Unsecured consumer credit boom set to continue in first quarter
BOOMING demand for unsecured consumer loans is set to continue over the next three months, according to new Bank of England research, triggering calls for tighter lending standards to avoid “serious debt problems for the economy”.
The Bank’s Credit Conditions Survey for the fourth quarter of 2016 showed demand for unsecured lending increased in the final three months of last year and is expected to grow during the first quarter of 2017.
Credit scoring criteria for credit cards tightened in the last three months of last year, but loosened for other types of unsecured personal loans.
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“It looks inevitable that the fundamentals for consumers will progressively weaken over the coming months with inflation rising markedly due to the weakened pound and companies likely increasingly looking to hold down pay to limit their total costs,” said Howard Archer, chief UK and European economist for research firm IHS Global Insight.
“If the fundamentals for consumers do weaken as expected over the coming months, it is vital that banks adopt tight lending standards in granting unsecured consumer credits, or it risks causing serious debt problems for the economy.”
Consumer credit has risen dramatically in recent months, fuelled by low borrowing rates and poor wage growth.
Read more: Unsecured consumer credit hits all-time high
However, the business picture was more muted, with overall demand for corporate lending from small- and medium-sized businesses reported to have “decreased significantly”.
Demand among small firms fell to levels last seen in 2012, while expectations of borrowing in the next three months among this group also fell.
The report also showed a decline in demand from medium and larger businesses.
“This fuels concern that businesses will become increasingly cautious in their behaviour (especially investment) over the coming months due to heightened uncertainty as the UK’s Brexit process gets underway,” said Archer.
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There was a more positive picture for borrowing in the housing market. The availability of secured credit to households remained flat, but is expected to increase slightly in the first quarter of 2017.
Lenders said demand for prime lending increased slightly, while buy-to-let and remortgage lending increased significantly in the last quarter. Looking to the next three months, respondents anticipated demand to be flat overall but anticipated a fall in buy-to-let.