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Creditfix LB 03-2017

Bank of England Warns Again Over Consumer Credit

The Bank of England has once again warned that the rise in personal consumer credit must be guarded against by lenders.

In a speech this week in Liverpool, Alex Brazier, the BoE’s executive director for financial stability, said that while lending overall has grown in line with the British economy, outstanding car loans, credit card balances and personal loans have risen by 10pc, far outpacing rises in income.

Mr Brazier commented that in a period of good economic performance, banks think they can reduce prices and loosen lending criteria.

He said: ‘Lending standards can go from responsible to reckless very quickly… Lenders have not entered, but they may be dicing with, the spiral of complacency.’

The governing bank has already announced that they will be supervising banks and lenders closely and ensuring that mortgage lending standards are tightened to make sure there is no rise in lending at higher loan-to-income multiples.

The third step, or ‘defence line’, announced by the Bank of England is to stress test lenders, ensuring that they hold enough capital to deal with any potential losses that could occur.

Mr Brazier mentioned this in his speech, saying: ‘To make sure this defence line is kept robust in the face of rapid consumer credit growth, we are accelerating this year’s test of banks’ consumer credit loans. By September we will have assessed whether the rapid growth has created any small gap in the line. If it has, we’ll plug it.’

He also picked out car loans for a special mention, highlighting the fact that almost 80 per cent of all new car purchases are made through Personal Contract Purchase (PCP) schemes. He felt that these schemes could be dangerous to the lender if used car prices fell. He said: ‘The finance company is left with a car that has depreciated by more than they’ve been paid.’

Mr Brazier did however feel, that the measures put into place may already be having an effect, as consumer is showing signs of slowing and new car registrations are falling.

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