A DROP in unsecured lending to UK households suggests lenders have taken heed of the Bank of England’s warning on ballooning consumer credit.
The central bank’s latest credit conditions survey reveals the availability of unsecured lending fell in the third quarter and banks are expecting a further “significant” decrease in the fourth quarter.
In June, Bank of England Governor Mark Carney expressed concerns about the boom in consumer credit, which increased by 10.3 per cent in the year to April 2017 – markedly faster than nominal household income growth.
The survey shows unsecured lending availability is now falling at its fastest rate since 2009.
Meanwhile, the net balance of lenders’ expectations for unsecured lending availability for the next three months fell to -28.6 per cent from -16.2 per cent, the sharpest contraction since the fourth quarter of 2008.
Banks tightened their credit scoring criteria for non-mortgage loans and the proportion of applications being approved also fell.
But the report also reveals default rates on unsecured lending rose significantly in the third quarter, suggesting some households are struggling.
This follows figures from the Office for National Statistics showing households in Britain have seen their spending power fall for four consecutive quarters and have a worsening perception of their own financial situation.
Read more: FCA chief outlines consumer credit concerns
Default rates on loans to businesses remained unchanged in the third quarter.
The availability of secured credit increased slightly, predominantly for borrowers with loan-to-value ratios of 75 per cent or less.
Lenders said they expect secured credit availability to remain unchanged over the next three months.
Separate research by trade association UK Finance shows lending for house purchases was higher in August 2017 than in both the preceding month and a year earlier.
First-time buyers borrowed £5.7bn, 12 per cent more than a year ago; home movers borrowed £8.4bn, up 20 per cent; and remortgaging totalled £6.4bn, eight per cent up on a year ago.