterday.
Between April and June banks and building societies were forced to �write off� �3.5billion, around �40million every day, the largest amount since records began.
The alarming Bank of England figures highlight the nightmare facing millions who borrowed money before the credit crunch to fund a lifestyle they could not afford.
The largest chunk of write-offs - a record �2.1billion - was credit card debt, with many spending more on the High Street in a day than they earn in a month.
A further �1.2billion came from overdrafts, personal loans and hire purchase agreements. Just �184million was from �bad� mortgages.
Before the credit crunch struck in 2007 the bill for write-offs, where lenders accept they will never be repayed, came to just �1.9billion.
Yesterday debt experts insisted the figures prove that although the recession is over, its impact is only now emerging as unemployment rises and pay remains frozen.
Mark Sands, director of personal insolvency at the accountants RSM Tenon, said: �We are seeing the impact of the downturn really starting to hit now.
�It is not necessarily that people have lost their job, but they have lost their overtime, an extra shift or have had a pay cut.
�They can survive for a while, but suddenly they are tipped over the edge and they cannot cope with their debts.�
He predicted the number being plunged into insolvency would hit 140,000 this year, the highest ever.
Michael Saunders, an economist from the investment bank Citigroup, said: �The reason is simply - we borrowed too much money and people are losing their jobs.�
Over the past two years, nearly 800,000 have become unemployed, with many more set to follow as the Government�s austerity measures start to bite. To make matters worse banks and building societies have also been increasing the interest rates they charge on loans, credit cards and overdrafts.
This is despite the Bank of England keeping the base rate at 0.5 per cent, the lowest in history, since March last year.
Since then the average rate on a �5,000 personal loan has jumped from 12.15 per cent to 13.14 per cent. Average rates on credit cards are up from 15.7 to 16.7 per cent and overdrafts are up from 18.6 to 18.9 per cent.
Meanwhile, a report from online debt forum iva.co.uk has revealed the �shocking depth of despair� among many who have been plunged into debt.
It found 30 per cent have considered suicide or self-harm �in response to the stress caused by being in debt� and one in four have turned to �excessive use of alcohol or drugs� to try to cope with the problem.
The majority of those who took part in the poll had debts of more than �55,000, double the average salary in the UK.
Half blamed their debts on �overspending�, with many using easy credit to fund a lifestyle they could not afford.
Forum spokesman Andy Davie warned: �The number of people in serious debt is only going to increase.�
A spokesman for the Consumer Credit Counselling Service debt charity said: �We think a lot of the pain caused by the recession has been deferred. �Once interest rates start to rise, which they inevitably will, or there are mass public sector job cuts, the situation is going to get even worse.�
Before the credit crunch, a typical �150,000 mortgage cost �1,127 a month on a standard variable rate of 7.69 per cent.
Today it costs just �785, but is guaranteed to go up if the expected rise in interest rates takes place.
A spokesman for the British Bankers� Association said: �In a recession, it is inevitable there will be write-offs as a result of people�s financial circumstances changing. But, throughout the reporting season, the main banking groups have held the view that the worst of these impairments should be behind us.�