Britain becomes 'never, never land' as personal debt runs out of control

There are increasingly worrying signs that many borrowers are struggling to stay on top of repayments. The average person has debts that total 150 per cent of their annual income, according to the Bank of England, half as much again as in 1997.

The Bank believes around one million households face problems coping with debt repayments - around 10 per cent of the four in 10 households that have unsecured borrowing.

A report from Citizens Advice earlier this month said 770,000 mortgage borrowers had missed at least one mortgage repayment over the past year, while two million homeowners said they were concerned their finances would not stretch to cover their debts.

The charity said younger people were particularly vulnerable, with mortgage-holders aged 21 to 24 the most likely to default.

The latest figures from the Government's Insolvency Service, published last month, have also unnerved debt campaigners. The numbers becoming insolvent in the second quarter of the year reached 26,000, a 66 per cent rise on the same period in 2005.

Borrowing difficulties have already begun to affect the housing market. Britain's housing boom has saddled newer homeowners with far larger mortgages. Figures from the Hay Group consultancy , published yesterday, showed the typical borrower now spends 51 per cent of monthly pay on mortgage repayments.

The Council of Mortgage Lenders said the number of homes repossessed in the first half of the year was 8,140, the most for more than five years.

At the same time, there is evidence that Britain's biggest banks, which have all reported a rise in bad debt in recent months, are cracking down on consumer credit. Two weeks ago, for example, HSBC said it would introduce annual reviews of all its customers' overdrafts, with cuts to many borrowers' overdraft limits likely to follow.

Alice Douglas, 42, writer: 'We were happy with a £60 TV. Now we spend £1,500'

"Seven years ago, I moved to Wales for a change of lifestyle," says Alice Douglas, 42, a writer from Snowdonia. "I bought a 4,000 sq ft church for £54,000, which was incredibly cheap, because it needed renovation work, but I had never done a big building project before. I thought I'd be able to do the structural work for £80,000 but I've had to spend £300,000. I didn't think of the cost, and even things like floor tiles for the kitchen ended up costing £5,000 because they were limestone, and I spent £25,000 on windows.

"I used every credit card I could get. At one point, I had 10 different credit cards with £8,000 on most of them, so that my debt was up to £60,000. It was all about to collapse until my mortgage company valued my property, which has massively increased in price.

"I still have about £30,000 on my credit cards, but I've just learned to juggle them. Once you've got them, there's too much temptation and you get used to a lifestyle where you want to have lots of things. We used to be happy with a £60 television set, but now we spend £1,500 on a 38-inch LCD.

"You get sucked into it, and get used to spending large amounts without thinking about it, because it's on a card. It does make a different because it doesn't feel like real money. If it did feel real, it would feel obscene. I went to London recently and spent £3,000 in Whistles, on clothes. I'm about to buy another property with an 85 per cent mortgage and I'll get the deposit on credit card.

"It's a gamble but it could pay off. If you're shrewd, you can use it to your advantage. My credit rating is very good because I borrow a lot but I'm able to make my payments. It used to stress me out but now I think, if I lose everything, it wouldn't be the end of the world."

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