Around £40 million of debt was written off by banks between April and June totalling £3.5 billion, according to figures revealed by the Bank of England. Credit card debt was the biggest area affected – £2.1 billion was written off, up from £1.3 billion in the first quarter of the year.
About £1.2 billion was written off from personal loans, hire purchase agreements and overdrafts. A much lower figure of £184 million came from toxic mortgages.
Banks write off debt if borrowers are unable to make repayments and the massive rise in figures indicates the current state of consumer finances and the dire straits many people are still facing.
It has been suggested that people who borrowed large sums of money before the credit crunch can no longer keep up with repayments due to unemployment or salary cuts.
Director of personal insolvency at the accountants RSM Tenon Mark Sands said: “We are seeing the impact of the downturn really starting to hit now. It is not necessarily that people have lost their job, but they have lost their overtime, an extra shift or have had a pay cut. They can survive for a while, but suddenly they are tipped over the edge and they cannot cope with their debts”.
Before the credit crunch hit in 2007 write-offs amounted to just £1.9 billion.