More consumers are defaulting on credit according to the latest figures supplied to the Bank of England by high street banks.
Customer defaults on credit cards, personal loans, overdrafts, and car finance has seen the biggest surge since early 2009 following the financial crisis.
The Bank of England’s latest Credit Conditions Survey has shown that 24.4 per cent more lenders reported default rates on credit cards rising during the last quarter, and the banks expect the figure to only get worse over the summer.
Defaults on other unsecured borrowing, including personal loans and car finance, has shown an even larger rise, with 30.3 per cent of lenders reporting an increase in missed payments.
Close to ?200 billion is now owed in consumer credit, equating to about ?7,700 per household, not including mortgages.
Lenders have confirmed that they intend to clamp down on consumer credit over the next quarter in an attempt to reduce risky lending.
Part of the plan is to reduce interest-free periods on credit cards, a practice that the Bank of England has voiced concerns about, saying that the interest-free deals are helping to fuel the consumer credit boom.
The fear is that many consumers will be unable to pay off these debts when the interest-free period ends, particularly if interest rates rise from the current historical lows.
Despite lenders insisting that they have become stricter with their lending criteria, these latest figures from the Bank of England confirm short-term household debt rising at the fastest rate in twelve years.
The Bank has instructed lenders to reveal what high-risk loans they have, with possible disciplinary action for those who fail to set out plans to address concerns by the end of the third quarter.
Former pensions minister Baroness Altmann commented: ‘This rise in default rates on loans and credit cards is another siren warning of trouble ahead for over-indebted consumers.’