Monday, October 16, 2017

The debts get worse

Recent Bank of England figures show that consumer debt, excluding mortgages, now totals over £200bn and is approaching levels not seen since the financial crisis. The increase in what is known as "unsecured lending" on credit cards, car loan schemes, personal loans and overdrafts is running at 10% a year. People are also saving less as ultra low-interest rates offer no returns and eat into the value of savings.

In an interview with the BBC, Andrew Bailey, the chief executive of the Financial Conduct Authority has warned of a "pronounced" build up of debt among young people.

"We should not think this is reckless borrowing, this is directed at essential living costs. It is not credit in the classic sense, it is about the affordability of basic living in many cases. There has been a clear shift in the generational pattern of wealth and income, and that translates into a greater indebtedness at a younger age. That reflects lower levels of real income, lower levels of asset ownership. There are quite different generational experiences," he said. The high price of renting and lack of income growth meant that more people had to use credit to make ends meet.

He also said he "did not like" some high-cost lending schemes. He explained consumers, and institutions that lend to them, should be aware that interest rates may rise in the future and that credit should be "affordable".

He said action was being taken to curb long-term credit card debt and high-cost pay-day loans. The regulator added he is also looking and charges in the rent-to-own sector which can leave people paying high levels of interest for buying white goods such as washing machines.

High levels of consumer debt was not a crisis "in the macro-economic sense", it did matter to struggling individuals whose stories he had listened to during visits to debt management charities.

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