Joint research published yesterday by the Bank of England blog (BoE) and The Financial Conduct Authority (FCA) shows that the rapid growth in consumer lending has been driven by those with good credit scores.
Unsecured loans grew rapidly in 2016/2017 amid concerns that lenders had underestimated their borrowers’ risk. Indeed the BoE even ensuring an extra 10billion of capital was held by lenders, However the research shows that two-thirds of lending as of November 2016 was held by those with good to high credit scores within the top 30%. Thus confirming that the UK lending market seems to be getting it right, with equal risk between prime and subprime lending which overall is good news for the consumer when applying for that unsecured loan, even with a not so good credit score.
Researchers confirmed that; “Given motor finance and 0% credit cards have accounted for a majority of consumer credit growth since 2012, this suggests much of the growth is going to the borrowers least likely to suffer financial distress, and this story is consistent with high-cost credit markets used by subprime borrowers not rapidly expanding – on the contrary, some are contracting.”
The data relied upon for the research does pre-date the most recent borrowing rise by UK households, but the BoE latest financial stability assessment in November 2017 confirmed that “pockets of risk” existed, but there was no overall consumer lending bubble.
There were signs, however, that individual borrowers were generally staying in debt for longer as they shifted debt between different products and services. 89% of people that had an unsecured loan in November 2016 had held them for at least two years, and this included credit card and car finance as well, as borrowers’ switched between products. Tighter rules on mortgage lending had not led to any mortgage borrowers seeking extra unsecured credit to compensate.
Whilst the research was published on the FCA’s main website and a BoE blog which publicises staff research it is not necessarily a representation of the bank’s official view.