Banks crackdown on lending ahead of consumer debt crisis

Banks will crackdown on unsecured lending to households – amid concerns that the consumer debt crisis is spiralling out of control.

The Bank of England (BoE) warned the banks have already cut back on credit, such as personal loans and credit cards, between July and September and will continue to do so in the final three months of 2017.

It added that it expected to see unsecured lending fall sharply in the fourth quarter.

The credit scoring criteria – the measure banks use when deciding whether or not to lend to a consumer – is the tightest it’s been since 2010, experts say.

Understandably, the growth in the proportion of credit card applications being refused by banks hit an eight-year high, while the length of interest-free balance transfers on credit cards fell for the first time since the BOE began measuring the market at the start of 2015.

The BoE also recently ordered banks to set aside an additional £10 billion in capital to protect against an impending consumer loan crisis.

Confidence to lend against secured assets has not been deterred, however.

The mortgage market grew considerably in the third quarter, with most lenders still willing to lend against small deposits. A total of 34,000 first-time buyers borrowed £5.7 billion in August – a 16 per cent rise compared with July and up 12 per cent year-on-year.

Likewise, homemovers borrowed some £8.4 billion, up 18 per cent compared with the month previous and 20 per cent year-on-year.

June Deasy, head of mortgages policy at UK Finance, which published the mortgage figures, said: “Activity picked up in August, and recent resilience ensured that borrowing by home movers was at its highest since March 2016, when transactions were boosted by an imminent increase in stamp duty.

“Over the last 12 months, the number of people remortgaging has been higher than in any period since late 2009. With mortgage rates close to historic lows and the likelihood of a rise in official rates moving closer, the popularity of remortgaging looks set to continue.”