Bankrupt

Britain's banks have been forced to write off a record chunk of household debt in the past year in the latest sign that families are struggling to keep up their repayments.

Lenders from around the country wrote off some £6.8bn in individual debts last year, statistics from the Bank of England reveal. It is the biggest annual total since records began in 1993, more than doubling in the past five years.

The news coincides with figures from Nationwide showing house prices are now suffering their worst streak since 2000, after falling for a fourth month in February.

With the credit crunch making it harder than ever for banks to seek funding in the City's money markets, they are clamping down on borrowers both by raising their mortgage rates and increasing the pressure on borrowers to pay back their debts.

Alan Clarke, UK economist at BNP Paribas, said: "This is certainly a sign that households are already struggling. The debt burden is high, and you would expect write offs to rise as a result.

"But it's still early days and there's more bad news in the pipeline. We haven't yet seen arrears starting to bite, and if these numbers look bad now, they'll look even worse in a year's time. There are plenty more dead bodies out there."

Experts said the increase in write-offs could also be a consequence of the new insolvency arrangements which came into place a few years ago.

The figures showed that banks classified a total of £2.1bn as bad debt in the final quarter of 2007, of which £1.6bn was consumer debt. Only a small fraction of this was mortgage debt, with the majority accounted for by credit card and other unsecured debts.

Although the number of families having their homes repossessed remains low in comparison with the peaks reached in the crash of the early 1990s, it has been rising fast in recent years. With families facing the biggest squeeze for more than 25 years by a combination of higher mortgage rates, rising food prices and the increasing tax burden, experts anticipate a coming wave of defaults.

Capital Economics said its own measure of bad debts, which takes into account the Bank's figures as well as business write-offs, had fallen towards the end of last year - largely because of an improvement in the corporate figures. However, analyst Vicky Redwood said they would soon start to rise again

In a further sign of the housing market's continued weakness, the Bank also revealed that the number of new mortgages being approved for homebuyers in January remained close to the recent nine-year low they plumbed in December. Lenders handed out 74,000 loans for house purchase - the second lowest since records began in January 1999, and only 2,000 higher than the previous month.

The pound slipped to a new low against the single European currency, with one euro costing 76.31p by the end of the day. However, the dollar's continued weakness meant it remained close to the $2 mark.

Philip Shaw, chief economist at Investec said: "This confirms the weakness of the housing market. It's a message we'll have to get used to because the market is likely to deteriorate further."

The total amount of mortgage debt lent by banks in January dropped to £7.4bn - the lowest figure since July 2005.

Nationwide said house prices dropped by 0.5pc in February, taking the annual rate of growth to just 2.7pc - the lowest since late 2005.