In its Financial Stability Report, the Bank reported a 10% increase in consumer credit lending in the 12 months to April 2017. While this was slightly slower than in quarter four 2016, it was close to its fastest annual growth rate since 2005.
The increase came as the Prudential Regulatory Authority also warned consumer credit lenders against risky lending.
A poll on Mortgage Solutions shows brokers are split when it comes to worrying about consumer debts. Around a third said they had seen no change but a third said they have seen their clients accruing lots of small debts, such as credit and store cards, while a small number said they had noticed clients taking on large individual debts.
However, issues are not feeding through to county court judgments or insolvency solutions yet, and there has been no significant impact on credit reference agency scores so far, brokers said.
Mark Dyason, director of Edinburgh Mortgage Advice, said he has seen a change in customer comfort with debt. Following anxiety in the post-credit crunch years, it has been “creeping up” again.
“We have had a number of clients who are quite comfortable with large amounts on credit cards and we are asking if they have considered how long it’s going to take them to pay it off and if they have considered doing something with their mortgage,” he said.
Dyason is arranging a link with a debt adviser to refer business both ways. He said the opening up of the second charge market and significant downward pressure on fees means there are more options for customers seeking debt solutions.
In the long term: “As long as we remain in a low interest rate environment with relatively easy credit, people will continue to borrow as they see things as affordable. I have a concern that even a marginal increase in the interest rate will have a major effect on affordability. People need to think about whether their debt is affordable in the long-term.”
Dyason added that brokers have been subject to new rules on ensuring customers understand the impact of moving unsecured finance to secured loans. This, he said, can make brokers nervous and a clearer set of guidelines are needed.
However, he added borrowers are often unaware that defaulting on an unsecured debt may result in a charge on their property. “Shouldn’t we be making people aware the debt could become secured anyway?”
On the other hand, Ray Boulger, senior technical manager at John Charcol, said some of the government alarm is unnecessary and results from incorrect interpretation of the figures.
“Broadly speaking, I don’t think there’s any real change,” he said. “A lot of the increase is coming from car Personal Contract Purchases (PCPs) because of the discounts offered.”
While these are logged as an increase in credit: “In reality, a lot of customers will trade the car in and never pay the full amount back. The ‘real’ debt is significantly less.”
Boulger added that looking at monthly payments and affordability is more important. Loans that are on a fixed rate or consumers making minimum card payments will not be hit by changing interest rates in the immediate instance.