Millions set for new year ‘financial hangover’

11 December 2007

Banks likely to hike up credit card rates next year

The new year will see the squeeze on money markets hitting British households.

The last three weeks of November were warned to be the worst on record because banks refused to lend money to each other.

Consumers are predicted to be the casualties in this matter as the anxiety gets passed on to them in the form of steep rises in interest rates.

This Christmas, it is estimated that shoppers will put a record £11.7bn on their credit cards. A former managing director at Citigroup, Peter Hahn, said: “Banks will be more capital-conscious and wary of risk. If you are a borrower, you will have to pay higher rates.”

This hike in credit card rates will only add to the pressure faced by households that are already financially stretched to the limit by rising utility rates and increased mortgage repayments.

On top of the rising interest rates, consumers are also finding it harder to get credit as banks turn down a higher percentage of credit card applications in hopes to limit their exposure to debt. Currently, banks reject between 40 and 50 per cent of applications. Last year, this figure was around 33 per cent.

The people likely to suffer as a result of this are those that move their debt between cards to take advantage of short-term deals.