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UK lenders report large cut to availability of unsecured loans

UK lenders report large cut to availability of unsecured loans

October 12
20:19 2017

Lenders in the UK reported the biggest cut to the availability of unsecured loans since 2009 during the third quarter, a Bank of England survey released on Thursday showed.

Unsecured loans are not backed by collateral, and are generally seen by creditors as riskier than their secured counterparts. Respondents to the BoE survey said they had become more risk adverse and far more concerned about the economic outlook.

The net balance of lenders reporting higher availability of unsecured loans fell to minus 13 in the quarter, from minus 10.3 in the previous corresponding period. Negative readings mean lenders saw less availability than in the previous period.

Expectations for the fourth-quarter balance of unsecured loans also substantially worsened, falling to minus 28.6 from minus 16.2. It has not been so low since the depths of the global financial crisis in 2008.

Consumer lending in the UK has grown rapidly in recent years, attracting the attention of the central bank and regulators. This year, the BoE issued a warning about the sector, ordering banks to show that they were taking action to reduce the riskiness of the practice.

Economists have also been concerned that the UK’s consumption-driven growth is dependent on debt, because household spending has increased while real wages have fallen.

In a review of credit conditions published alongside the survey on Thursday, the BoE said there had been a decline in the volume of car dealership finance. The review also said the average period of interest-free balance transfers on credit cards had fallen by about three months to 40 months. Regulators have previously warned that car dealership finance and interest-free balance transfers are contributing to a build-up of risk.

The BoE noted annual growth in consumer credit lending had fallen slightly, to 9.8 per cent, in July and August — the first time since April of last year that annual growth in such lending had been less than 10 per cent.

“In recent discussions, some lenders also reported that they had slightly tightened their credit criteria for some products,” the BoE added. “Motivations for this included concerns about customer indebtedness and the squeeze in real incomes.”

While the availability of unsecured loans fell in the third quarter, secured mortgage finance made available by banks increased, focusing on more creditworthy borrowers. Lenders also reported that interest charged on mortgages had declined in the quarter.

“There has been strong competition and a desire to increase market share among lenders in the secured lending market,” the BoE said.

The survey, conducted from August 21 to September 8, is based on responses from Britain’s biggest banks and building societies, meaning it does not necessarily reflect actual industry conditions.

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