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| Rise in credit card default rate adds to concerns over household finances | Rise in credit card default rate adds to concerns over household finances |
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| Default rates ‘increased significantly’ between April and June, Bank of England says, adding it expects availability of credit to fall in coming months | |
| Angela Monaghan and | |
| Graeme Wearden | |
| Thu 13 Jul 2017 14.00 BST | |
| Last modified on Mon 27 Nov 2017 20.14 GMT | |
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| The number of people defaulting on their credit card bills and personal loans jumped in the three months to the end of June, according the Bank of England, underlining the pressure on household budgets as prices rise faster than wages. | The number of people defaulting on their credit card bills and personal loans jumped in the three months to the end of June, according the Bank of England, underlining the pressure on household budgets as prices rise faster than wages. |
| Default rates “increased significantly” between April and June, and lenders expect rates to increase further on credit card lending in the third quarter, the Bank said in its latest credit conditions survey. | Default rates “increased significantly” between April and June, and lenders expect rates to increase further on credit card lending in the third quarter, the Bank said in its latest credit conditions survey. |
| It comes as family finances are put under increasing strain by a sustained period of falling real pay, as inflation outpaces wage growth, shrinking disposable incomes. The sharp fall in the value of the pound since the Brexit vote a year ago has driven up the cost of goods imported from abroad and led to higher prices in the shops. | It comes as family finances are put under increasing strain by a sustained period of falling real pay, as inflation outpaces wage growth, shrinking disposable incomes. The sharp fall in the value of the pound since the Brexit vote a year ago has driven up the cost of goods imported from abroad and led to higher prices in the shops. |
| The survey also revealed that banks were planning to reduce credit availability this summer as lenders adopt a more cautious approach about approving new loans, reflecting caution over Britain’s economic prospects. | The survey also revealed that banks were planning to reduce credit availability this summer as lenders adopt a more cautious approach about approving new loans, reflecting caution over Britain’s economic prospects. |
| Lenders reported they would offer less “secured credit”, such as mortgages, over the next quarter. This will particularly affect people who only have a small deposit for their house. | Lenders reported they would offer less “secured credit”, such as mortgages, over the next quarter. This will particularly affect people who only have a small deposit for their house. |
| Howard Archer, the chief economic adviser to forecasting group EY Item Club, said it was crucial that banks acted responsibly at a time when consumer finances were stretched. | Howard Archer, the chief economic adviser to forecasting group EY Item Club, said it was crucial that banks acted responsibly at a time when consumer finances were stretched. |
| “The Bank of England will likely see the report as indicating that lenders are moving in the right direction in their lending to consumers, but that pressure must be maintained on banks to act responsibly especially given the weakened economic outlook and squeeze on consumers’ finances,” he said. | “The Bank of England will likely see the report as indicating that lenders are moving in the right direction in their lending to consumers, but that pressure must be maintained on banks to act responsibly especially given the weakened economic outlook and squeeze on consumers’ finances,” he said. |
| The Bank said: “The availability of secured credit to households was reported to have increased in the three months to mid-June 2017, driven by lenders’ market share objectives. But lenders expect availability to fall slightly over the next three months to mid-September, reflecting a changing appetite for risk. | The Bank said: “The availability of secured credit to households was reported to have increased in the three months to mid-June 2017, driven by lenders’ market share objectives. But lenders expect availability to fall slightly over the next three months to mid-September, reflecting a changing appetite for risk. |
| “Lenders expect that slight reduction in availability to affect only borrowers with loan-to-value ratios of more than 75%, and in particular those with a LTV ratio of more than 90%.” | “Lenders expect that slight reduction in availability to affect only borrowers with loan-to-value ratios of more than 75%, and in particular those with a LTV ratio of more than 90%.” |
| The Bank last month told banks they must hold more capital on their balance sheets to put them in a stronger position to deal with the potential fallout from a surge in consumer debt, which has been driven by higher levels of credit card borrowing, car finance and personal loans. | The Bank last month told banks they must hold more capital on their balance sheets to put them in a stronger position to deal with the potential fallout from a surge in consumer debt, which has been driven by higher levels of credit card borrowing, car finance and personal loans. |
| Archer said both banks and consumers needed to prepare for higher UK interest rates, which were last raised in July 2007 before the global financial crisis took hold. Rates are currently at an all-time low of 0.25%, but the debate has picked up in recent weeks about the appropriate timing of a rate hike. | Archer said both banks and consumers needed to prepare for higher UK interest rates, which were last raised in July 2007 before the global financial crisis took hold. Rates are currently at an all-time low of 0.25%, but the debate has picked up in recent weeks about the appropriate timing of a rate hike. |
| “Lenders and consumers both need to take on board the increased possibility that the Bank of England could shortly raise interest rates,” Archer said. “While any interest rate hike would be small with further increases some way off, even small increases could cause problems for many consumers given high borrowing levels.” | “Lenders and consumers both need to take on board the increased possibility that the Bank of England could shortly raise interest rates,” Archer said. “While any interest rate hike would be small with further increases some way off, even small increases could cause problems for many consumers given high borrowing levels.” |
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| Borrowing & debt | |
| Bank of England | |
| news | |
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