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Household debt bubble hits £198bn and it’s close to bursting: Average home now owes £7,300 after spenders go on a borrowing binge

Britain’s enormous debt bubble is on the brink of bursting, experts are warning.

Spenders have embarked on a marathon borrowing binge, racking up unsecured debts of £198.4billion on cards, car finance and overdrafts.

That is the highest figure ever recorded by the Bank of England aside from 2008 – the year banks collapsed and the recession began.

In November last year the figure was £6billion lower. The average household now owes £7,300, or more than three months’ pay.

Spenders have embarked on a marathon borrowing binge, racking up unsecured debts of £198.4billion on cards, car finance and overdrafts

Consumer groups and politicians last night condemned banks for offering ultra-low rates to lure customers into deals.

And they demanded that City watchdogs rein in the spending spree before it is too late.

Former City minister Lord Myners said: ‘Should the Bank of England be worried about the growth in consumer credit? Yes.

‘The quality of lending is declining, and the capacity of people to meet their commitments is declining.

‘The Bank should already have started to introduce restrictions on credit availability. As time goes by, it becomes harder and harder to understand why they don’t act.’

Credit card spending surged to a record high, hitting £68.1billion last month – a 9.7 per cent rise on the previous year.

On average, each household now owes more than £2,500 on cards alone. There are fears that this spending spree is fuelled by banks offering long zero-interest deals to lure customers.

Millions of workers say their savings would last them just one month if their income stopped, a survey reveals.

People estimated their rainy day money would stretch for only 32 days on average but 26 per cent of employees admit their current savings would last just a week or less, insurer Legal and General found.

Those living in London and south-eastern England say their so-called ‘deadline to the breadline’ time is a mere 31 and 29 days respectively.

Workers in Northern Ireland are the best prepared with 36 days of breathing space, the poll of 2,000 full and part-time workers shows.

More than 22 per cent of people have less than £500 in savings and 23 per cent save none of their income each month.

Richard Kateley, of Legal and General, said: ‘We rent our lifestyles and pay for it each month through earnings. Take away those earnings and it may not just be your house you are thrown out of.’

The best deal available comes from MBNA, which has just been bought by Lloyds and offers a 42-month interest-free period for balance transfers, where debt is transferred from an old card.

A spokesman for debt charity StepChange said: ‘Alarm bells should be ringing and we have to ask ourselves whether we’ve learned the lessons from the credit boom before the crash. Someone needs to be looking out for what this will mean for ordinary households.

‘We know that rapid increases in unsecured borrowing will mean more people struggling with problem debt in future.’

Car finance is also a key part of the surge in consumer credit, with loans for vehicles at an all-time high.

Motorists spent £3.6billion on the deals in March, up 13 per cent on a year earlier, says the Finance and Leasing Association.

Much of that is being blown on controversial personal contract purchases, where a customer puts down a deposit for their car and pays monthly instalments.

At the end of the contract, they return the car to the dealer and are paid some cash back based on how much it is worth on the second-hand market.

There are fears that used car prices could plummet as demand drops, particularly if a crackdown on diesel vehicles makes them less attractive.

That could crash the market as customers at the end of a contract will have no deposit to start a new one. The problem is already taking hold in America, where there are £880billion of outstanding car loans.

More worryingly still, both in the UK and across the Atlantic, car loans are being bundled up together and sold on the securities market to pension funds and other big investors. This trade was worth at least £5.8billion in the UK last year.

It has echoes of the run-up to the financial crisis in December 2007, when it became clear that subprime US mortgage securities were essentially worthless.

Credit card spending surged to a record high, hitting £68.1billion last month – a 9.7 per cent rise on the previous year