By Elliot Wright, 19th January 2010
The amount of money owed on credit cards being written off as
bad debts by banks rose dramatically last year.
Figures from the Bank of England show the total value of credit
card debt write-offs doubled to £1.6bn in the third quarter of
2009.
£3.2bn was written off in total on bad credit card debts during
the whole of 2008, but that figure was achieved within the first
three quarters of 2009 with £800m reached in each of the first two
quarters.
The figures highlight the impact of the recession as banks
acknowledge that they will never be repaid by defaulting
borrowers.
By contrast, the value of mortgages written off averages just
£260 in each of the first three quarters of 2009.
Banks and other lenders set aside many billions of pounds each
year to cover potential losses on credit cards, mortgages,
overdrafts and personal loans.
The figures do not bode well for credit card interest rates as
lenders and banks look to recoup their losses. The Bank of
England's figures show that as of last November, the average credit
card interest rate was 15.89% compared to just 3.98% on an average
standard variable rate mortgage.
The average credit card interest
rate is 15.89% compared to just 3.98% on an average standard
variable rate mortgage
David Black of the financial consultancy Defaqto said: "For the
past four years, banks have been much more cautious about who they
will lend to. HSBC, NatWest and RBS will only offer new credit
cards or unsecured loans to their current account customers.
"Banks also want to sweep bad news into one year's accounts to
make future years look better."
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