Loan spree as personal debt rises to E5,800

Ian Guider

The amount owed by individuals, which excludes mortgage debt, rose by E700 from 2004 with more people prepared to borrow to fund their lifestyle.

The number of people taking out loans rose from 33% of the population in June 2004 to 36% this year.

Those struggling to maintain repayments has also risen, with one-in-five finding their debts a "heavy burden" on their finances.

Up to 150,000 people could face significant strains to repay their loans if there was a sudden rise in interest rates or a downturn in the economy, said the report.

Those most vulnerable are on lower incomes, particularly individuals on less than E25,000 a year, and over the age of 40.

Austin Hughes, chief economist of IIB Bank, said many more people were borrowing more to compensate for the fact that salaries were not rising as quickly as in recent years.

Though the figures will cause alarm, Mr Hughes said the level of debt here was not as high as in Britain or the US and was still near the European average.

He said it was inevitable that personal borrowing would rise as interest rates are at a 60-year low and "more people are getting used to debt" to pay for cars, home improvement and holidays.

Irish people have not gone on a major spending spree, as two-thirds of borrowers pay off their loans every month, while 40% of loans are for home improvement and investment.

However, the burden on home owners is also increasing, the report states. The average monthly mortgage repayment rose from E500 in 2004 to 595 this year as house prices continue to soar.

However, the majority of people are less concerned about repaying their mortgage than personal borrowings.

The rise in house prices has also tempted many people to borrow on the back of the value of their home with a fifth of mortgage holders taking out extra loans for home improvement and repairs.

Yesterday's report will do little to soothe the fears of the Central Bank, which has been warning for some years that people are overstretching themselves. It is expected to reiterate that position when it publishes its 2004 annual report this morning.

Figures from the bank earlier this year showed that, for the first time, total borrowing (personal and mortgage debt) had exceeded the average annual income.

Little can be done to rein in personal borrowing as interest rates the only way to curb lending by financial institutions are set by the European Central Bank.