UK Finance has this morning published new data showing that outstanding balances on credit card accounts grew by 9.5% over the 12 months to February. Newspage asked brokers for their views and whether they’re seeing evidence of this.
One said: “Many of the borrowers I deal with have far more unsecured debt these days, often worrying amounts, which they are then looking to consolidate into their mortgage.”
Another added: “Unfortunately, this rise in balances isn’t due to lavish spending and extravagant lifestyles. It’s just day-to-day living.”
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Simon Bridgland, broker/director at Release Freedom:
“This data explains why so many brokers are needing to arrange product transfers instead of getting clients the very best deal in the market via a remortgage.
“The level of personal debt some clients are paying is vast. Many of my clients clear less than half their balances each month and so they have no choice but to stay with the current lender, in a no-questions-asked scenario.
“Thankfully lenders have been pretty switched on in recent years and offer some very good transfer rates compared to their new rates, which does help significantly.
“But if the client wants or needs to change lender then it cannot always be done, which is another reason we have so many people caught in the grasp of closed book lenders, unable to do anything but sell.
“Ultimately the client is still saddled with blistering payments in some circumstances with no real solution other than to perhaps downsize which is often impossible.”
Riz Malik, director at R3 Mortgages:
“This data is not surprising. People are relying on their credit cards to supplement their daily expenditure as the cost of living crisis continues and higher interest rates apply serious pressure.
“What is even more concerning is the cost of borrowing on cards seems to be creeping up as well, leaving people close to entering a debt spiral. It will be interesting to see what happens to credit card rates when rate cuts appear.”
Michelle Lawson, director at Lawson Financial:
“More money on plastic is completely unsurprising giving the rising costs of living and higher interest rates. Many of the borrowers I deal with have far more unsecured debt these days, often worrying amounts, which they are then looking to consolidate into their mortgage.
“The regulator should really look at how borrowers can rack up such dangerous amounts. Some lenders will approve multiple loans and credit cards for an applicant with no or little protection or affordability for the more financially vulnerable.”
Ben Perks, managing director at Orchard Financial Advisers:
“For many, managing the monthly finances has turned into a white knuckle ride over the past 18 months. It is therefore unsurprising that credit card balances are rising. Unfortunately, this rise in balances isn’t due to lavish spending and extravagant lifestyles. It’s just day-to-day living.
“Leading debt charity Step Change reported that one in four borrowers are using credit to pay mortgage payments. Until the cost of living crisis eases and rates come down, this will continue and most probably worsen. The alarm bells are almost deafening but it seems the Bank of England cannot hear them.”
Justin Moy, managing director at EHF Mortgages:
“This is just the tip of the credit iceberg, with many borrowers using unsecured credit to pay basic bills and keep up with rent and mortgage payments. Also, with 0% balance transfer options dwindling, the need to consolidate onto mortgage borrowing has never been so prevalent, as borrowers look to avoid 30% card interest rates.
“With the recent Barclaycard change to minimum payments likely to be replicated by others in the coming months, paying less each month will always be appealing, but that debt hardly gets repaid, just adding to households’ financial hardship long-term.”
Dariusz Karpowicz, director at Albion Financial Advice:
“The squeeze on home budgets, which we all know about, is possibly bigger than expected. 10% more debt in 12 months is a massive rise. This cannot end well. Many borrowers now carry significantly higher amounts of unsecured debt and are increasingly looking to consolidate this debt into their mortgages.
“Unfortunately, this increase isn’t from exuberant spending but from the costs of day-to-day living. It’s a troubling trend that highlights the growing financial pressure on households and underscores the need for careful financial planning and management.”
Ross Lacey, director & chartered financial planner at Fairview Financial Management:
“Lenders will often make an assumption on what the monthly payment is based on the credit card balance eg. 3%/5% of the current balance.
“This is irrespective of whether it’s a 0% interest card or what payments they are actually making, so it can sometimes stop borrowers getting the mortgage they need.
“Some lenders also have “debt to income” calculations they do, and too high a proportion of debt/monthly payment in relation to salary can be a deal-breaker.”