Personal Loans Are Outstripping Household Incomes

Bank of England warns banks that they are in ‘a spiral of complacency.’

Personal Debt

by Latifah Davis-Cole |
Published on

The Bank of England has told credit card companies, banks and car loan providers that they are at risk due to irresponsible lending. In the space of a year loans have increased by 10%. In comparison to household incomes that have risen by only 1.5% says the Bank’s financial stability director Alex Brazier.

The terms and conditions on loans have become increasingly easier and the regular advertised length of a 0% credit card balance transfers has doubled in comparison to loans of £10,000 that has fallen from 8% to 3.8%.

This has been the strongest warning yet about the possibility of their being another financial crisis. The last destroyed the economy 10 years ago. Alex Brazier said there were ‘classic signs’ of moneylenders believing that the risks were lower.

In a speech to the University of Liverpool’s Institute for Risk and Uncertainty he adds that debts were ‘dangerous to borrowers, lenders and, most importantly from our perspective, every else in the economy.’ And, that banks are at ‘a spiral of complacency,’ about the level of consumer debt.

Alex Brazier stressed his worries in car finance because Personal Contract Purchase plans fund 4 in 5 new car purchases. He adds, ‘The banks are involved, as well as the shareholders of car companies, will want to think carefully about the risks. The advent of PCP means – as the small print always says – the past may not be a good guide to the future.’

However, over the past couple of months, the Bank of England have taken precaution to protect banks and the economy from another financial crisis. Mortgage lending has also become stricter to protect and stop families from taking on too much debt.

Last month, the Bank of England told banks to set aside £11.4bn in the next 18 months just in case the economics crisis meant some borrowers could not keep up with their payments.

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This article originally appeared on The Debrief.

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