BANK’S STARK WARNING: Britain heading for crash if lenders don’t rein in credit binge
BRITAIN could be heading towards another credit-fuelled economic crash as households rack-up debt at an alarming rate, the Bank of England has warned.
By LANA CLEMENTS
Express.co.uk
Wed, Jun 28, 2017
Over the past 12 months families have binged on car finance and credit cards, according to policymakers who raised the alarm in the Bank’s financial stability report.
Bank of England Governor Mark Carney said lenders are now more vulnerable to risks from the rapid rise in consumer credit, amid fears of a replay of the 2007 financial crisis.
The Bank of England said: “As is often the case in a standard environment, there are pockets of risk that warrant vigilance.
“Consumer credit has increased rapidly.
“Lending conditions in the mortgage market are becoming easier.
“Lenders may be placing undue weight on the recent performance of loans in benign conditions.”
Lenders have now been ordered to increase their financial buffers by about £11billion to see them through another downturn, while borrowers will be subject to stricter repayment tests when applying for debt.
Credit stress tests for banks have also been brought forward, while the Bank pledged to support an industry watchdog investigation into consumer credit.
It comes as car finance having rocketed by around 15 per cent and credit card borrowing by almost 10 per cent – far higher than household income.
Buyers are now set for stricter borrowing tests when they apply for the mortgage, with lenders having to make sure that customers can manage repayments at a rate of around seven per cent.
The rise in credit has prompted concern that families have been encouraged to borrow by record low mortgage and credit card rates, but could struggle when interest rates start to rise.
Policymakers hope that clarifying lending rules will help prevent a banking crisis, like that seen in 2007, in the event of another economic downturn.
The Bank said lending rules “will promote consistency across lenders in their application of tests to assess whether new mortgage borrowers can afford repayments”.
