The rapid growth in motor finance the UK has experienced in recent years has not been driven by subprime customers, research by the Financial Conduct Authority (FCA) and analysed on the Bank of England’s (BoE) Bank Underground website has found.
The BoE said the FCA requested credit reference agency data for one in ten UK consumers, and examined this data to assess possible risks from the recent credit growth. This data goes back six years.
The BoE and FCA found that both motor finance and borrowing on credit cards with 0% offers was concentrated among people with the highest scores.
The blog noted that these two categories accounted for the majority of consumer credit growth since 2012, which it said “suggests much of the growth is going to the borrowers least likely to suffer financial distress.”
In contrast, people borrowing on interest-bearing (non-0%) credit cards more commonly have low scores. This was also the only product where they found there had been an increased concentration of subprime in recent years.
Looking at the historical distribution of borrowing, the bodies said they found little evidence that credit scores of borrowers had changed substantially over time.
The blog said: “At face value, this indicates that lenders have not dramatically relaxed their lending standards. But observing a similar credit score distribution when the macroeconomic environment has slightly improved may be better interpreted as a deterioration.”
Two other observations the BoE and FCA made were:
- People without mortgages have mainly driven credit growth;
- Consumers remain indebted for longer than product-level data implies.
Blog authors Benedict Guttman-Kenney, from the FCA sand Sagar Shah and Liam Kirwin, both from the BoE, said: “Credit growth not being disproportionately driven by subprime borrowers is reassuring. As is the lack of evidence that mortgage lending restrictions are pushing mortgagors towards taking on consumer credit.
“But vulnerabilities remain. Consumers remain indebted for longer than previously thought. And renters with squeezed finances may be an increasingly important (and vulnerable) driver of growth in consumer credit. The Financial Policy Committee and Prudential Regulation Authorityhave taken actions in this space.”