Credit Card debts are still being written off
(For more future updates, kindly subscribe to this blog's feeds via RSS reader or via e-mail.)
While the economy and the housing market seem to be returning to strength, there are some signs that the UK is still having financial problems. One such sign to emerge this week has been the announcement that there has been another rise in the amount of credit card debt being written off by banks and other lenders.
Figures from the Bank of England show that write-offs rose to £1.25bn in the first three months of 2010 which was the second-highest quarterly amount on record.
Last year, a record £4.12bn was written off by credit card lenders, amounting to about 10% of all money lent on credit cards.
The amount of money written off on mortgages fell to £160m, the lowest quarterly figure for 18 months, as house prices rose again and the number of homes being repossessed fell back. The number of repossessions the UK fell by 7.5% in the first three months of 2010, from 10,600 in the last three months of 2009 to 9,800.
This is a great relief, especially for those who were living in fear of losing their home.
Somewhat unsurprisingly, the Bank of England said in its latest Financial Stability Report that losses on credit card lending had been a prime factor in driving up the interest rate margin charged on them.
Its statistics show that the average UK credit card rate was 16.51% in April this year, slightly higher than in July 2007 when it was 15.2%.
But in that time bank rate has fallen from 5.75% to just 0.5%, where it has been since March 2009, giving the card companies a much larger cushion.
With the amount of debt being written off still high it seems unlikely that lenders are going to drop their rates soon. Would be borrowers are still advised not to use credit cards in the current climate unless they can make interest free payments on time because the costs of this type of borrowing is still much too high.
As the economy continues to stabilise the card companies will eventually have to drop their rates. However, with unemployment still high and the ever-present temptation for cash-strapped people to rely on their credit card, the companies know that for the moment, the high rates mean high profits.
