BANKS have been asked to set aside an extra £10billion to cover losses from people who can’t pay debts on car loans and credit cards.
This morning the Bank of England warned rising interest rates and high unemployment levels could mean one in five consumer credit loans might have to be written off.
The Bank’s Financial Policy Committee also said consumer credit losses could hit £30billion if Britain went into recession – £10billion more than previous estimates.
It fears a lending boom in credit cards and loans could really hit the financial industry.
The Bank of England has been concerned for some time now about double-digit growth in consumer credit but this is one of its strongest warnings yet.
Most economists expect the BoE to raise interest rates to 0.5 percent from 0.25 percent in November.
Alex Brazier, the BoE’s executive director for financial stability, said: “Lenders have been underestimating risks in consumer credit. Losses in (the) stress test scenario this year will be as big as in the financial crisis.”
Unsecured lending to British consumers is growing at nearly ten per cent a year, not far off an 11-year high of just under 11 per cent reached in late 2016.
How to get out of debt in 5 easy steps
MILLIONS rely on credit but there are ways to get rid of debt. We explain.
- Take your head out of the sand It can be extremely tempting to ignore those envelopes that land on the doormat but resist the urge to bury your head in the sand. Write down a list of all of your debts, together with the outstanding balances and repayment dates for each.
- Pay off urgent debts Take time to sort out how much money you owe and how much you having coming in. When you have more than one debt, you need to make sure you’re dealing with the most important ones first, such as your rent or mortgage payments, gas and electricity bills, or council tax.
- Cut your household bills Can you cut anything out, and are your bills as cheap as they can be? Identify any unnecessary expenditures that you could cut down to help reduce spending in the short term, such as your morning cappuccino, or any subscriptions that you’re not using.
- Make cash by selling unwanted items Either sell them on eBay (go for the ‘Buy it Now’ option as it’s new) or, if it’s big, try your local Facebook group as it’s free and you sell to people nearby who can come and pick the item up.
- Get help if you need it You don’t have to pay if you need help with debt. Get FREE advice from charities, such as StepChange, National Debtline and Citizens Advice.
British households have been squeezed by a sharp pick-up in inflation since the start of the year, which has eroded households’ incomes, and the BoE expects inflation to reach its highest in more than five years next month.
Shadow Chancelloe John McDonnell is due to call for a cap on credit card interest payments at his party’s annual conference later today, with no one paying more in interest than the original amount borrowed.
Policymakers also warned about the impact the Britain’s upcoming departure from the EU could have on the economy.