Recently released Bank of England figures show that a surge in loans for new cars was the main reason for a big increase in household lending. A loan for a car is secured against the vehicle you are buying so is classed as a secured loan, as opposed to an unsecured loan which is not. Secured lending is thought of as less risky because the lender at least has the security of knowing if you fail to meet repayments then they can remove the goods. The Banks Quarterly Credit Conditions Survey also confirmed an 8.3% rise in unsecured loans, such as personal loans and credit cards in November 2015. The Bank said it seems that people are finding it easier to obtain loans, as lenders have adapted their credit scoring systems to make it easier for more people to borrow.
Indeed car sales are now at an all-time high in Britain, thanks largely to competitive low-interest finance deals which are more affordable. A total of 2.63m new cars were sold in 2015, an increase of 6.3% on 2014 and a further increase on the previous record of 2.58m, set in 2003.
However, the survey data released by the bank has also led to some fears that British households are racking up uncontrollable amounts of debt, as consumer borrowing is now at the level it was pre the financial crisis. Bank of England governor Mark Carney disagreed with these fears stating that “this is not a debt-fuelled recovery”, pointing out that private sector debt has fallen to around 130%-140% of GDP over recent years, from more than 200% in 2008.
Indeed the Credit Conditions Survey suggests that this lending spree is because profit margins on loans are high, irrespective of low interest rates that favour potential borrowers. The Bank stated further that “spreads” on unsecured lending “widened significantly” in the last quarter of 2015. With a significant decrease in the number of customers failing to meet repayments on time or defaulting, lenders profits are looking healthy.
Mortgage lending is running at more of a slow pace, the Bank confirmed, with most of the growth down to buy-to-let landlords. The Bank put lenders on alert in December 2015 as it was concerned about the expansion of buy-to-let landlords, which make banks more vulnerable to property market fluctuations. “Demand for buy-to-let lending increased significantly in Q4, while demand for prime lending fell slightly,” said the Bank. But also added that following a number of significant tax changes, buy-to- let is likely to slow down during 2016.
The Bank stated further that “In recent discussions, most major UK lenders noted that growth in buy-to-let house purchase activity could slow in 2016. Lenders also commented that some buy-to-let activity could be brought forward to the first quarter of 2016, before the changes announced in the 2015 autumn statement take effect.”
Smaller companies are still struggling to access improved credit conditions, according to the Banks data, lending to the corporate sector has increased with annual growth at 2.1% as of November 2015, but big companies find it easier to access finance. “While the improvement in credit conditions has been apparent across all business sizes, smaller SMEs appear to have experienced a more gradual improvement than larger companies.”