Banks braced for £7bn hit of bad debt as crisis bites

BANKS are preparing to cover the cost of £7 billion of unsecured loans over the next two years as the cost-of-living crisis bites.

The amount of debt is expected to be around a third higher than levels before the pandemic.

But a sudden rise in the price of household staples and energy bills has slashed household spending power, leaving some squeezed borrowers struggling to repay credit cards and loans.

The news heaps pressure on Chancellor Rishi Sunak to do more to help families cope.

Banks are setting aside billions of pounds to cover the steep rise in bad debts. Analysis by stockbroker AJ Bell for The Mail on Sunday found provisions for impaired loans at Lloyds, which accounts for about a fifth of lending in the country, are expected to rise from £820million this year to more than £1.3 billion by 2024.

Anna Anthony, partner at accountancy firm EY, said: ‘Households are already feeling the cost-of-living squeeze and unfortunately this is set to worsen in the coming months.

She also pointed out the expected peak in default rates on consumer loans is still way below the level hit in the aftermath of the 2008 global financial crisis, when 5 per cent of all unsecured debt was written off.