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More property loans

20 January 2005

More people are getting into financial difficulties over debt, the Financial Services Authority (FSA) has said.

There is evidence of a "growing minority of households" experiencing problems as household borrowing grew rapidly in 2004, according to the FSA's Financial Risk Outlook 2005.

This growth in borrowing was coupled with four rises in interest rates by the Bank of England, increasing the cost of loans, making the rise in the number of people in difficulty "unsurprising", according to the FSA.

Yesterday's figures found that 53 per cent of families have unsecured debts, owing £7,065 on average (an increase of nine per cent over last year), mostly on credit and store cards and small loans.

Over a quarter of families have at least one credit card where the outstanding balance is not cleared each month, owing nearly £2,500 on average (14 per cent higher than last year).

But not all lending has increased. Outstanding balances on secured loans have fallen by 11 per cent to just under £5,500 on average.

The FSA says this could reflect increasing debt consolidation by consumers, which often involves remortgaging or equity withdrawal.

Nearly one in five homeowners (19 per cent) have withdrawn equity from their home in the last three years, most commonly through remortgaging or taking out a further advance.

Three in ten said they had used some of the money withdrawn to pay off debts.

Overall, consumer borrowing went up 13 per cent in the year to November, to stand at record levels in absolute terms as well as relative to income.

Of the £1.05 trillion of outstanding consumer debt, £867 billion was made up by mortgages, £58 billion was credit card debt with the remaining £125 billion made up of other forms of consumer credit.