You are here: Home - Specialist Lending - Bridging -

Is credit card debt a bomb waiting to explode? – Benson Hersch

by: Benson Hersch, chief executive, Association of Short Term Lenders
  • 27/04/2017
  • 0
The growing issue of public debt was highlighted in the recent Budget speech, but the problem of private debt and especially credit card debt, has finally caught the attention of the authorities.

Benson Hersch, Association of Short Term LendersThe problem has been exacerbated by the steady erosion of standards. In 2012, the average minimum income needed to get a credit card was circa £18,300. This dropped to around £10,300 in 2016 and £8,500 in 2017.

The credit card market is worth around £68bn and is a lucrative source of income for banks. Lloyds Bank plans to buy credit card firm MBNA from Bank of America for £1.9bn. This would increase their share of the UK credit card market from about 15% to 26%, and make them level with Barclaycard, which has 27% of the market. The proposed purchase is being considered by the Competition and Markets Authority.

The Financial Conduct Authority (FCA) has proposed new rules for credit card firms to help an estimated 3.3 million customers who are in “persistent debt”. Rules include firms prompting customers to make faster repayments if they can afford to, proposing a repayment plan and suspending card use. Where options are unaffordable, firms may have to waive, reduce or cancel interest and charges. In addition, firms will need to intervene earlier in response to signs that customers are in financial difficulty.

Kelly Tolhurst MP, supported by the Children’s Society and the StepChange Debt Charity, is proposing a “Breathing Space scheme”. The Treasury Minister responded by saying: “We have been carefully exploring whether we could introduce a Breathing Space scheme…we entirely support …better debt management and lower problem debt.”

How does this affect the short-term secured lending industry in particular? Much of the recent increase in consumer spending has been funded by credit card debt. Any restriction in credit availability will cut back on this, slowing down or even reversing recent progress. Banks will react by cutting back on lending.

Underwriters in the short-term secured lending industry will need to look at customers’ credit card debt more closely, especially where minimum payments are being made. They will need to assess whether future restrictions will result in contraction of the refinance market and thus impact on exit strategies. There is no doubt that the breathing space concept may be extended to the mortgage sector.

As recently quoted in The Times:“Banks may wince at the initial hit to their bottom line from the FCA’s moves, but avoiding regulatory action down the line, and the consequences of dealing with a burst credit card bubble, will probably be seen as a price worth paying”.

There are 0 Comment(s)

You may also be interested in

Bridging

Keep up-to-date with all the breaking bridging and short-term lending news and analysis, from regulatory changes to product innovation and inside market knowledge. Take a look at our broker and lender case studies showing short-term finance in practice.

Commercial

Find all the news, opinion and analysis for property finance brokers specialising in commercial and semi-commercial mortgages, alternative and development finance for commercial investments in residential projects.

Second charge

Stay up-to-date with the latest news, analysis and opinion on the secured loan market as it evolves into a mainstream finance option following European regulation on 21 March 2016.

Complex buy-to-let

Whether it’s a complicated asset or a complex customer, you’ll find out all the breaking buy-to-let news in this section. From limited companies to portfolio landlords, student lets to a House in Multiple Occupation, we’ve got all bases covered with our up-to-the-minute news, analysis and opinion.

Mortgage Solutions

Find all the breaking news, analysis and industry comment on Specialist Lending Solutions' sister site, Mortgage Solutions
Read previous post:
house under construction
House building up 17% annually to hit 2007 high

The number of new homes being built has hit levels not seen since 2007, according to the National House Building...

Close