Shoppers face Christmas credit squeeze as average Briton is now £33,000 in debt

 

By SEAN POULTER - More by this author » Last updated at 09:19am on 26th November 2007 Comments (1)

Squeeze: Shoppers will find it difficult to obtain credit in the run-up to Christmas

 

 

 

 

Shoppers will find it harder to borrow money to pay for Christmas as a direct result of the global credit crunch, it has been claimed.

Acountants PricewaterhouseCoopers say banks will turn down an increasing number of applications for loans, credit cards and overdrafts.

The organisation warns that there will be a spike in the number of people going bust in the New Year as a direct result of the credit squeeze.

The firm said average household debt, including mortgages, has almost doubled in just the past seven years from an average of £17,000 per adult to £33,000.

It says the situation will be exacerbated by the fact that 1.4 million people will come off cheap fixed rate mortgages in the next 12 months.

This will add an average of £140 a month to mortgage bills for those who fail to find a new cheaper mortgage deal.

Some could see their monthy payments rise 60 per cent.

Banks have redrawn their lending rules over the last two months in a move that will make it much more difficult for those carrying heavy debts to borrow any more.

Major companies, such as Barclaycard, are turning down as many as 50 per cent of all new customer card applications.

Partner at the firm, Richard Thompson, said: "There are tough times ahead for both consumers and credit card companies.

"Banks are continuing to take action in response to the rise in consumer debt by tightening their credit acceptance policies.

"Many consumers will find it increasingly difficult to obtain credit in the run-up to Christmas."

Total personal consumer debt in the UK, including mortgages, has hit £1.3 billion amid a consumer spending boom fuelled by easy credit.

This is up by some 9.5 per cent on 2006 and has largely been driven by the fact house buyers have had to take on huge mortgages because of spiralling house prices.

In 1991, the average loan taken out by a first-time buyer was around £37,000, which was an average of 2.34 times gross income.

Today the average loan is just under £119,000, which is 3.38 times income.

Some young buyers have taken on loans of five or six times their income which has put huge strain on their finances.

The housing charity Shelter recently reported that as many as one million people have paid their mortgage or rent with a credit card in the past year.

This is a ruinously expensive way to borrow, for it can generate interest rates of more than 25 per cent and heavy fees.

A tough line on lending by the banks could well cause a sharp fall in consumer spending with disastrous consequences for retailers in the run-up to Christmas and the wider economy.

City economists are already predicting that UK economic growth will fall back from more than 3 per cent this year to some 2 per cent of less in 2008.

The Council of Mortgage Lenders has suggested there will be a 75 per cent rise in home repossessions this year, taking the figure to around 30,000. It believes the figure could hit 45,000 next year.

PwC believes there could be a spike in personal insolvencies next year as a result of over-borrowing by consumers.

This in turn will lead to an increase of the amount of bad debt losses suffered by credit card companies and others.

The organisation calculates that credit card companies have lost profits of £4 billion because of bad debt and the fact they have been forced to cap customer penalty fees at £12.

Mr Thompson said: "We believe that it is only a matter of time before annual fees on cards becomes the norm."

The news comes as new figures show the the cost of Christmas dinner at home will rise on average by £2 per person

Organic turkey sales are expected to soar by 46 per cent while the overall Christmas turkey market is tipped to increase by 7 per cent to £42 million.

Brussels sprouts sales are also set for a 7 per cent increase with shoppers expected to splash out £12 million on the vegetables.

The festive predictions, produced by the British Retail Consortium (BRC) and market analysts Nielsen, show a £169 spend per household on festive food and drink.

That figure is up 4 per cent on last year - only marginally more than the 3.7 per cent year-on-year food price inflation revealed last month.

The rising cost of Christmas dinner is greater than the 4 per cent average food and drink upturn because of the rising cost of sprouts and potatoes caused by the wet summer.

Turkey will cost more due to spiralling feed costs and more households will trade up to more expensive organic turkey, the BRC predicted.

Overall sales of Christmas-related goods are predicted to hit nearly £12 billion this year - up 5 per cent on last year.

Shoppers will splash out 12 per cent more on festive gifts at £435 per head, according to the BRC's forecast.

So to counter-act me, there is a Briton who is £66,000 in debt.

So to counter-act me, there is a Briton who is £66,000 in debt.

 

Correct.:rolleyes:

Although make that £65,800 as I owe my credit card company 200 quid :P

Although make that £65,800 as I owe my credit card company 200 quid :P

 

:stunned: