Consumer Borrowing Continues to Grow

A survey conducted by the Bank of England has shown that towards the end of 2015, individual consumer borrowing levels grew, with the bulk of the increase coming from the issuing of car loans.

According to Bank ‘s latest quarterly credit conditions survey, unsecured borrowing went up by 8.3% in the year to November, with a surge in car loans driving much of the growth.

Over the course of 2015, 2.63 million new cars were purchased, setting a new record and beating the previous highest figure (set back in 2003) by 0.5 million.

The growth in the year to November is the highest we ‘ve seen in the UK since February of 2006 and has prompted concerns about lending standards and potentially dangerous loosening of eligibility criteria.

In terms of cash value, borrowing in November was up by £1.5 billion compared to October; £0.3 billion higher than the average for the previous six months. This has brought the total amount of outstanding consumer credit up to around £178 billion.

Of this, £1.1 billion was accounted for by overdrafts and personal loans, with the rest from credit card debt.

In recent times, eligibility criteria for mortgages have become ever more stringent, while personal loans have been getting easier and easier to get hold of as competition ramps up in the sector. What this means is that a decent portion of those who would be looking to remortgage to release some equity have been turning to unsecured borrowing instead in their attempts to raise cash quickly.

Howard Archer of HIS Global Insight said: “The pick-up in unsecured consumer credit to a near eight-year high in November follows on from data from the Office for National Statistics showing that the household savings ration dipped to 4.4% in the third quarter of 2015, which was the equal lowest rate since 1963.

“This will fuel concern that consumers are borrowing more and saving less to finance their spending, which is likely a consequence of relatively high consumer confidence and extended low interest rates.”

Nicolas Frankcom from uSwitch was quick to warn about potential short-sightedness of large scale consumer borrowing. He said: “with borrowing at an all-time-high, it ‘s critical that consumers don ‘t bury their head in the sand and ignore their debt, the long-term impact of falling behind on repayments cannot be underestimated.”

Mark Carney was quick to talk down worries that this all amounts to signs that we are experiencing a purely debt-fuelled economic recovery, explaining that while in raw terms, consumer credit has been rising, the number of people unable to cope with their debt and defaulting has gone down.

Mortgage lending has gone up, but growth is slowing, and the bulk of the lending is going to landlords at the moment, with residential mortgage lending rates not growing by nearly as much and in fact falling at the top end of the market.

The Bank released a statement saying: “Demand for buy-let lending increased significantly in Q4, while demand for prime lending fell slightly.”

Mortgage lending as a whole went up in November by £1.9 billion.

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