Unsecured household debt in Britain, which includes credit cards, overdrafts and car loans, recently topped £200bn for the first time since the credit crunch hit, according to the Money Advice Service. It has also prompted warnings from the Financial Conduct Authority.
Paul McGerrigan, chief executive officer of Loan.co.uk believes specialist lending can help borrowers to create a plan to reduce the debt.
“The unfortunate reality is there is too much personal household debt in the UK,” he says. “Rate rises put increased strain on households and I believe customers need to try to reduce their debt to protect themselves from further rate hikes,” he said.
“It is the responsibility of the financial professionals in the UK to help their customers with this process. In order to reduce debt, customers need a plan. A longer term plan that involves commitment and control in their financial behaviour.
“While not utilised by all, the fact is that a second mortgage can play a role in this planning for some customers – when recommended responsibly. Credit card debt is very often serviced but not paid off and this means customers are not reducing their debt. Any plan that allows a customer to reduce their long term debt should be considered and therefore any product that can help in this process should be utilised when needed,” he added.
McGerrigan says the impact of the first rate rise in 10 years will be “psychological as much as actual”.
“The risk and finance functions in many of the high street lenders will have an extra look at their policies and procedures,” he says. “All of the stress testing that has been done will be redone just to make sure and as a result there may be a slight tightening of underwriting in this part of the market.
“This behaviour means that specialist lending which prices in more risk (or at least should be pricing in more risk after the lessons of 2008) may have more opportunity. The rates within specialist lending will see an increase also but specialist lenders have more appetite for risk and indeed their models are based on taking more risk so they will therefore be slightly less concerned than their high street counterparts,” he concluded.