Banks in the UK are hiking the cost of borrowing as increasingly more and more people are defaulting on their borrowings. This has been revealed in the latest report of Bank of England.

As a result, credit-card charges as well as the interest rates of personal loans have increased substantially from the beginning of May 2009. Personal loans start at 8% even though the Bank of England base rate is only 0.5%.

Above 30 million Britons own a credit card, according to the UK Payments Association, the payments industry body.


It has also been revealed that bankers rejecting more applications and slashing credit limits. They fear the trend may continue for some more time.

People with a poor credit rating are finding it increasingly hard to get credit at competitive rates.

According to analysts, banks think bad debt will rise as unemployment is increasing and more people won’t be able to keep up their repayments. Hence, they have increased their rates in order to build up funds to cover these bad debts.

Some banks had reserved their best mortgage rates for people with 40% deposits. These are now being offered to those who can put down 25%.

This will come as a sudden shock to thousands of borrowers who are reliant on their credit cards to get them through to their next pay packet.


The contraction of Britain’s building sector accelerated again last month, and construction orders over the three months to May also dropped, adding weight to fears that the UK economy may take longer time to recover.

Office of National Statistics (ONS) figures show construction industry orders falling by 1 per cent compared with the previous three months, and 30 per cent year on year.

There have been few signs of lenders making more credit available. Hence, analysts continue to be skeptical about lending to rise enough to support a strong and sustained recovery in the wider economy.

However, according to a Bank of England report, there is a slight increase in the availability of lending in the three months to June, though unsecured credit has declined.

According to the bank, credit availability to households and companies is expected to improve over the next few months. Weak demand for credit is thought to be more of the problem now.