The continued rise in personal loans could be a danger to the UK economy, according to an official at the Bank of England (BoE).
Speaking at the University of Liverpool on Monday, Alex Brazier, the BoE’s financial stability director, warned that high street banks failed to recognise the threat increasing consumer debt caused.
Brazier said that the levels of outstanding car loans, credit card balance transfers, and personal loans increased by 10% over the past year, and household incomes had risen just 1.5% over the same period.
Brazier said the levels of increasing debt were “dangerous to borrowers, lenders and, most importantly from our perspective, everyone else in the country.”
The warning came weeks after the BoE warned about rising debt in its ‘Financial Stability Report for June 2017’. The BoE Financial Policy Committee warned that increases in consumer credit such as motor finance must be watched closely.
Soon after, MPs and debt charities called on motor finance lenders to reveal how much of their lending is subprime, following weeks of press attention, and admissions from the Financial Conduct Authority that advice was being sought from American regulators.
Brazier added: “Lending standards can go from responsible to reckless very quickly. The sorry fact is that lenders think the risks they – and the wider economy face – are actually growing.”
Increased capital tests
Brazier said that the BoE would bring forward plans announced in June to order banks to hold more capital. He suggested that the BoE may ask lenders to raise their capital buffers higher than the £5.7bn over six months and £11.4bn over 18 months initially suggested.
He said: “By September, we will have assessed whether the rapid growth has created any small gap in the line. If it has, we’ll plug it”.