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The Bank of England has announced that UK lenders will be scaling back the provision of loans after repeated warnings about unsustainable lending on credit cards, car finance deals and other types of unsecured lending.
The scaling back of credit represents the biggest squeeze on consumer lending since late 2008, when the country was gripped by a deep recession.
Rising prices and low wage growth have contributed to a heavy debt burden in the UK. But the decision to scale back lending could leave some high-risk consumers cut off and unable to afford everyday expenses.
Unsecured lending is a particular area of concern for lenders. A Bank of England survey of lenders found that their expectations for the availability of unsecured lending to households fell for the next three months from -16.2 to -28.6. That is the steepest contraction since the final quarter of 2008.
The reduction in lending comes after warnings from the Bank of England that lenders could make big losses on unsecured debts.
Last month Bank chiefs said that lenders could lose up to £30bn on unsecured lending products including credit cards, personal loans and car finance deals if interest rates and unemployment rose sharply.
The growing reluctance from lenders to part with their cash comes as more and more experts predict a rise in interest rates.
The Bank of England is now widely expected to increase interest rates from 0.25% to 0.5% when they meet on 2 November.
Higher interest rates will make borrowing more expensive for consumers and should reduce demand for credit.
Umbrella’s Licensed Insolvency Practitioner Thomas Fox said: “Research from the Financial Conduct Authority and the debt charity StepChange show that there are many consumers using credit cards and other loans to make ends meet. Consumers who use credit to buy everyday items may find themselves in serious difficulty if they are cut off in the next few months. And that can be dangerous.
“If you are struggling with high levels of debt then it is important that you act to tackle it. If you contact a member of the team, we can help you understand your options.”
For more information on how you can tackle unsecured debts, contact a member of the insolvency team today. Call: 0800 611 8888.