UK Consumer Credit Rises To Its Highest Level Since 2008

August 1, 2017 by Cameron Bishop

Consumer credit in the form of loans, credit cards and overdrafts has hit £200 billion for the first time in the United Kingdom (UK) since the 2008 financial crisis. Data published by the Bank of England (BoE) shows that unsecured consumer credit has grown by 10 percent this year, for THE period up to June reaching it’s highest since December 2008 when it was at just above £200 billion.

UK regulator Financial Conduct Authority (FCA) has said that it is in the process of initiating a crackdown on the huge costs associated with overdrafts and also a review into the car loans market which has been on an upswing. Credit ratings agency Moody’s also warned earlier this week that the rising household debt in the country was a cause for concern as some borrowers might struggle to make payments due to increasing inflation and overall slowing of the economy.

Policymakers and charities are worried that with households struggling due to the rising cost of living, they might turn towards loans even more to meet their expenses, thereby increasing risks. They have also highlighted that banks were once again adopting an easy credit policy.

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The FCA’s report comes in the aftermath of an announcement by the BoE that it would be reviewing the banks’ books on consumer credit to understand exposure. In a recent report, the FCA noted that one in six people having debt on credit cards, personal lending and car loans were facing financial distress. These were more likely to be younger, unemployed, have children and be less educated than others.

Ruth Gregory, UK economist at consultancy Capital Economics, pointed out that consumer credit was still growing by 10 percent year on year which indicated that households were still comfortable to take loans to meet consumption demands, despite real wages coming under pressure from inflation.

According to research by the consumer group Which? the cost of borrowing £100 using an unauthorized overdraft for 28 days from some banks was close to £90. This cost is almost four times higher than the maximum charges permitted on payday loans.

FCA chief executive, Andrew Bailey said that the costs for the overdraft facility would be rationalized. The regulator earlier implemented a new set of rules aimed at curbing rates charged by payday lenders. The FCA’s restrictions on payday lending has helped according to experts.

Money Advice Trust, the operator of the National Debtline has said that the payday regulations has resulted in lesser loans being issued to those struggling with debt, thereby reducing default. The non-profit welcomed the FCA’s decision to tackle other forms of high-cost credit.